August 14, 2009

Industry Report

Think Greentech Reason for Report:

Takeaways From Call With Charles Gray, Executive Industry Update
Colin Rusch
Director Of NARUC
212-468-7015, crusch@thinkequity.com
THINK SUMMARY:
Yesterday, we hosted a conference call with Charles Gray, Executive Director
of The National Association of Regulatory Utility Commissioners (NARUC). Key
takeaways from Mr. Gray's thoughts included the following:
KEY POINTS:
• Despite currently stable prices and the potential for some portion of reduced
demand from the recession to be permanent, Mr. Gray forecasts significant
cost increases in electricity over the next decade.
• In Mr. Gray's opinion, the chance of Senate passage of a modified
Waxman-Markey bill in this Congress is less than 50%, and such a bill would
likely have to include Senate energy provisions on RPS, transmission, and
cyber-security.
• Mr. Gray believes that investments in renewables will not be affected
significantly if the federal RPS does not pass, given state-level portfolio
standards and programs.
• Mr. Gray identified the September timeline to complete NIST standards, the
stimulus bill funding, and state-level processes as the key drivers for smart
grid growth.
• Mr. Gray noted that many commissioners and consumer groups remain
skeptical of decoupling utility revenues from electricity sales volume.
• Mr. Gray identified planning, siting, and cost allocation as the three main
regulatory issues that federal legislation is currently attempting to address.
According to Mr. Gray, the Senate's actions, beginning in September, will
determine the course of transmission legislation.

Conclusion: While Mr. Gray's commentary indicated a relatively slow-moving

process for regulatory change in the electricity industry, his comments pointed
to strong long-term growth for renewables and progress on standard-setting
that will facilitate renewables penetration into the U.S. energy mix, in our view.
We continue to remain relatively cautious on the rationalization of the solar
industry but highlight the growing regulatory support and potential for
significant demand for survivors. In our coverage universe, we believe FSLR,
SPWRA/B, RSOL, and ENER are best-positioned to benefit from solar growth
in the United States.

Our full takeaways continue on page 2.

Please see analyst certification (Reg. AC) and other important disclosures on pages 4-7 of this report.
 August 14, 2009
Industry Report

Electricity Cost Drivers

• Despite currently stable prices, Mr. Gray forecasts significant cost increases in electricity over the next decade, driven by
the following factors: (1) routine investment in a cycle of new generating plants to meet load growth; (2) transmission
investment driven by state and federal policy; (3) investment in "smart" technologies in the grid infrastructure and behind
the meter; (4) upgrades to protect the grid against cyber-security attacks; (5) renewables growth driven by renewable
portfolio standards; and (6) carbon pricing.
• According to Mr. Gray, these cost drivers will increase the political, economic, and educational pressures on regulators.
State commissioners will face pressure from state legislators and consumer groups unhappy about rate increases. He
said that regulators will also need to develop new skills and modes of analysis to evaluate potential investments in areas
not in their traditional domain, such as cyber-security. Personnel capacity is a significant challenge here; like the utilities,
the commissions are experiencing a "graying" of the workforce and will need to develop new expertise. Funding in the
stimulus bill will help address this concern, in Mr. Gray's opinion.
• According to Mr. Gray, some portion of reduced demand for electricity as a result of the recession could be permanent,
creating uncertainty in forecasting future investment levels. Passage of climate legislation, however, would kick-start
significant investment in the near term, in his view.

Climate Legislation
• In Mr. Gray's view, the chance of Senate passage of a modified Waxman-Markey bill in this Congress is less than 50%,
and such a bill would likely have to include Senate energy provisions on RPS, transmission, and cyber-security. With
respect to the Copenhagen negotiations, Mr. Gray suggested that negotiators might have a stronger position with
Waxman-Markey having passed the House, rather than trying to push a bill through the Senate and have it fail.

Renewables
• Mr. Gray believes that investments in renewables will not be affected significantly if the federal RPS does not pass, given
state-level portfolio standards and programs. On the flip side, he suggested that if the RPS does pass, there will be
litigation and questions about compatibility of state and federal RPS, which could hinder development.
• Regarding potential conflicts between renewable energy development and environmental issues, Mr. Gray believes that
the Obama administration and Congressional leadership would ultimately side more with renewables given the strong
traction on the issue and the emphasis on "green jobs." However, he suggested that environmental and other parochial
concerns might push for the development of more localized renewable energy solutions, such as the push from several
Northeast governors to develop offshore wind rather than build long transmission networks to the Midwest.

