Deutsche Bank Report on Vivent Solar

Deutsche Bank Research   Markets   Rating Company Buy Vivint Solar North America Date       United States Industrials Reuters VSLR.N Bloomberg VSLR US 26 October 2014 Initiation of Coverage Price at 23 Oct 2014 Exchange Ticker NYS VSLR 13.07 Price target Clean Technology 20.00 52-week range 16.01 - 10.47             Initiating Coverage with a BUY Vishal Shah   Research Analyst (+1) 212 250-0028 [email protected] Initiating Coverage with BUY rating, $20 PT VSLR is one of the top residential solar installers in the country and is poised to benefit from accelerating growth of retail customers switching to solar as an increasing number of states reach grid parity across the US. We expect the EQORCP[oU FKHHGTGPVKCVGF UCNGU OQFGN CPF HNGZKDNG UWRRN[ EJCKP YKNN GPCDNG ;Q; ITQYVJ QH KPUVCNNCVKQPU VJTQWIJ 8KXKPVoU FQQT-to-door sales model should enable lower customer acquisition costs and we expect the introduction of additional innovative financing structures to act as catalysts to help lower the cost of capital and drive additional growth. Asset Light, Differentiated Sales Model Vivint differentiates itself from peers through differentiated sales model, 1020% lower customer acquisition costs, and asset-light sourcing strategy. The company is well positioned to continue gaining share as industry consolidation continues into 2017+, and remains technology agnostic with no manufacturing base existing or planned. Door to door sales techniques help the company efficiently utilize resources to install efficiently, generate leads, and achieve high penetration rates in targeted neighborhoods. Robust Expansion Opportunities VSLR currently operates in only 7 states vU 5%6;oU ` EWTTGPVN[ CPF JCU PQV yet participated in the asset backed security market, yieldco, or retail loan markets for additional financing mechanisms. We believe the company will likely announce additional strategic financing initiatives and channel partners   over the next several quarters which should act as positive catalysts for shares. Additionally, further expansion into extra states should drive TAM expansion, MW deployment, and potential retained value expansion. Furthermore, the company is exploring options in the commercial business and we do not believe VSLR will experience demand constraints for the foreseeable future.   Jerimiah Booream-Phelps Research Associate (+1) 212 250-3037 [email protected]   Price/price relative 17 15 14 12 11 9 10/14 Vivint Solar S&P 500 INDEX (Rebased)   Performance (%) Absolute S&P 500 INDEX 1m 3m s s 12m s -1.6 -1.8 11.7 Source: Deutsche Bank   Valuation/Risks We use a sum of the parts valuation with an 18% discount rate to value current and future leasing business cash flows and arrive at our $20 PT. We apply a higher discount than SCTY due to smaller platform and younger business. Risks include: 1) Adverse regulatory shifts on the state or federal level which could impact net metering, or other solar incentives 2) Changes in input prices 3) Headline risk from increased scrutiny of large utilities and lawmakers; 4) Inability to acquire project financing at attractive rates. 5) Competitive dynamics from new entrants or large incumbents 6) Widespread Customer defaults or bookings cancellations Forecasts And Ratios Year End Dec 31 FY EPS (USD) Revenue (USDm) 2013A 0.07 6.2 2014E 0.15 25.1 2015E -0.40 66.4 2016E -1.32 139.2 Source: Deutsche Bank estimates, company data     ________________________________________________________________________________________________________________ Deutsche Bank Securities Inc. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.   26 October 2014   Clean Technology Vivint Solar   Vivint Solar Initiating Coverage We are initiating coverage on VSLR with a BUY rating, $20 target price target. We believe risk-reward is attractive and shares are not fully discounting the long term contracted cash flow potential of the company. Vivint solar is the second largest installer in the highest-margin residential segment, with a primary focus on power purchase agreements and leases. We believe more than 10 US states are currently at grid parity and nearly all 50 states would be at grid parity by 2016 timeframe. We expect VSLR's installations for solar customers to double in 2014 and believe growth could accelerate in the 2015/16 timeframe and will likely at least double each year. VSLR differentiates itself from competition by maintaining supplier flexibility, although strategically important acquisitions will be key to lowering cost of installs and driving base of installations higher. Declining system costs, customer acquisition costs, financing costs and rising volumes should drive significant scale benefits and operating leverage in the model. While competitive pressures, risks associated with assessment of the ITC, rising interest rates and potential utility surcharge could likely impact underlying business model economics, some of these concerns are largely discounted in valuation, in our view. 8KXKPV 5QNCToU WPKSWG DWUKPGUU OQFGN NQY EWUVomer acquisition costs, and relationship with Vivint, Inc should allow the company to continue gaining share in the residential market. Moreover, the company has considerable potential to improve financing structures and expand into asset backed securities, solar leases, yieldco, and retail bonds. We apply sum of parts discounted cash flow valuation framework to arrive at our base case $20 price target. For existing installed base of solar systems and new installations, we calculate the NPV of cashflows over 30 years in order to calculate leasing business value. Our assumptions include: an installed base of ~1.1 GW by 2016, current blended average PPA of ~14-15c/kwh decreasing to 13.8c/kWh by 2020 with 2.5% annual contract escalator. We use a 1% terminal growth rate after 2020 and assume an 18% discount rate. See our valuation section for a more in depth look at other assumptions in our valuation model. Downside Risks: 1) State level regulatory decisions and any adverse changes to net metering or electricity prices; 2) Changes in input prices (panels/labor/racking); 3) Headline risk from increased scrutiny of large utilities and lawmakers; 4) Inability to acquire project financing at attractive rates. 5) Competitive dynamics from new entrants or large incumbents   Page 2   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Investment Positives .CTIGUV 2WTG 2NC[ QP 4GUKFGPVKCN .GCUKPI 22#oU Unlike some of its peers, Vivint does not offer to serve as an installer only and it focuses all efforts on the residential segment (no commercial or utility. Residential is typicalN[ VJG JKIJGUV OCTIKP UGIOGPV CPF C HQEWU QP 22#oU enables the company to capture the greatest margin over the life of the contract. Relationship with Vivint, Inc. Vivint Solar was originally a subsidiary of Vivint, Inc. which is a home security company with over 825K customers. Using relatively conservative assumptions (25% eligible, 50% high FICO, 25-75% penetration of remaining customers) the company could have access to ~500+MW of installations at a relatively low customer acquisition cost. As financing innovations evolve and eligibility approves, we expect potential customer acquisitions from Vivint could prove to be notable higher than initial estimates. Differentiated Sales Model Vivint Solar built on the successful model of Vivint, Inc. and often uses door-todoor sales techniques to canvas entire neighborhoods, lowering customer acquisition costs and helping to facilitate high solar penetration rates in Vivintneighborhoods. While SolarCity and others have traditionally focused on cold calling, business-partners, and online platforms, Vivint has demonstrated that door to door sales can be a strong driver of sales with direct benefits to customer acquisition, installation, and salesforce efficiency. Figure 1: Competitive Landscape Vertically   Integrated  with   Channel  Partners Downstream   Integrated Downstream   Channel   Partnership Marketplace Installer Manufacturing ✓ Supply  Chain Supply  Chain Supply  Chain Supply  Chain Sales Channel  Partners ✓ Direct  &  Channel   Channel  Partners Partners ✓ Installation Channel  Partners ✓ Channel  Partners Channel  Partners ✓ Long-­‐term   System   Ownership ✓ ✓ ✓ Fund  Investors Owner/Investor Financing ✓ ✓ ✓ Channel  Partners Channel  Partners Billing,   Monitoring  &   Maintaining ✓ ✓ ✓ Channel  Partners Examples Sunpower Vivint  &  Solarcity Sunrun Clean  Power   Finance Veregno,  REC Source: Company Reports   Deutsche Bank Securities Inc.   