The Investment Case for Solar

Tracking index for Guggenheim Solar ETF (NYSE ARCA: TAN)

www.MACsolarindex.com

Long-Term Bullish Factors for Solar Sector

• Room for double-digit growth for decades; world needs $4 trillion of new electricity generation through 2030; solar is only 0.3% of U.S. electricity generation now.

• Industry has matured after shake-out; survivors are established with best technology and scale; margins are recovering; supply now better matched to demand.

• Solar panel demand has persistently surprised to the upside

• Solar costs are falling due to improved technology and lower system/installation costs; grid parity is being reached in a progressively larger number of markets. Lower solar cost means increased demand, bigger target market, more unit sales, more profit.

Solar – Long-term Solution for Sustainable Electricity

Advantages

• Clean & safe electricity solution; unlike nuclear, coal, natural gas

• Distributed Generation – avoid grid and utility price increases

• Scalable – small or large; residential, commercial buildings, utility.

Disadvantages

• Day-Use Only – but matches peak electricity usage times; add battery backup

• Variable solar intensity – but still economical in northern climes

• Cost – Falling fast; grid parity in growing number of areas

Solar PV and Thermal could together become the world’s largest electricity source by 2050 (IEA)

Solar PV and Solar Thermal Energy (STE) could together grow from current level of less than 1% to 26% of global energy share by 2050, thus becoming the world’s largest source of electricity.

Source: International Energy Agency Technology Roadmaps for Solar Electricity (2014 Edition).

High Growth Industry: 44% Annual Growth Last 5 Years

Leaders: China, Japan, U.S. Take Over From Europe

Solar Installs are Diversifying Geographically

China Solar

Developments:

• Strong Chinese government support for solarto promote environment and to support top Chinese solar companies and jobs

• Government 2014 target is 13 GW

• Chinese installs driven by 14-16¢/kWh feed-in tariff (FIT) for utility solar and FIT for distributed generation.

• Government has solar company rationalization program to weed out weak players.

Japan Solar

Developments:

• Fukushima nuclear disaster (Mar-2011) prompted aggressive government pushfor solar

• Highest feed-in tariff in the world at35-40 ¢/kWh

• Japan on track for 10-12 GW of new solar installs in 2014 although some bottlenecks have recently emerged

Europe Solar

Developments:

• Germany still has world’s largest amount of installed solar

• European solar installs have declined due to reduced subsidy support

U.S. Solar

Developments:• Top PV states: CA, AZ, NJ, NV, CO

• Residential – gold rush for customers due to zero-down and favorable economics.

• Solar Securitization: SolarCity sold $54 million solar-lease-backed notes in Nov 13 at 4.8% with investment grade of BBB+.

• Easier financing and reduced capital costs (ABS, Yieldcos) reduces solar financing costs. Yieldcos: TerraForm Power (TERP), Abengoa Yield (ABY).

• Federal ITC falls to 10% in 2017 from current 30%, leading to 2014-16 install rush to capture 5 cent LCOE advantage; but Deutsche Bank still expects 36 states at grid parity in 2017 with 10% ITC.

Solar Pricing – Polysilicon Has Stabilized Above $20/kg

Solar Pricing – Modules Have Stabilized Near 70¢/watt

Solar Cell Costs Have Dropped 99% Since 1970s

Steady Percentage Solar Cell Price Decline Dueto Technology Advances and Scale Manufacturing

Solar Scientific Research Continues at Rapid Paceto Reduce Solar Costs and Increase Efficiency

Solar Pricing Dropped by Half in Past 3 Years to 12-14¢/kWh

Source: “Cost of Energy Technologies,”by World Energy Council & Bloomberg Energy Finance

Cost reductions shifting to balance of system costs, e.g., inverters, hardware, install, customer acquisition and financing costs.

Many PV Markets Now Below Grid Parity Without Subsidies

Source: “2014 Outlook: Let the Second Gold Rush Begin,” Deutsche Bank Solar Industry Update, 6-Jan-2014

Plus 10 U.S. states at grid parity (with subsidies) at 11-15 ¢/kWh: AZ, CA, CT, HI, NV, NH, NJ, NM, NY, VT.

Solar Shakeout Is Ending – Profit Margin Recovery

Solar Performance – Recovering After Shakeout

MAC Solar Index - Methodology

• Global solar energy index of qualified solar stocks listed on exchanges in developed countries.

• Passive index of qualified solar stocks – no stock picking.

• Modified market cap weighting.

• Liquidity minimums to add a stock: $150 million market cap and $2 million in average daily trading value.

• Exposure Factor 1.0 for pure-play solar stocks (solar revenue above 2/3); Exposure factor of 0.5 for medium-play stocks (1/3 to 2/3 solar revenue) (AEIS, Abengoa Yield, China Singyes, 5N Plus).

• Quarterly index review on third Friday of March, June, Sep, Dec.

Advantages of Index/ETF Over Individual Solar Stocks

• Own the global solar sector in one trade – reduced transaction costs

• Long track record – 6+ year history (launched in April 2008)

• Dynamic Portfolio – add solar growth stocks and drop losers

• Diversification – across geography, technology, value chain

Diversification Across Value Chain

Manufacturer/Project Developer

First SolarSunEdisonCanadian SolarYingli Green Energy Trina SolarSunpowerHanergy Solar GroupJinkoSolarJA Solar HoldingsShunfeng PhotovoltaicChina Singyes Solar RenesolaHanwha SolarOneComtec Solar Systems

Installer/Project Developer

SolarcityVivent Solar

PolysiliconGCL-Poly Energy HoldingsREC SiliconDaqo New Energy

Thin Film Materials5N Plus

Capital EquipmentMeyer Burger Technology

Solar Panel ComponentsXinyi Solar Holdings

InvertersSMA Solar Technology

Advanced Energy IndustriesEnphase Energy

YieldCosTerraForm PowerAbengoa Yield

Diversification Across Geography

By Company Headquarters:• China: 14 companies• North America: 8 companies• Europe: 5 companies

By Stock Listing:• North America: 17 companies• Hong Kong: 6 companies• Europe: 4 companies

For More Information

• Solar Sector Research at:www.macsolarindex.com

• List of solar information sources at:www.macsolarindex.com/resources