Smart Grid
• Mr. Gray identified the September timeline to complete NIST standards, the stimulus bill funding, and state-level
processes as the key drivers for smart grid growth.
• Mr. Gray said that regulators were becoming increasingly concerned about the prudence of smart metering investments.
According to him, some regulators believe that investments in upstream network elements—substation and distribution
automation, for example—are more cost-effective at present. Furthermore, Mr. Gray said that regulators are concerned
about potential consumer blowback and opposition to time-differentiated pricing, and about the potential near-term
obsolescence of meter technology. He suggested that future developments will depend largely on how interoperability
standards are developed and on the experience of smart grid demonstration projects such as the Boulder, Colorado,
experiment.

Decoupling/Utility Restructuring
• Mr. Gray noted that many commissioners and consumer groups remain skeptical of decoupling utility revenues from
electricity sales volume. He said that the push for decoupling appears to be a high priority for some members of the
Obama Administration, as well as advocacy groups such as the Center for American Progress and the Natural Resources
Defense Council.
• Mr. Gray noted that earlier drafts of the stimulus bill would have required that states adopt decoupling and governors
certify the change, but this was opposed by the states. He thinks that some states would move to adopt decoupling in a
push for energy efficiency, and that passage of climate legislation would likely hasten adoption, but in the absence of
federal mandates, the decoupling process would take a long time. Similarly, he said that the climate bill has the potential
to expand FERC's authority into historically state-level filings such as energy efficiency, demand response, and
transmission siting, but that states would likely continue to resist this possibility.
• Mr. Gray cited several European countries that are transitioning to a services-based utility business model. He suggested
that deregulation could lead to a significant restructuring of the utility business model in the U.S., noting that Vermont has
created a separate utility for energy efficiency. He believes this is unlikely to materialize on a large scale in the near future,

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 August 14, 2009
Industry Report

but that passage of climate legislation could hasten the transition.

• On a similar note, Mr. Gray observed that many European nations are migrating toward "micro-grids" or smaller, more
self-sufficient power networks. He noted that the 2007 energy bill provided for studies on integrating combined heat and
power (CHP) into a more-modular network structure. However, he suggested that in some regions of the U.S., particularly
areas with low population density, there may be no substitute for high-tension transmission lines and transporting power
over long distances.

Transmission
• Mr. Gray identified planning, siting, and cost allocation as the three main regulatory issues that federal legislation is
currently attempting to address. He noted that the DOE is working to develop interconnection-wide planning regimes. He
expressed the view that transmission development will have long lead times even if FERC gains full siting authority, which
the states oppose. He also noted a recent decision by the Seventh Circuit Court of Appeals reversing FERC's finding that
the cost of high voltage systems should be socialized (as opposed to allocated on a beneficiary basis) and suggested that
Congress could provide FERC with a legal basis to make decisions about cost allocation.
• According to Mr. Gray, the Senate's actions, beginning in September, will determine the course of transmission legislation.
If the climate bill does not gain critical support, there is a potential to pass the Senate Energy Committee's legislation as a
stand-alone bill. Potentially, that bill could then enter conference with Waxman-Markey. However, Mr. Gray thinks that this
scenario is unlikely to result in passage of transmission legislation.
• Mr. Gray expressed his view that high costs would likely continue to make below-ground siting for transmission
impractical, and that further technology breakthroughs were needed. He also said that direct-current transmission lines
were being considered, but that technical challenges of integration with a regional AC system remained.

Valuation And Risks To Price Targets For Companies Under Coverage Mentioned In This Report
First Solar (FSLR): We rate the shares Accumulate with a $180 price target, based on 20x our 2010 EPS estimate of
$8.99. Risks: global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and increased
competition.
Energy Conversion Devices (ENER): We rate the shares Source of Funds with a $16 price target, based on our 1x Book
Value estimate. Risks: Global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and
increased competition.
Real Goods Solar (RSOL): We rate the shares Accumulate with a $3 price target, based on .8x EV/2010 revenue forecast.
Risks: Global macro risk, financing risk, corporate governance risk, credit risk, supply risk, customer risk, subsidy risk, and
increased competition.
SunPower (SPWRA, SPWRB): We rate the shares Source of Funds with a $23 price target, based on 18x our 2010 EPS
estimate of $1.29. Risks: Global macro risk, financing risk, customer concentration risk, subsidy risk, technology risk, and
increased competition.
RISKS:
See above.

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Industry Report

COMPANIES MENTIONED IN THIS REPORT:

Company Exchange Symbol Price Rating Price Target
Energy Conversion Devices, Inc. NASDAQ ENER $13.65 SoF $16.00
First Solar, Inc. NASDAQ FSLR $144.76 Acc $180.00
Real Goods Solar, Inc. NASDAQ RSOL $2.99 Acc $3.00
SunPower Corporation NASDAQ SPWRA $28.32 SoF $23.00
SunPower Corporation NASDAQ SPWRB $23.83 Acc $23.00

Important Research Disclosures

Analyst Certification
I, Colin Rusch, hereby certify that all of the views expressed in this research report accurately reflect my personal views about the subject
securities and issuers. I also certify that no part of my compensation was, is, or will be directly or indirectly related to the specific
recommendations or views expressed in this research report.