Page 3 26 October 2014   Clean Technology Vivint Solar   Asset-Light While foregoing upstream investment in panel manufacturing could provide some long-VGTO WPEGTVCKPV[ HQT RCPGN UWRRN[ YG DGNKGXG 8KXKPVoU EWTTGPV flexible, relatively capital-light business model is preferable in an emergingindustry context. Beneficiary of ongoing industry consolidation The US solar installer market is still highly fragmented, and we expect this to shift dramatically over the next 3-5 years as the companies with the necessary scale to facilitate tax equity funds, asset backed securities, and economies of scale in a post-ITC environment. Figure 2: VSLR Market Share Trends Figure 3: The US Solar Market is highly fragmented 10.0% 9.0% 8.5% 8.8% 8.0% Vivint  Solar Market Share 7.0% 23.1% Verengo 6.3% 6.0% REC  Solar 5.0% 4.1% SunPower 4.3% 4.0% Sungevity 3.0% 7.4% 51.7% PeterseDean 2.2% 2.0% 1.0% SolarCity 5.9% Real  Goods  Solar 0.5% Q1 Q2 Q3 2012 Source: GTM Research 3.0% Astrum  Solar 0.0% Q4 Q1 Q2 Q3 Roof  Diagnostics 2013 1.2% 1.2% 2.0% 1.9% 1.7% 1.6% Source: GTM Research 0QVG * o FCVC 4GEGPV 4GUKFGPVKCN 'NGEVTKEKV[ 2TKEG 6TGPF 5WRRQTVU 22# 'UECNCVQTe Vivint PPA agreements include a ~2.9% escalator, which is not unreasonable considering starting PPA prices are often 15-30% below the utility price and the 10 year trailing CAGR for the average residential electricity price in the US has been ~3.1%. We have seen price increases slow over the last several years as marginal fuel costs (generally natural gas) have moderated, but believe the longer term trend should continue on an upward trajectory. Furthermore, Vivint tends to operate in high priced, high growth (for electricity price) environments.   Page 4   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 4: Average Retail Price of Electricity, 2012-2013 (cents/kwh) cents/kWh Census  Divisionand  State New England Connecticut Maine Massachusetts New Hampshire Rhode Island Vermont Middle Atlantic New Jersey New York Pennsylvania East North Central Illinois Indiana Michigan Ohio Wisconsin West North Central Iowa Kansas Minnesota Missouri Nebraska North Dakota South Dakota South Atlantic Delaware District of Columbia Florida Georgia Maryland North Carolina South Carolina Virginia West Virginia 2013 16.23 17.61 14.41 15.74 16.37 15.58 17.52 15.65 15.64 18.67 12.82 12.03 10.39 10.84 14.56 11.91 13.72 10.92 11.14 11.50 11.91 10.47 10.31 9.35 10.34 11.34 13.13 12.51 11.39 11.14 13.18 10.91 11.81 10.95 9.60 2012 15.74 17.38 14.72 14.91 16.12 14.40 17.29 15.31 15.77 17.62 12.83 12.04 11.48 10.46 14.10 11.67 13.30 10.51 10.85 11.09 11.37 9.97 9.98 9.22 10.04 11.36 13.64 12.28 11.55 10.89 12.87 10.85 11.62 11.14 9.89 YoY 3.1% 1.3% -2.1% 5.5% 1.5% 8.2% 1.3% 2.2% -0.8% 6.0% -0.1% -0.1% -9.5% 3.7% 3.3% 2.0% 3.2% 3.9% 2.7% 3.7% 4.7% 5.0% 3.3% 1.4% 3.0% -0.1% -3.8% 1.8% -1.4% 2.3% 2.4% 0.5% 1.6% -1.8% -2.9% cents/kWh Census  Divisionand  State East South Central Alabama Kentucky Mississippi Tennessee West South Central Arkansas Louisiana Oklahoma Texas Mountain Arizona Colorado Idaho Montana Nevada New Mexico Utah Wyoming Pacific Contiguous California Oregon Washington Pacific Noncontiguous Alaska Hawaii U.S. Total 2013 10.42 11.28 9.71 10.75 10.07 10.68 9.49 9.27 9.66 11.32 11.22 11.56 11.81 9.27 10.43 11.96 11.59 10.32 10.24 13.50 16.15 9.95 8.70 28.52 18.09 36.94 12.08 2012 10.25 11.29 9.34 10.23 10.06 10.35 9.27 8.39 9.48 11.08 10.83 11.10 11.33 8.49 10.15 11.94 11.31 9.86 9.93 13.07 15.48 9.88 8.56 28.84 17.90 37.29 11.88 YoY 1.6% -0.1% 3.9% 5.0% 0.1% 3.1% 2.4% 10.5% 1.9% 2.2% 3.6% 4.2% 4.2% 9.2% 2.8% 0.2% 2.5% 4.7% 3.2% 3.3% 4.3% 0.7% 1.5% -1.1% 1.1% -1.0% 1.7% =  Vivint  State Source: EIA Figure 5: Long Term Residential Electricity Prices in the US 13 15% Long  Term  CAGR of  Residential   Electricity  Prices  is  ~1.9%... ...but  trailing 10-­‐year CAGR  is  ~3.1% 12 10% 11 10 0% 9 Y/Y  Change Cents/kWh 5% -­‐5% 8 -­‐10% 7 6 -­‐15% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2012 2013 Residentail  Price Commercial  Price YoY  (Residential) YoY  (Commercial) 1990-­‐2013  CAGR Source: EIA, Deutsche Bank   Deutsche Bank Securities Inc.   Page 5 26 October 2014   Clean Technology Vivint Solar   Rapid Expansion and Options Vivint currently operates in less than half the number of states that its main competitor, SolarCity, does but has stated plans to increase breadth both in number of states and within current markets. In the LTM as of the end of 2Q, the company added 21 new sales offices (on top of 16 existing as of June 30, 2013) and plans to open 20 new offices during 2014. Additionally, the company is considering expansion into the commercial segment. Valuation is Compelling At current market cap of ~$1.4B, VSLR is less than 30% the size of Solarcity, despite a growth trajectory which we believe could grow at a faster rate over the next several years. Furthermore, company-reported retained value per watt is notably higher than SCTY and Vivint has multiple catalysts in the near future (financing options, potential acquisitions, new state expansion) and stands to add significant capacity over the next several years. Implied market ECR QH ` $ CV QWT RTKEG VCTIGV KU NGUU VJCP QH 5%6;oU KORNKGF market cap of ~$9B on our $90 price target, despite possibility to achieve 1/3 or more MW deployed in 2015 timeframe at a higher retained value and lower current opex per watt. Figure 6: VSLR Vs SCTY Retained  Value  ($/W) Nominal  Contract  Payments  Remaining  ($M) Ests  /  Guidance 2014  MW  Deployed %  Y/Y 2015  MW  Deployed %  Y/Y Metrics Opex/W Installation  Cost/W VSLR 2.39* SCTY 1.72* 648 3300 150** 500-­‐550 159% 88% 300** 900-­‐1000 100% 81% 0.64* NA 0.91* 2.29* *  2Q14,  **  DB  estimates Source: Deutsche Bank, Company Reports Concerns Net Metering is Necessary Before Batteries Are Economic Net energy metering, which allows a producer of solar power to sell unused power back to the grid, is key to the economics of solar until battery technology improves. Currently, 43 states and D.C. have implemented net metering policies although some are more favorable than others. However, several states - including Arizona, California, New Mexico, Idaho, Louisiana, Wisconsin s have discussed revisions to their net metering policies. Potential policy shifts such as lower compensation (for electricity sold to the grid) or fixed monthly charges would make solar less competitive if implemented. However, if low cost battery systems are developed and successfully   Page 6   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   implemented we view this to be less concerning. Longer term, Vivint would need to demonstrate high quality supply relationships with battery makers to offset concerns here, particularly because SCTY has a business relationship with Tesla. 2016 ITC Step Down Could Impact Current Financing Model 85.4oU EWTTGPV DWUKPGUU OQFGN WVKNK\GU UKIPKHKECPV COQWPVU QH VCZ equity financing which require extensive use of the federal ITCs and other State/Local incentives. We believe the ITC step-down from 30% to 10% after 2016 could RQUG C TKUM VQ VJG EQORCP[oU EWTTGPV UVTCVGI[ 9JKNG 5%6; JCU NCKF groundwork for other financing models, VSLR has yet to execute on ABS transactions or other financial innovations (crowdfunding, solar loan, yieldco, etc). Furthermore, the company will have to implement aggressive cost cutting/efficiency measures to maintain attractive system economics beyond 2016, which will require a notable scale increase, capital investment, and strategy shift for capital priorities. That said, we do believe that even in a post ITC environment, solar will be competitive in 40+ states within the US due to lower system and financing costs. Utility Rate Cases Across the Country Could Likely Affect Overall Economics Given the structure of rate cases in the United States in regulated electricity markets, VSLR could find itself at a disadvantage in the future for legacy PPA contracts with an escalator. In the event that the PPA rose faster than the utility rate over the medium to longer term, the company risks pricing itself out of the market for customers who choose to make the comparison. This is largely a theoretical risk and unlikely to happen for a decade or more given that the company generally prices initial contracts 15-30% below the utility rate. Utility rates have trended up over time but in the event that rates dropped in a given area while VSLRs escalators kicked in, this situation could take place. We view this as relatively unlikely on a large scale but the possibility exists. In that event, the company would likely renegotiate the contract. Figure 7: Sample PPA/Rate progression over 20 year contract 0.28 0.26 Even  assuming residential  electricity  rates  increase slower  than  recent  historical  levels... 0.24 $/Kwh 0.22 0.2 0.18 0.16 0.14 ...the  PPA price  does  not  overtake  the utility  rate   0.12 0.1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year of Contract Utility Rate (2.1% Escalator) PPA Rate (2.9% escalator) Source: Deutsche Bank Note: Assumes 20% starting discount to 18 cent starting utility pricet   Deutsche Bank Securities Inc.   Page 7 26 October 2014   Clean Technology Vivint Solar   Model Highly Sensitive to Interest Rates, PPA Prices, Treatment of DG by Utilities and ITC Monetization: While our base case valuation approach takes a conservative view towards all of the above factors, we expect headline risk and continued volatility from these 4 factors. We do not expect electricity prices to decrease in the near term, but even flattish prices in the near term could impact the longer term perception of electricity pricing and make it difficult for SCTY to negotiate customer contracts with high escalators. Moreover, interest rate headline risk exists as the tapering discussion takes place in early 2014. We do not expect a significant impact on financing costs in a moderate rise in interest rates as we expect financing structures such as ABS and yieldcos to help drive overall financing costs down. ITC Calculation Rules Could Likely Impact Investor Sentiment and Drive Near Term Share Price Volatility VSLR likely benefits from a favorable fair market value treatment of system costs which is currently allowed under the ITC law but has been examined by the US treasury. We believe the company currently benefits from ~$5/W total system price to calculate ITC of 30% whereas we believe overall system costs have the potential to decline to $2-3/W or lower over the next few years. The company realizes ~$1.40/W positive impact on retained earnings by using a higher fair market value, according to our calculations. That said, our base case price target calculation takes this risk into consideration and assumes a reasonable fair market value of $5/W in 2014E reducing to $4/W in 2016E.   Page 8   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Company Overview Business Overview Vivint Solar installs residential solar panels and offers solar energy to residential customers in 7 US states, currently: Arizona, California, Hawaii, Maryland, Massachusetts, New Jersey and New York. Customers typically enter into 20-year contracts with the company (at prices below their current utility rates) and pay little or no upfront fees. Prior to 1Q14, all of the EQORCP[oU long-term contracts were structured as PPAs. In 1Q14, VSLR started offering leases as well, because the legal framework in Arizona required it and the company was entering the Arizona market at the time. x PPA: Customers are charged a fee per unit of electricity use (kWh) based on the amount the solar system produces. x Leases: In the lease structure, customers are charged fixed monthly payment based (assuming certain generation parameters). The company typically guarantees a certain level of production. Both types of contract are structured for 20 years with an escalator (most of the current contracts contain price escalators of 2.9-3.9% annually). The company also sees further potential cross sell opportunities from the 20 year relationship. Figure 8: 8KXKPVoU $WUKPGUU /QFGN Professional  Consultation Direct-­‐t o-­‐home  sales  force  t o  provide  in-­‐person   professional  c onsultations  t o  prospective   customers Design  and  Engineering Designs  a  c ustom  solar  e nergy  system Installation Controls  e very  aspect  of  t he  installation  process Monitoring  and  Service   Monitors  performance  of  all  solar  e nergy   systems Referrals Referrals  l ower  c ustomer  acquisition  c osts   Source: Deutsche Bank, Company Data   Deutsche Bank Securities Inc.   Page 9 26 October 2014   Clean Technology Vivint Solar   As of June 2014, Vivint had ~130MW under contract at ~21,900+ homes. Market share has shown a steady uptick over the last several years.   Figure 9: Cumulative MW Deployed 140 Figure 10: US Residential Market Share 16% 130 15% 14% 120 12% 93 100 10% 73 80 9% 8% 8% 60 6% 40 4% 15 20 2% 0 1% 0% 2012 Source: Company Data 2013 1Q14 2Q14 2012   2013 1Q14 2Q14 Source: Company Data, GTM Research Tax Equity Vivint finances solar system installations by monetizing investment tax credits (ITCs), accelerated MACRS depreciation and other incentives through tax equity partnerships. Tax equity investors provide cash upfront in exchange for a share of the tax attributes and cash flows from a portfolio of systems. As of Sep 17, 2014, Vivint had 10 funds with committed investments of ~$543M, which will enable the company to install solar energy systems with a market value of ~$1.3B ($913M of this has already been installed). Net tax equity is expected to provide ~81MWs of capacity. Furthermore, the company has an additional ~$300M or ~133MW of commitments for future funds. Typically, the funds own the portfolio of solar arrays and pay out cash flows to investors. Since the tax equity partners are able to achieve a large portion of their required IRR from tax benefits, Vivint retains the majority of the cash flows over the lifetime of the system. The company has different types of funds with fund investors, including partnership flip funds and inverted lease structures. x   Page 10   Partnerships: Under partnership structures, Vivint and fund investors contribute cash into a partnership company. The partnership uses this cash to acquire solar energy systems from VSLR and collects payments from customers. The investor is typically paid first until their required return is satisfied, at which point the ownership flips to Vivint (and the associated cash flows). Six of the ten established funds are partnerships. Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 11: Partnership Structure Vivint Fund  Investors 1 1. 2 Partnership  Company 2. 3. 4 3 4. Customers Vivint and fund investors contribute cash into a partnership company Partnership acquires solar energy systems developed by Vivint Partnership sells energy/ leases solar energy systems to customers; and receives recurring long-­‐term payments Prior to the fund investor receiving its contractual rate of return, the fund investor receives substantially all of the long-­‐term recurring customer payments and other incentives. After that, Vivint receives substantially all of the long-­‐term recurring customer payments and the other incentives Source: Deutsche Bank, Company Data x Inverted Lease/Lease Pass-through: There are several partnerships within the structure, and this essentially allows VSLR to use half of the depreciation and potentially benefit from a higher fair market value (to use in the assessment of the investment tax credit) Figure 12: Inverted Lease Structure 1. 2. 3. Fund  Investors 3 Vivint 4 Tenant (illustrative  ownership  ʹ 99%  Fund  Investors,  1%   Vivint) 1 5 6 2 Owner (illustrative  ownership  ʹ 51%  Vivint,  49%  Tenant) 4. 5. 6. 7. 8 7 Customers 8. Vivint contributes  solar  energy   systems  to  an  owner  partnership In  r eturn,  Vivint gets  a  share  in   the  owner  partnership   Fund  investors  contribute  cash   to  a  tenant  partnership In  r eturn,  fund  investors  get  an   interest  in  the  tenant   partnership Tenant  partnership  makes  an   investment  in  the  owner   partnership In  r eturn,  tenant  partnership   gets  an  interest  in  the  owner   partnership Owner  partnership  leases  solar   energy  systems  to  the  tenant   partnership  (under  a  master   lease),  and  the  tenant   partnership  pays  the  owner   partnership  r ent  for  those   systems Tenant  partnership  sells  energy/   leases  solar  energy  systems   to   customers;  and  receives   recurring  long-­‐term  payments Source: Deutsche Bank, Company Data   Deutsche Bank Securities Inc.   Page 11 26 October 2014   Clean Technology Vivint Solar   Key Operating Metrics x Solar Energy Systems Installed: Vivint had ~22k systems as of June 2014 (~8.6k installed in 2Q alone). The company installed 10.5k and ~2.7k systems in 2013 and 2012 respectively. x MW Installed: Vivint has ~130MW under as of June 2014 (~57MW installed in 1H). In the year 2013, the company installed 58MW of systems, which was an increase of 303% over 2012 when the company installed just ~14MW of systems.   