The analyst(s) responsible for preparing this report has/have received compensation based on various factors, including the firm's total
revenues, a portion of which is generated by investment banking activities.

ThinkEquity LLC makes a market in First Solar, Inc., Energy Conversion Devices, Inc., SunPower Corporation, SunPower Corporation,
and Real Goods Solar, Inc. securities; and/or associated persons may sell to or buy from customers on a principal basis.

Rating and Price Target History for: First Solar, Inc. (FSLR) as of 08-13-2009
12/27/06 02/05/07 02/14/07 04/02/07 05/04/07 07/03/07 07/17/07 11/09/07 05/01/08 07/31/08 10/30/08
I:B:$35.00 B:$38.00 B:$50.00 B:$68.00 B:$80.00 B:$115.00 B:$145.00 B:$310.00 A:$340.00 B:$350.00 B:$175.00
320

240

160

80

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

12/12/08 02/25/09 05/29/09 07/08/09 07/31/09

SoF:$105.00 S:$60.00 A:$188.00 B:$180.00 A:$180.00

Created by BlueMatrix

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Industry Report

Rating and Price Target History for: Energy Conversion Devices, Inc. (ENER) as of 08-13-2009
05/29/09
I:SoF:$16.00
100

80

60

40

20

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

Created by BlueMatrix

Rating and Price Target History for: SunPower Corporation (SPWRA) as of 08-13-2009
04/02/07 04/27/07 07/18/07 10/19/07 11/12/07 09/16/08 01/28/09 05/29/09 07/08/09 07/24/09
B:$60.00 B:$70.00 B:$85.00 B:$120.00 B:$155.00 B:$89.00 A:$35.00 SoF:$24.00 SoF:$21.00 SoF:$23.00
160

120

80

40

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

Created by BlueMatrix

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 August 14, 2009
Industry Report

Rating and Price Target History for: SunPower Corporation (SPWRB) as of 08-13-2009
01/30/09 05/29/09 07/08/09 07/24/09
I:B:$35.00 SoF:$24.00 SoF:$21.00 A:$23.00
100

80

60

40

20

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

Created by BlueMatrix

Rating and Price Target History for: Real Goods Solar, Inc. (RSOL) as of 08-13-2009
06/18/08 11/05/08 05/29/09
I:B:$10.00 B:$7.50 A:$3.00
10

0
Q3 Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2
2007 2008 2009

Created by BlueMatrix

Rating Definitions
The ThinkEquity LLC rating system is based on a stock's expected total return over a 12-month investment horizon. Ratings on coverage
are defined as follows:

Buy: Appreciation potential of 20% or more over the next 12 months. Analyst has a high level of conviction that the company's business
fundamentals are intact and that the company will meet or exceed earnings projections. Valuation is considered reasonable considering
the company's potential.
Accumulate: Appreciation potential greater than 0% and less than 20% over the next 12 months. Typically good companies, with
fundamentals and earnings visibility intact, but current valuation limits upside potential.

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Industry Report

Source of Funds: Stock is expected to decline as much as 20% over the next 12 months, due to a single or combination of factors
including excessive valuation, negative sector sentiment, and/ or reduced earnings expectations.
Sell: Stock expected to decline 20% or more over the next 12 months. Company fundamentals are deteriorating, leading to material
downward revisions in earnings projections and valuation.

Distribution of Ratings, Firmwide

ThinkEquity LLC

IB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY [B] 103 50.70 13 12.62
HOLD [Acc] 77 37.90 5 6.49
SELL [S/SoF] 23 11.40 0 0.00

This report does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The
information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. The
opinions expressed reflect our judgment at this time and are subject to change without notice and may or may not be updated. Past
performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or
implied, is made regarding future performance. This notice shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall
there be any sale of these securities in any state in which said offer, solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such state. This research report was originally prepared and distributed to institutional clients
of ThinkEquity LLC. Recipients who are not market professionals or institutional clients of ThinkEquity LLC should seek the advice of their
personal financial advisors before making any investment decisions based on this report. Additional information on the securities
referenced is available upon request. In the event that this is a compendium report (covers more than six ThinkEquity LLC-covered
subject companies), ThinkEquity LLC may choose to provide specific disclosures for the subject companies by reference. For more
information regarding these disclosures, please send a request to: Director of Research, ThinkEquity LLC, 600 Montgomery Street, San
Francisco, California, 94111. Stocks mentioned in this report are not covered by ThinkEquity LLC unless otherwise mentioned. Member of
the FINRA and SIPC. Copyright 2009 ThinkEquity LLC, A Panmure Gordon Company

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