Figure 13: Systems Installed Figure 14: MW Installed 70 12,000   10,521   60 10,000   58 57 2013 1H  '14 8,625   50 8,000   40 6,000   30 4,000   20 2,669   2,000   0 -­‐ 2012 Source: Company Data   2013 2012 1H  '14   Source: Company Data x Estimated Nominal Contracted Payments Remaining: Estimated nominal contracted payments remaining equals the sum of the remaining cash payments that customers are expected to pay over the term of their agreements. However, the metric does not reflect potential customer defaults/ cancellations. The company calculates this metric in the following ways for a PPA and a lease s 1) PPA: For a PPA, contract price/kWh is multiplied by the estimated annual energy output of the associated solar energy system to determine the estimated nominal contracted payments. 2) Lease: For a customer lease, the company includes the monthly fees and upfront fee (if any), as set forth in the lease. As of June 2014, estimated nominal contracted payments remaining totaled ~$648M. x Estimated Retained Value: Estimated retained value represents the cash flows, discounted at 6%, that the company expects to receive from customers pursuant to long-term contracts net of estimated cash distributions to fund investors and estimated opex for systems installed. For calculating this metric, the company aggregates the estimated retained value from the solar energy systems during the typical 20-year term of the contracts, and the estimated retained value associated with an assumed 10-year renewal term. As of June 2014, estimated retained value was ~310M. Page 12   14 10 Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 15: Estimated Nominal Contracted Payments Remaining 700   Figure 16: Estimated Retained Value 2.9 648 $350.0   2.83 2.8 600 $309.9   2.7 500 394 $200.0   2.5 $190.4   $150.0   2.4 300 223 2.39 $100.0   2.3 200 100 $250.0   2.62 2.6 400 2.2 89 $300.0   $50.0   $41.6   2.1 $0.0   2012 2013 2Q14 0 2012 2Q13 Source: Company Data 2013 Retained  Value  ($M) 2Q14   Retained  Value  per  Watt Source: Company Data VSLR vs. SCTY We expect investors will likely focus on the similarities and differences between VSLR and SCTY given the similar business models and direct competition between the companies. Business Model 6JG MG[ FKHHGTGPEGU DGVYGGP 5%6;oU CPF 85.4oU DWUKPGUU OQFGNU CTG s 1) 5%6;oU plans to manufacture panels ; 2) 85.4 QPN[ QHHGTU 22#oU CPF NGCUGU VQ residential customers, while SCTY derives ~20% of its business from commercial installations, as well as completing work as a traditional (nonowning) solar installer. SCTY recently broke ground on its 1GW manufacturing facility in Buffalo, New York, which is expected to complete by 2016. VSLR has expressed no interest in following suit, and typically sources from Chinese suppliers like TSL/YGE/CSIQ SCTY has also announced its first home solar loan option (called MyPower). 7PFGT 5%6;oU NQCP QRVKQP customers are allowed to pay for their solar loan in C UKOKNCT YC[ VQ VJG YC[ VJCV VJG[oF RC[ HQT a solar PPA, along with providing them the ownership of the panels. However, Butterfield noted that VSLR would continue to focus on its existing business model (i.e. PPAs and leases) for the time being, but could consider introducing a loan option in the future. States of Operation VSLR currently operates in 7 states - Arizona, California, Hawaii, Maryland, Massachusetts, New Jersey and New York. However, SCTY currently operates in 9 other states s Colorado, Connecticut, Delaware, Washington DC, Nevada, Oregon, Pennsylvania, Texas, and Washington.   Deutsche Bank Securities Inc.   Page 13 26 October 2014   Clean Technology Vivint Solar   Figure 17: States of Operation States  of  Operation Arizona California Colorado Connecticut Delaware Hawaii Maryland Massachusetts Nevada New  Jersey New  York Oregon Pennsylvania Texas Washington District  of  Colombia VSLR SCTY я я я я я я я я я я я я я я я я я я я я я я я Source: Deutsche Bank, Company Data We expect this to narrow over time as VSLR enters additional markets. Key Metrics As shown below, VSLR is currently reporting higher retained value and higher growth off a smaller deployment base. The company also has comparatively lower opex/w. Figure 18: States of Operation Retained  Value  ($/W) Nominal  Contract  Payments  Remaining  ($M) Ests  /  Guidance 2014  MW  Deployed %  Y/Y 2015  MW  Deployed %  Y/Y Metrics Opex/W Installation  Cost/W VSLR 2.39* SCTY 1.72* 648 3300 150** 500-­‐550 159% 88% 300** 900-­‐1000 100% 81% 0.64* NA 0.91* 2.29* *  2Q14,  **  DB  estimates Source: Deutsche Bank, Company Data, * 2Q14   Page 14   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Valuation We apply a sum of the parts valuation framework to arrive at our $20 price target. Figure 19: Value Per Share Walk $160 $140 $120 $/Share $100 $80 $60 $40 ~$20 $20 $12 $0 Renewal Contracted Customer Payments Depreciation ITC System Costs Financing Costs Future Tax Effect 18% Discount Net Value Per Terminal Value Total Value Per Rate 2014+ Share Through Share Cashflows 2020 Source: Deutsche Bank 1) We assume 3 n installed base of ~130MW grows to ~1.1GW by end of 2016 and ~4.1GW by end of 2020. We expect annual installations to increase by 65% in 2015 (from current 2014 guide) to ~800MW and 55% in 2016 to ~1200MW. We then assume ~10% annual installations growth from 20172020 timeframe and a 1% terminal growth rate after 2020. We also assume that after 2021, the company starts paying 35% taxes.   Deutsche Bank Securities Inc.   Page 15 26 October 2014   Clean Technology Vivint Solar   Figure 20: VSLR Installs 4500 1000 4000 900 Total installs  could  exceed  ~4GW  by    2020+ 800 700 3000 600 2500 500 2000 400 1500 300 1000 200 500 100 0 Yearly MW Installed Total MW Installed 3500 0 Cumulative Installs Yearly Installs Source: Deutsche Bank 2) We assume blended average PPA prices decrease from ~14-15c/kWh rate to 13.6c/kWh by 2016 and reach 13.8c/kWh by 2020 timeframe. Although VSLR is able to get an average 2.9% escalator in its current contracts, we assume an average 2.5% escalator over the next few years. PPA  Price Figure 21: PPA Vs Sun Hours $21 0.13 0.135 0.14 0.145 0.15 1200 $11 $13 $16 $18 $20 1250 $14 $16 $18 $20 $23 1300 $16 $18 $21 $23 $25 Average  Sun  Hours  Per  Year 1350 1400 1450 $18 $21 $23 $21 $23 $26 $23 $26 $28 $26 $28 $31 $28 $31 $33 1500 $25 $28 $31 $33 $36 1550 $28 $31 $33 $36 $39 1600 $30 $33 $36 $39 $42 Source: Deutsche Bank Note: 2016+ 3) We assume financing costs decrease from past ~7-9% rate to ~5.4% by 2015 and stabilize at ~6.5% by 2019+ timeframe. We expect current mode of tax equity financing to evolve and VSLR to take advantage of additional financing sources such as yieldco, ABS, solar loans, and potential retail bond offerings in the future in order to lower overall cost of capital in a rising interest rate environment.   Page 16   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 22: Financing Costs $2,500 10% 9% 8% Total $ cost 7% $1,500 6% 5% $1,000 4% 3% $500 Yearly MW Installed $2,000 2% 1% $- 0% Financing costs Financing rate Source: Deutsche Bank 4) Our model incorporates a small monthly utility surcharge of $~58/customer/year on ~20% of the new customer base (increasing to ~30%+ by 2020)- primarily based on the Arizona utility model where solar customers are required to pay ~$0.7/Kw/month in order to access the grid. Our model does not include any state incentives which typically tend to be an average of 2-4c/kWh. As such, even in a scenario where utility rates were to decline more than expected, VSLR would be able to maintain cash inflows/W by using the state level incentives. 5) We assume that the 30% ITC expires at the end of 2016 and solar project investors are still able to take advantage of accelerated depreciation as well as 10% ITC from 2017 timeframe. Figure 23: ITC Benefit $1.60 $1.40 ITC Value per Watt $1.20 $1.00 $0.80 $0.60 ITC    Reduces  to  10% $0.40 $0.20 $- Source: Deutsche Bank   Deutsche Bank Securities Inc.   Page 17 26 October 2014   Clean Technology Vivint Solar   6)We assume the fair market value the company is able to claim for the federal ITC decreases from ~$5/W today to ~$4.50/W in 2015, ~$4/W in 2016, and reduces at the same $ value as system costs through 2020, to ~$3.60/W.7) We assume 120M shares outstanding to value the company.   Page 18   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 24: Valuation Year In Which Systems Are Installed 2011-­‐2012 2013 2014 2015 2016 Present Value Per Watt at Time of Installation (Assumes 6% Discount Rate on Cash Flows) Sources  of  Cash/Funding/Value Renewal/W $0.61 $0.65 Contracted  Customer  Payments/W $2.54 $2.71 Depreciation/W $0.45 $0.46 ITC/W $1.41 $1.44 Uses  of  Cash/Funding System  Costs/Watt  (Includes  inverter  replacement  and  O&M) ($3.53) ($3.63) Financing  Costs/W ($0.32) ($0.26) Total  Cost/Watt ($3.85) ($3.89) $0.63 $2.64 $0.47 $1.41 $0.60 $2.51 $0.44 $1.27 $0.57 $2.40 $0.38 $1.12 ($3.77) ($0.24) ($4.01) ($3.50) ($0.19) ($3.69) ($3.07) ($0.17) ($3.24) Average  Residential  System  size  (kW) MW  installed %  Change 6,400 15 6,400 58 6,800 150 159% 7,000 300 100% 7,000 600 100% $3,877 $16,256 $2,902 $9,000 $4,136 $17,340 $2,935 $9,238 $4,275 $17,923 $3,211 $9,565 $4,190 $17,567 $3,046 $8,856 $4,011 $16,819 $2,676 $7,865 PPA  Price  (Initial  Contracted) $0.150 Escalator  (Yearly  PPA) 2.5% Renewal  (%  of  Price  in  Year  20) 85% Implied  Base  Case  Renewal  PPA  (assuming  escalator  above)$0.20 $0.150 2.5% 85% $0.20 $0.147 2.5% 85% $0.20 $0.141 2.5% 85% $0.19 $0.136 2.5% 85% $0.18 %  ITC FMV  for  ITC  Calc  ($/W) ITC/W 30% $5.30 $1.59 30% $5.10 $1.53 30% $4.97 $1.49 30% $4.47 $1.34 30% $3.97 $1.19 ($22,589) ($2,033) ($24,622) ($23,215) ($1,683) ($24,899) ($25,635) ($1,602) ($27,237) ($24,524) ($1,312) ($25,836) ($21,486) ($1,214) ($22,700) $3.45 $0.90 $1.65 $0.90 9.0% $3.32 $0.90 $1.72 $0.70 7.3% $3.44 $1.00 $1.70 $0.74 6.3% $3.17 $0.87 $1.60 $0.70 5.4% $2.71 $0.62 $1.40 $0.69 5.7% 0% 0% 20% 22% 24% $7,414 $1.16 $8,749 $1.37 $7,736 $1.14 $7,822 $1.12 $8,671 $1.24 $17 $4 $13 $0.1 $79 $20 $59 $0.5 $0.11 $0.49 $171 $46 $125 $1.0 $125 $1.04 $335 $94 $241 $2.0 $205 $1.70 $743 $217 $527 $4.4 $378 $3.15 NPV of Sources of Cash/Funding/Value Renewal Contracted  Customer  Payments Depreciation ITC Assumptions: Sources of Cash/Funding NPV of Uses of Cash/Funding System  costs Financing  costs Total  System  Cost Assumptions: Uses of Cash/Funding Total  System  cost/Watt Fixed  Cost/Watt Variable  Cost/Watt  (Ex  Module) Module  Cost/Watt Financing  rate Utility  Surcharge  Applied  (Assumes  70  cents  per  KWp) Retained Value Vivint  NPV  Value  Per  System  Installed Vivint  NPV/W Valuation Leasing  business  value  ($M) Nominal  Value Taxes Nominal  Value  -­‐  Taxes ($/Share) Discounted  ($M) ($/Share) 2014+  Leasing  Business  Discount  Rate Terminal  Growth  Rate Terminal  Tax  Rate 18% 1.0% 35% Year  to  StartTaxes Tax  Rate 2021 35% Pre  2013  Leasing  business  value  ($M) 2013  Leasing  Business  Value  ($M) Future  leasing  business  value  ($M) Terminal  Value Fully  Diluted  Shares  (M) Implied  Share  Value $13 $59 $1,351 $960 120 $19.85 Source: Deutsche Bank   Deutsche Bank Securities Inc.   Page 19 26 October 2014   Clean Technology Vivint Solar   Figure 25: Valuation Model Continued 2016 2017 Present Value Per Watt at Time of Installation (Assumes 6% Discount Rate on Cash Flows) Sources  of  Cash/Funding/Value Renewal/W $0.57 $0.57 Contracted  Customer  Payments/W $2.40 $2.39 Depreciation/W $0.38 $0.37 ITC/W $1.12 $0.37 Uses  of  Cash/Funding System  Costs/Watt  (Includes  inverter  replacement  and  O&M) ($3.07) ($2.98) Financing  Costs/W ($0.17) ($0.18) Total  Cost/Watt ($3.24) ($3.15) 2018 2019 2020 $0.57 $2.39 $0.36 $0.36 $0.57 $2.41 $0.35 $0.35 $0.57 $2.39 $0.34 $0.34 ($2.88) ($0.18) ($3.06) ($2.79) ($0.18) ($2.97) ($2.70) ($0.17) ($2.88) 7,000 600 100% 1124 7,000 660 10% 4187.910510 7,000 726 10% 7,000 799 10% 7,000 879 10% $4,011 $16,819 $2,676 $7,865 $3,996 $16,755 $2,602 $2,556 $3,995 $16,750 $2,527 $2,490 $4,024 $16,872 $2,453 $2,424 $3,995 $16,750 $2,373 $2,358 PPA  Price  (Initial  Contracted) $0.136 Escalator  (Yearly  PPA) 2.5% Renewal  (%  of  Price  in  Year  20) 85% Implied  Base  Case  Renewal  PPA  (assuming  escalator  above)$0.18 $0.137 2.5% 85% $0.19 $0.138 2.5% 85% $0.19 $0.139 2.5% 85% $0.19 $0.138 2.5% 85% $0.19 %  ITC FMV  for  ITC  Calc  ($/W) ITC/W 30% $3.97 $1.19 10% $3.87 $0.39 10% $3.77 $0.38 10% $3.67 $0.37 10% $3.57 $0.36 ($21,486) ($1,214) ($22,700) ($20,832) ($1,239) ($22,071) ($20,178) ($1,261) ($21,439) ($19,545) ($1,261) ($20,805) ($18,911) ($1,220) ($20,131) $2.71 $0.62 $1.40 $0.69 5.7% $2.61 $0.59 $1.37 $0.66 6.0% $2.51 $0.55 $1.33 $0.62 6.3% $2.41 $0.52 $1.30 $0.59 6.5% $2.31 $0.49 $1.27 $0.56 6.5% 24% 26% 28% 30% 32% $8,671 $1.24 $3,837 $0.55 $4,323 $0.62 $4,967 $0.71 $5,345 $0.76 $743 $217 $527 $4.4 $378 $3.15 $362 $110 $252 $2.1 $153 $1.28 $448 $141 $307 $2.6 $158 $1.32 $567 $185 $382 $3.2 $167 $1.39 $671 $227 $444 $3.7 $164 $1.37 Average  Residential  System  size  (kW) MW  installed %  Change NPV of Sources of Cash/Funding/Value Renewal Contracted  Customer  Payments Depreciation ITC Assumptions: Sources of Cash/Funding NPV of Uses of Cash/Funding System  costs Financing  costs Total  System  Cost Assumptions: Uses of Cash/Funding Total  System  cost/Watt Fixed  Cost/Watt Variable  Cost/Watt  (Ex  Module) Module  Cost/Watt Financing  rate Utility  Surcharge  Applied  (Assumes  70  cents  per  KWp) Retained Value Vivint  NPV  Value  Per  System  Installed Vivint  NPV/W Valuation Leasing  business  value  ($M) Nominal  Value Taxes Nominal  Value  -­‐  Taxes ($/Share) Discounted  ($M) ($/Share) Source: Deutsche Bank   Page 20   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Model Figure 26: Drivers Numbers  in  Millions FYE:  Dec  31 CY Q1 March Revenues PPA Revenue SREC Revenue Rebate Amoritization Operating Leases/Incentive Rev Solar energy systems sales Solmetric Revenue Solar Energy System and Product Sales Total 0.6 0.0 0.6 2013 Q2 Q3 June Sept 1.2 0.1 1.3 2.1 0.2 2.3 Q4 Dec 1.9 0.0 2.0 Q1 March 2.9 0.0 0.6 3.5 2014E Q2 Q3E June Sept 5.8 0.0 0.8 6.6 Q/Q Revenues PPA Revs Total MW Deployed Leasing Cumulative MW Deployed Leasing (End of Q) Average PPA Yearly Average Sun Hours % of Sun Hours in Quarter Implied Capacity Factor Quarterly Sun Hours Revenue From PPAs and Leases SREC Rev/Kwh (blended) Revenue from legacy Rebates ($M) Cost of Revenues Operating Leases/Incentives Solar Energy System and Product Sales Solmetric Total Cost of Revenues (% of Revenue) PPA's Solar Energy System and Product Sales Total Gross Income Operating Lease GM Overall Gross Margin 2015E Q2E Q3E June Sept Q4E Dec Q1E March 2016E Q2E Q3E June Sept Q4E Dec 7.9 1.4 0.0 9.4 15.2 2.7 0.0 18.0 17.6 3.2 0.0 20.9 12.1 2.2 0.0 14.4 17.7 3.3 0.0 21.0 33.5 6.3 0.0 39.8 37.0 7.0 0.0 44.0 25.1 4.8 0.0 29.8 0.75 0.8 6.3 0.88 0.9 10.3 0.93 0.9 18.9 0.98 1.0 21.8 1.03 1.0 15.4 1.08 1.1 22.1 1.13 1.1 40.9 1.18 1.2 45.1 1.23 1.2 31.1 33% -31% -29% 66% 64% 91% 84% 16% 15% -31% -29% 46% 43% 89% 85% 10% 10% -32% -31% 39 54 30 54 84 132 60 90 168 169 0.143 1346 28% 17.2% 377 $ 7.0 $0.02 $ 1.0 $0.03 223 0.142 1344 15% 9.2% 201 $ 4.8 $0.02 $ 0.7 $0.03 253 0.140 1340 19% 11.6% 255 $ 7.9 $0.03 $ 1.4 $0.03 307 0.139 1336 33% 19.8% 434 $ 15.2 $0.03 $ 2.7 $0.03 391 0.137 1333 31% 19.1% 419 $ 17.6 $0.03 $ 3.2 $0.03 523 0.136 1330 17% 10.4% 229 $ 12.1 $0.03 $ 2.2 $0.03 584 0.135 1325 19% 11.5% 252 $ 17.7 $0.03 $ 3.3 $0.03 674 0.134 1322 33% 19.6% 430 $ 33.5 $0.03 $ 6.3 $0.03 19.2 0.0 0.40 19.6 23.8 0.0 0.44 24.3 25.9 0.0 0.44 26.3 29.9 0.0 0.44 30.4 36.4 0.0 0.44 36.8 40.8 0.0 0.52 41.3 Q4E Dec Q1E March 7.0 1.0 0.0 8.0 4.8 0.7 0.0 5.5 0.75 0.8 8.8 2014E 2015E 2016E 22.2 0.1 2.9 25.1 52.9 9.6 0.1 62.6 0.0 3.8 3.8 66.4 113.2 21.3 0.1 134.6 0.0 4.6 4.6 139.2 282 150 300 601 842 0.133 1319 31% 18.9% 414 $ 37.0 $0.03 $ 7.0 $0.03 1124 0.132 1316 17% 10.3% 226 $ 25.1 $0.03 $ 4.8 $0.03 223 46.9 0.0 0.52 47.4 51.8 0.0 0.52 52.3 57.6 0.0 0.52 58.2 3.6 0.0 4.4 0.1 4.8 0.0 6.2 0.0 11.2 0.4 16.5 0.5 3.6 4.5 4.8 6.2 11.6 16.9 17.5 0.5 0.40 18.4 637% 63% 614% -3.0 359% 56% 334% -3.1 227% 21% 213% -2.6 317% 65% 314% -4.2 391% 62% 330% -8.1 284% 64% 258% -10.4 250% 60% 210% -9.6 400% 60% 313% -13.3 300% 60% 236% -14.0 170% 60% 139% -7.4 170% 60% 139% -8.5 300% 60% 239% -21.4 230% 60% 187% -19.2 140% 60% 116% -6.5 140% 60% 116% -7.1 230% 60% 187% -27.1 -537% -259% -127% -217% -291% -184% -119% -110% -249% -213% -154% -136% -44% -39% -44% -39% -153% -139% -94% -87% -18% -16% -18% -16% -93% -87% 54 18% 80% 46% 307 84 28% 56% 115% 391 132 44% 57% 144% 523 60 10% -55% 100% 584 90 15% 50% 67% 674 168 28% 87% 100% 842 282 47% 68% 114% 1124 2011 2012 2013 0.3 523 1124 1336 1322 $ 11.80 1336 $ 52.91 1322 ###### $ 1.66 $ 9.62 $ 21.30 19.0 0.1 64.3 1.3 116.0 0.0 197.0 0.0 19.1 66.5 117.8 199.1 -41.4 -51.4 -59.9 -165% -119% -77% -74% -43% 58 150 300 601 73 159% 223 100% 523 100% 1124 22,091 35,387 6.3 42,920 78,307 6.7 85,840 ###### 6.8 56.6 32.2 338% 56.7 245% 2.0 15.0 105.9 90.9 49.7 55% 91.0 61% 2.7 13.3 156.8 145.9 86.0 73% 145.9 60% 3.5 0.5 235.9 $0.70 $0.52 $0.39 Residential Megawatts deployed % of Yearly Installs in Q Q/Q Y/Y % Cumulative megawatts deployed (end of period) 73 New System Size (kw) Incremental Systems Cumulative Systems Installed Cumulative System Size (Kw) Opex Sales and Marketing % Change General and Administrative % Change R&D Expense Amortization of Intangible Assets Total Opex 20 13% 37 25% 85% 39 26% 6% 54 36% 39% 93 130 169 223 30 10% -45% 50% 253 6.8 5,441 21,678 6.0 6.8 5,744 27,422 6.2 6.8 7,965 35,387 6.3 7.0 4,292 39,679 6.4 7.0 7,726 47,405 6.5 7.0 12,018 59,422 6.6 7.0 18,885 78,307 6.7 7.0 8,584 86,891 6.7 7.0 12,876 99,767 6.8 7.0 24,035 ##### 6.8 7.0 40,345 ##### 6.8 5.8 11% 13.8 11% 0.50 3.7 23.7 9.8 70% 15.0 9% 0.50 3.79 29.1 11.3 15% 15.6 4% 0.55 3.79 31.2 11.9 5% 19.7 27% 0.60 3.33 35.5 12.2 3% 21.7 10% 0.65 3.33 37.9 12.6 3% 23.9 10% 0.70 3.33 40.5 13.0 3% 25.8 8% 0.75 3.33 42.8 17.9 38% 31.4 22% 0.80 0.13 50.3 21.5 20% 34.6 10% 0.85 0.13 57.1 22.2 3% 38.0 10% 0.90 0.13 61.2 24.4 10% 41.8 10% 0.95 0.13 67.3 $0.75 $0.58 $1.18 $0.70 $0.48 $0.32 $0.84 $0.63 $0.36 $0.24 6.8 2,941 ##### 16,237 5.5 5.7 1.2 1.8 0 3.6 6.7 1.7 37% 3.0 69% 0 3.6 8.4 Opex/Watt 2.1 26% 5.1 69% 0 3.6 10.9 2.4 12% 6.5 26% 0 3.6 12.5 5.2 122% 12.4 91% 0.47 3.7 21.8 15 13,296 17.5 7.3 16.4 0.0 Source: Deutsche Bank   Deutsche Bank Securities Inc.   Page 21 26 October 2014   Clean Technology Vivint Solar   Figure 27: Income Statement Numbers  in  Millions FYE:  Dec  31 CY 2013 Q1 March Q2 June 2014 Q3 Sept Q4 Dec Q1 March 2015 Q2 June Q3E Sept Q4E Dec Q1E March Q2E June Q3E Sept Q4E Dec $5.8 $7.0 $1.0 $0.0 $8.0 $4.8 $0.7 $0.0 $5.5 $7.9 $1.4 $0.0 $9.4 $15.2 $2.7 $0.0 $18.0 $17.6 $3.2 $0.0 $20.9 $0.8 $0.8 $6.3 $0.9 $0.9 $10.3 $0.9 $0.9 $18.9 2012 2013 2014E 2015E 2016E $12.1 $2.2 $0.0 $14.4 $0.3 $5.5 $0.3 $0.0 $5.9 $22.2 $52.9 $9.6 $0.1 $62.6 $113.2 $21.3 $0.1 $134.6 $1.0 $1.0 $21.8 $1.0 $1.0 $15.4 $0.2 $0.4 $0.3 $6.2 $2.9 $25.1 $0.0 $3.8 $3.8 $66.4 $0.0 $4.6 $4.6 $139.2 1274.2% 306.4% 165.0% 109.6% Revenue PPA  Revenue SREC  Revenue Amortization  of  Deferred  Rebate  Incentives Operating  Leases  and  Incentives  Revenue Solar  Energy  System  Sales Solmetric  Revenue Solar  Energy  System  and  Product  Sales Total  Revenue $0.6 $0.0 $0.6    QoQ    YoY $1.2 $2.1 $1.9 $2.9 $0.1 $1.3 $0.2 $2.3 $0.0 $2.0 $0.6 $3.5 $0.8 $6.6 $0.8 $0.8 $8.8 $1.3 $0.7 ($0.1) $0.8 $4.9 $0.9 $3.9 $0.3 $2.8 ($0.3) $2.2 $0.6 $1.9 $0.8 $1.9 $0.2 $1.5 ($0.3) $1.5 Cost  of  Revenue Cost  of  Revenue  -­‐  Operating  Leases  &  Incentives $3.6 Cost  of  Revenue  -­‐  Solar  Energy  System  Sales $0.0 Cost  of  Revenue  -­‐  Solmetric  Revenue $4.4 $0.1 $4.8 $0.0 $6.2 $0.0 $11.2 $0.4 $16.5 $0.5 $17.5 $0.5 $19.2 $0.0 $23.8 $0.0 $25.9 $0.0 $29.9 $0.0 $36.4 $0.0 4.3 0.1 19.0 0.1 0.0 64.3 1.3 0.0 116.0 0.0 0.0 197.0 0.0 0.0 Total  Cost  of  Revenue Gross  Profit %  margin ($3.6) ($3.0) ($5.1) ($4.5) ($3.1) ($2.3) ($4.8) ($2.6) ($1.1) ($6.2) ($4.2) ($2.1) ($11.6) ($8.1) ($2.3) ($16.9) ($10.4) ($1.6) ($18.4) ($9.6) ($1.1) ($19.6) ($13.3) ($2.1) ($24.3) ($14.0) ($1.4) ($26.3) ($7.4) ($0.4) ($30.4) ($8.5) ($0.4) ($36.8) ($21.4) ($1.4) (4.4) ($4.0) (883.3%) (19.1) ($13.0) (210.0%) (66.5) ($41.4) (165.1%) (117.8) ($51.4) (77.3%) (199.1) ($59.9) (43.0%) Sales  and  marketing Research  and  Development General  and  administrative Amortization  of  Intangible  Assets Operating  Expenses ($1.2) $0.0 ($1.8) ($3.6) ($6.7) ($1.7) $0.0 ($3.0) ($3.6) ($8.4) ($2.1) $0.0 ($5.1) ($3.6) ($10.9) ($2.4) $0.0 ($6.5) ($3.6) ($12.5) ($5.2) ($0.5) ($12.4) ($3.7) ($21.8) ($5.8) ($0.5) ($13.8) ($3.7) ($23.7) ($9.8) ($0.5) ($15.0) ($3.8) ($29.1) ($11.3) ($0.6) ($15.6) ($3.8) ($31.2) ($11.9) ($0.6) ($19.7) ($3.3) ($35.5) ($12.2) ($0.7) ($21.7) ($3.3) ($37.9) ($12.6) ($0.7) ($23.9) ($3.3) ($40.5) ($13.0) ($0.8) ($25.8) ($3.3) ($42.8) (2.0) 0.0 (8.8) (1.8) ($12.6) (7.3) 0.0 (16.4) (14.6) ($38.4) (32.2) (2.0) (56.7) (15.0) ($105.9) (49.7) (2.7) (91.0) (13.3) ($156.8) (86.0) (3.5) (145.9) (0.5) ($235.9) Gross  Cost  +  Opex ($10.3) ($11.5) ($13.5) ($16.7) ($29.9) ($34.1) ($38.7) ($44.6) ($49.5) ($45.3) ($49.0) ($64.2) (16.6) (51.9) (147.3) (208.1) (295.7) Operating  Income   ($9.7) ($11.5) ($13.5) ($16.7) ($29.9) ($34.1) ($38.7) ($44.6) ($49.5) ($45.3) ($49.0) ($64.2) (16.6) (51.3) (147.3) (208.1) (295.7) Non  operating  expense:       Interest  Expense Other  Expense Non  operating  expense:       ($0.4) ($0.2) ($0.6) ($0.6) ($0.4) ($0.9) ($1.0) ($0.5) ($1.5) ($1.2) ($0.8) ($2.0) ($1.4) ($0.9) ($2.3) ($2.7) ($0.3) ($3.0) ($3.1) ($0.3) ($3.4) ($2.2) ($0.3) ($2.5) ($2.6) ($0.3) ($2.9) ($4.7) ($0.3) ($5.0) ($5.5) ($0.3) ($5.8) ($3.9) ($0.3) ($4.2) -­‐1.0 (0.3) (1.3) (3.1) (1.9) (5.0) (9.3) (1.8) (11.1) (16.6) (1.2) (17.8) (34.8) (1.2) (36.0) Income  (loss)  before  taxes ($10.3) ($12.4) ($15.0) ($18.7) ($32.1) ($37.1) ($42.1) ($47.1) ($52.4) ($50.3) ($54.8) ($68.4) (17.8) (56.3) (158.4) (225.9) (331.7) ($0.5) $0.4 ($0.0) ($0.0) ($4.4) ($2.5) ($1.8) ($1.3) $0.0 $0.0 $0.0 $0.0 1.1 -­‐0.1 (9.9) 0.0 0.0 ($10.8) ($12.0) ($15.0) ($18.7) ($36.5) ($39.6) ($43.8) ($48.3) ($52.4) ($50.3) ($54.8) ($68.4) ($16.7) ($56.5) ($168.3) ($225.9) ($331.7) Income  Tax  Expense Net  Income $2.1 Net  income  attributable  to  non-­‐controlling  interests 20% %  of  Net  income  attributable  to  non-­‐controlling  interests $0.0 0% $37.8 252% $22.0 117% $43.6 119% $45.1 114% $45.1 103% $45.1 93% $45.1 86% $45.1 90% $45.1 82% $45.1 66% $2.5 15% 61.9 110% 178.9 106% 180.4 80% 180.4 54% ($8.7) ($11.9) $22.9 $3.2 $7.0 $5.5 $1.3 ($3.2) ($7.3) ($5.2) ($9.7) ($23.3) ($34.3) $5.5 $10.6 ($45.5) ($151.3) Basic  income  (loss)  per  share ($0.14) Diluted  income  (loss)  per  share  from  Operations ($0.14) Non-­‐GAAP  EPS ($0.12) ($0.16) ($0.16) ($0.16) ($0.20) ($0.20) $0.30 ($0.25) ($0.25) $0.04 ($0.49) ($0.48) $0.09 ($0.53) ($0.52) $0.07 ($0.52) ($0.44) $0.01 ($0.46) ($0.42) ($0.03) ($0.50) ($0.46) ($0.06) ($0.48) ($0.44) ($0.05) ($0.52) ($0.48) ($0.08) ($0.65) ($0.60) ($0.20) (0.2) (0.2) ($0.46) (0.8) (0.8) $0.07 (2.0) (1.9) $0.15 (2.1) (2.0) ($0.4) (3.2) (2.9) ($1.3) 75 75.2 75 75.2 75 75.2 75 76.2 75 76.2 84.7 98.8 105.3 114.6 105.3 114.6 105.3 114.6 105.3 114.6 105.3 114.6 75.0 75.0 75.0 75.2 85.0 91.5 105.3 114.6 105.3 114.6 (883.3%) (446.3%) (1951.0%) (2397.3%) (3686.9%) (7634.3%) (237.6%) 217.6% (210.0%) (119.1%) (266.4%) (385.5%) (832.1%) 88.7% 2.0% 51.0% (165.1%) (128.3%) (226.1%) (354.4%) (587.5%) 42.1% 39.6% 37.2% (77.3%) (74.8%) (137.0%) (211.9%) (313.2%) (68.5%) 0.0% 25.0% (43.0%) (61.7%) (104.8%) (166.5%) (212.4%) (108.7%) 0.0% 25.0% Net  Income  (Loss)   Weighted  average  basic  shares  used  (M) Avg  Shares  -­‐  Fully  Diluted  (M) Percent  of  Sales Gross  Margin Sales  and  marketing General  and  administrative Sales  and  marketing Operating  Income Net  Income Tax  Rate Interest  Expense 75 75.2 (513.5%) 205.6% 303.4% (205.6%) (1638.9%) (1462.7%) 81.9% 71.8% (234.4%) 125.5% 227.8% (125.5%) (861.3%) (895.9%) (33.0%) 42.5% (113.0%) 92.6% 225.8% (92.6%) (591.8%) 1005.1% 1.4% 42.3% (214.3%) 119.4% 328.3% (119.4%) (847.1%) 163.2% 2.4% 60.4% (230.3%) 148.8% 352.3% (148.8%) (851.4%) 200.8% 125.3% 39.9% (158.4%) 88.3% 209.7% (88.3%) (520.3%) 83.8% 38.8% 40.8% (109.6%) 112.4% 171.2% (112.4%) (442.3%) 14.5% 20.0% 35.0% (213.4%) 181.0% 249.3% (181.0%) (713.1%) (51.7%) 20.0% 35.0% (136.4%) 115.7% 191.9% (115.7%) (482.2%) (71.2%) 0.0% 25.0% (39.1%) 64.7% 114.7% (64.7%) (239.4%) (27.6%) 0.0% 25.0% (39.2%) 57.8% 109.3% (57.8%) (224.7%) (44.4%) 0.0% 25.0% (138.8%) 84.2% 167.1% (84.2%) (416.6%) (151.0%) 0.0% 25.0% Source: Deutsche Bank   Page 22   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Industry Overview: US Residential Solar 1) Grid parity in 10+ states currently We believe solar is currently competitive in more than 10 states in the U.S without additional state subsidies. Solar LCOE in these states ranges from 1115 c/kWh and compares to retail electricity price of 11-37 c/kWh in these markets. These grid parity states currently have a cumulative installed capacity of ~6GW as of 2012. However, considering the improved economics of solar in these markets along with other growth enablers such as solar leasing, availability of low cost financing, we expect installed capacity growth of ~400500% over the next 3-4 years.   Figure 28: US Total PV Installations Figure 29: Total PV Capacity 50,000 18 ~46.8GW 16.0 16 45,000 40,000 14 12.0 35,000 ~30.9GW 10 30,000 8.0 8 6 5.0 4 2 MW dc GW 12 25,000 20,000 3.3 ~18.9GW 15,000 ~11.8GW 1.9 0.8 10,000 ~7.1GW 0 2010 2011 2012 2013E 2014E 2015E 5,000 2016E 0 Residential Source: Deutsche Bank, SEIA Commercial ~0.7GW 2007 Utility ~1GW 2008 ~1.5GW 2009 ~2.1GW 2010 ~3.8GW 2011 2012 2013E 2014E 2015E 2016E Total PV Capacity (MW dc)   Source: Deutsche Bank 2) Potential for further cost reductions and solar growth in additional states over the next 18 months Assuming solar system prices decline from sub $3/W currently to sub $2.50/W over the next 12-18 months, solar LCOE in existing grid parity states could decrease further to 9-14 c/kWh driving further acceleration in solar shipments in these markets. At these system price levels, solar has the potential to reach grid parity in 12 additional states as LCOE approaches 11-14 c/kWh in these states.   Deutsche Bank Securities Inc.   Page 23 26 October 2014   Clean Technology Vivint Solar   Figure 30: States Currently at Grid Parity Grid  Parity  at  $3.00   ($2.10  w/  ITC) Arizona California Connecticut Hawaii Nevada New  Hampshire New  Jersey New  Mexico New  York Vermont Source: Deutsche Bank LCOE  ($/KWh) $0.11 $0.12 $0.15 $0.12 $0.10 $0.15 $0.15 $0.11 $0.15 $0.16   Average  Cost  of   Electricity    ($/KWh) $0.11 $0.16 $0.17 $0.37 $0.12 $0.16 $0.16 $0.11 $0.18 $0.17 Figure 31: Additional States Poised to Reach Grid Parity Grid  Parity  at  $2.50   ($1.75  w/  ITC) Colorado Delaware Washington,  DC Florida Kansas Maryland Massachusetts Michigan Pennsylvania Rhode  Island South  Carolina Wisconsin   LCOE  ($/KWh) $0.10 $0.12 $0.12 $0.11 $0.11 $0.12 $0.13 $0.14 $0.13 $0.13 $0.11 $0.13 Average  Cost  of   Electricity    ($/KWh) $0.12 $0.13 $0.12 $0.11 $0.11 $0.13 $0.15 $0.14 $0.13 $0.15 $0.12 $0.13 Source: Deutsche Bank 3) Lower financing costs could provide additional growth kicker We believe the broader acceptance of yieldco type Figure 32: Shift in LCOE for 100bps Reduction structures has lowered solar financing costs by ~200-300 bps in addition to providing significant amount of Cost  of  Debt  /   Average  LCOE Reduction  per   liquidity within the solar sector. Every 100 bps reduction Discount  Rate  ($2.10  w/ITC) 100bps in financing costs results in 1 c/kWh reduction of LCOE, in our view. We believe solar LCOE could potentially 7.50% $0.15 decrease from 10-16 c/kWh to 8-14 c/kWh as a result of 6.50% $0.14 $0.008 wider acceptance of yieldco type structures. Wider 5.50% $0.13 $0.008 availability of financing options could provide project 4.50% $0.12 $0.008 developers some cushion in a rising interest rate 3.50% $0.12 $0.008 environment. 2.50% $0.11 $0.007 Source: Deutsche Bank Note: Average of all 50 states and DC for current net system LCOE (with ITC) 4) ITC expiration could act as another catalyst Current forms of federal investment tax credits are set to expire in 2016. Without any ITC, solar LCOE increases from 10-16 c/kWh to 15-21c/kWh and only 1 state (Hawaii) screening at grid parity states vs ~10 states currently. In a 2017+ 10% ITC environment, solar would be at grid parity in ~36 states (vs ~47 states with 30% ITC), assuming system prices and financing costs decline although the economics for solar would not be as attractive. Consequently, we expect to see a big rush of new installations ahead of the 2016 ITC expiration.   Page 24   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar     Figure 33: 2016 Grid Parity With ~30% ITC Figure 34: Grid Parity When ITC Steps Down to 10% $0.10 We  could  see  47  states  at  grid  parity by the  end  of  2016  with  30%  ITC... ...but this  could  lower  to  36  states when  the  ITC  reduces  to  10% $0.09 $0.08 $0.07 $0.06 $0.04 $0.05 $0.02 $0.03 Alaska Washington Oregon West Virginia Kentucky Louisiana Arkansas North Dakota South Dakota Idaho Indiana Illinois Nebraska Tennessee Missouri Oklahoma Montana Iowa Ohio Mississippi Minnesota Virginia Utah Wyoming Texas Georgia North Carolina Alabama Kansas District of Columbia Pennsylvania Florida South Carolina Maine Wisconsin Maryland Michigan Colorado Delaware Massachusetts Arizona Rhode Island New Mexico Nevada New Jersey New Hampshire Vermont Connecticut New York California Hawaii $0.00 Washington Alaska Oregon West Virginia Louisiana Kentucky Arkansas North Dakota Idaho South Dakota Indiana Nebraska Illinois Tennessee Oklahoma Missouri Montana Iowa Mississippi Ohio Virginia Utah Minnesota Wyoming Texas North Carolina Georgia Alabama Kansas Florida South Carolina District of Columbia Pennsylvania Maryland Wisconsin Maine Colorado Delaware Michigan Arizona New Mexico Nevada Massachusetts Rhode Island New Jersey New Hampshire Vermont Connecticut California New York Hawaii $0.01 -$0.02 -$0.04 -$0.01 -$0.06 -$0.03 -$0.08 Distance from Average Future Cost of Electricity ($/KWh) Source: Deutsche Bank, EIA Note: Both Graphs above show LCOE minus average electricity price in States -$0.05 Distance from Average Future Cost of Electricity ($/KWh)   -$0.10 Source: Deutsche Bank, EIA 5) Leasing model could become mainstream We believe the availability of residential leasing option would also act as a significant growth catalyst for the sector considering the fact that solar leasing companies are highly profitable and have strong incentive to maximize the number of leasing customers ahead of ITC expiration in 2016.   Deutsche Bank Securities Inc.   Page 25 26 October 2014   Clean Technology Vivint Solar   Background The US market has over 16GW of installed capacity and nearly 5GW of solar capacity was added in 2013. While the data shows a focus on utility scale installations, distributed generation (both residential and commercial) has also been gaining ground recently. We estimate that ~800MW of residential systems were installed in 2013 and expect this number to reach 5GW as solar securitization increases and more states continue to reach grid parity. We believe regions within 10+ states are at grid parity already, while more states will follow suit as cost per watt continues to decline fueled by BoS cost reductions, making solar more competitive with rising electricity rates over the long term. Figure 35: Total State Capacity/Installs 6000 5000 In  2013,  the  top  10  states accounted  for  ~90%+ of   US  installations 4000 3000 2000 1000 0 New Solar Power Capacity in 2013 (MW) Total Solar Power Capacity at Year End (MW) Source: Deutsche Bank   Page 26   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   State Economics Figure 36: Dispersion of Electricity Prices in the US Source: National Renewable Energy Laboratory As shown above, the electricity price within any given state is often highly variable (we estimate many states are +/- 3 cents from the mean), while the vast number of rate structures can provide for further complications (fixed or variable pricing, time of use, demand response, volume pricing, etc). We have compiled the average state electric prices on a monthly basis and used the LTM average for our model.   Deutsche Bank Securities Inc.   Page 27 26 October 2014   Clean Technology Vivint Solar     Figure 37: Most Expensive Electricity (Residential) Figure 38: Least Expensive Electricity (Residential) 12  Month  Average  Electricity  Price Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 State Hawaii New  York Alaska Vermont Connecticut New  Hampshire California New  Jersey Rhode  Island Massachusetts Maine Michigan Delaware Wisconsin Maryland Pennsylvania District  of  Columbia Nevada Ohio South  Carolina Minnesota Colorado Florida New  Mexico Kansas Source: Deutsche Bank, EIA Residential  ($/W) $0.37 $0.18 $0.18 $0.17 $0.17 $0.16 $0.16 $0.16 $0.15 $0.15 $0.15 $0.14 $0.13 $0.13 $0.13 $0.13 $0.12 $0.12 $0.12 $0.12 $0.12 $0.12 $0.11 $0.11 $0.11 12  Month  Average  Electricity  Price Commercial  ($/W) Industrial  ($/W) $0.35 $0.15 $0.15 $0.14 $0.15 $0.13 $0.14 $0.13 $0.12 $0.14 $0.12 $0.11 $0.10 $0.11 $0.10 $0.09 $0.12 $0.09 $0.09 $0.10 $0.09 $0.10 $0.10 $0.09 $0.09 Rank $0.31 $0.07 $0.16 $0.10 $0.13 $0.12 $0.11 $0.11 $0.11 $0.13 $0.08 $0.08 $0.09 $0.07 $0.08 $0.07 $0.06 $0.06 $0.06 $0.06 $0.07 $0.07 $0.08 $0.06 $0.07 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51   State Residential  ($/kWh) Commercial  ($/W) Industrial  ($/W) Arizona Alabama Texas Georgia Virginia Illinois Iowa North  Carolina Indiana Mississippi Montana Missouri Tennessee Nebraska South  Dakota Wyoming Utah Oregon West  Virginia Kentucky Oklahoma Arkansas North  Dakota Idaho Louisiana Washington $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.11 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.10 $0.09 $0.09 $0.09 $0.09 $0.09 $0.09 $0.09 $0.10 $0.11 $0.08 $0.10 $0.08 $0.08 $0.08 $0.09 $0.09 $0.10 $0.09 $0.08 $0.10 $0.08 $0.08 $0.08 $0.08 $0.08 $0.08 $0.09 $0.07 $0.08 $0.08 $0.07 $0.08 $0.08 $0.07 $0.06 $0.06 $0.06 $0.07 $0.06 $0.05 $0.06 $0.06 $0.06 $0.05 $0.06 $0.07 $0.07 $0.07 $0.06 $0.06 $0.06 $0.06 $0.05 $0.05 $0.06 $0.07 $0.05 $0.05 $0.04 Source: Deutsche Bank, EIA In the absence of outside incentives, utility electricity prices are the main form of competition a residential/commercial solar project must face. We believe the top 10-15 states provide the most compelling possibilities for unaided cost parity, particularly as fossil fuel based generation has been in relative oversupply and this environment begins to shift. For example, there are ~55GW of coal fired plant retirements planned through 2016 due in large part to the finalization of the Mercury and Air Toxics Standards (MATS) by the EPA. There will be incremental capacity additions to maintain adequate capacity in the electricity market, but the addition of large power plants increases the rate base of regulated utilities, which often allows them to raise rates on consumers over time. As higher electricity prices make solar more competitive, we view this as a positive Theoretical Potential In a 2012 paper (U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis) the US National Renewable Energy Laboratory (NREL) conducted a study on the technical potential for various renewable energy technologies. Using data from the EIA, McGraw-Hill, and Denholm and Margolis, NREL concluded that ~664GW of potential capacity could be realized by the rooftop market alone, versus <1% penetration currently.   Page 28   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   80 $0.35 70 $0.30 60 $0.25 50 $0.20 40 $0.15 30 $0.10 20 $0.05 10 $0.00 0 Technical Capacity Potential (GW) $0.40 Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming Electricity Price ($/kWh) Figure 39: Technical Rooftop Capacity Vs Electricity Price Potential Rooftop PV Capacity (GW) 12 Month Residential Electricity Price ($/kWh) Median Electricity Price ($/kWh) Source: Deutsche Bank, NREL, EIA, McGraw Hill, Denholm and Margolis, From their analysis, we see that ~51% (343GW) of the technical potential lies in states with electricity prices above the median electricity price ($0.1128/kWh) while, ~19% of the potential (~128GW) lies in states with residential electricity prices already above $0.15/kwh s primarily California (~76GW), New York (~25GW), New Jersey(13.7GW), and Connecticut(5.9GW).   Deutsche Bank Securities Inc.   Page 29 26 October 2014   Clean Technology Vivint Solar   Grid Parity Increasing We believe that the US is rapidly approaching grid parity in various regions where high electricity prices and the declining cost of solar has made investments increasingly attractive. By default our model takes into account the gross lifetime cost of the system and the lifetime electricity production, but we have assumed ITC inclusion (effectively 30% less system cost) in our LCOE analysis. Below, we show the states which we believe have likely reached grid parity, depending on the region, electricity price, and type of consumption. Hawaii and California are consistently the top two markets due to high insolation (a OGCUWTG QH VJG UWPoU TCFKCVKQP) and high electricity prices, but different pricing schemes for types of electricity within state markets causes divergences thereafter. Figure 40: States At or Near Grid Parity Type  of  Electricity Rank 1 2 3 4 5 6 7 8 9 10 Residential  Hawaii  California  New  York  Connecticut  Nevada  Vermont  New  Mexico  Arizona  New  Hampshire  New  Jersey Commercial  Hawaii  California  New  York  Connecticut  Massachusetts  Arizona  Vermont  New  Mexico  New  Hampshire  Nevada Industrial  Hawaii  California  Massachusetts  Connecticut  New  Hampshire  Rhode  Island  New  Jersey  Arizona  Nevada  New  Mexico Source: Deutsche Bank, EIA While Hawaii is an outlier due to drastically higher electricity prices, The next ten states closest to grid parity reinforce our view that high electricity prices provide the most compelling argument in favor of PV self generation. There is often a direct correlation between population centers and high electricity prices (more resources required to generate/transmit electricity equates to a higher rate base) which implies upside bias to our estimates as customer awareness increases and the financial viability of solar passes further into mainstream decision making. Furthermore, we have conducted a similar analysis for Commercial and Industrial sectors with and with the ITC. While we assumed $2.10/w ($3/w ex ITC) for residential, we have used $1.75/w ($2.50/w ex ITC) and $1.58/w ($2.25/w ex ITC) for commercial and industrial systems (given economies of scale). Our analysis shows that despite lower electricity prices to compete with compared to residential prices, the commercial market appears particularly attractive and should continue to be a solid growth driver for the US market. The residential market retains the most markets at grid parity in the current ITC environment.   Page 30   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Based on our analysis we believe 10+ States in the US are at grid parity in certain regions (depending on the local electricity price). Our base case model uses the 12 month rolling average electricity price for each state. However, given notable volatility in electricity prices within states, we have also tested our assumptions compared to a high band (+$0.03) above average. Our analysis shows that 20-30% of US States appear to be at or near to grid parity. Industrial electricity prices are the most difficult to compete with (as they are lowest) but are likely biased to the upside if our analysis considered other incentives in the LCOE calculation. Key States s Distance from Grid Parity Figure 41: Residential Parity @ $2.10 Net Cost (w/ ITC. $3.00/w Gross) $0.10 We believe  10+  states are  at  grid  parity in  some  regions $0.08 $0.06 State Average ($/kwh) $0.04 $0.02 Hawaii California New York Nevada Connecticut Vermont Arizona New Mexico New Jersey New Hampshire Colorado Rhode Island Delaware Massachusetts Michigan Florida Maryland Kansas South Carolina High Band ($0.03) Wisconsin $0.00 -$0.02 -$0.04 -$0.06 -$0.08 -$0.10 Source: Deutsche Bank, EIA Note: These three successive graphs show LCOE minus electricity price (average and +3 cents) Figure 42: Commercial Parity @ $1.75/w Net Cost (w/ITC. $2.50/w Gross) $0.10 $0.08 $0.06 State Average ($/kw h) $0.04 $0.02 Haw aii California New York Connecticut Arizona Massachusetts Vermont New Mexico Nevada New Hampshire New Jersey District of Columbia Colorado Rhode Island Alabama Florida Tennessee High Band (+$0.03) South Carolina Kansas Maryland $0.00 -$0.02 -$0.04 -$0.06 -$0.08 -$0.10 Source: Deutsche Bank, EIA   Deutsche Bank Securities Inc.   Page 31 26 October 2014   Clean Technology Vivint Solar   Figure 43: Industrial Parity @ $1.58/w Net Cost (w/ ITC. $2.25/w Gross) $0.10 $0.08 $0.06 State Average ($/kw h) $0.04 $0.02 Haw aii California Connecticut Massachusetts Rhode Island New Hampshire New Jersey Nevada Arizona New Mexico Florida Colorado Vermont Maryland Delaw are Kansas Wyoming Tennessee North Dakota High Band (+$0.03) Nebraska $0.00 -$0.02 -$0.04 -$0.06 -$0.08 -$0.10 Source: Deutsche Bank, EIA   Page 32   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Model Overview Inputs and Variables For our US analysis we have considered medium to large DC systems using a traditional string inverter (replaced after 10 years). We assume a 0.70% production decrease every year, a 90% DC to AC efficiency conversion, and 364 days of electricity production. A yearly power price escalator (2%) is used to account for general inflation or rising fuel costs, and several switches (tax credit, FiT, SREC market, depreciation) are available in the model. The costs of the system are broken into financing and the solar array itself. Module prices ($0.70/watt) are added to the inverter ($0.45), labor ($0.50/w), and other costs ($1.35) to arrive at a total gross cost per watt ($3.00) for residential systems. Commercial/Industrial systems are assumed to have economies of scale that allow for a 50-75 c/w reduction. Furthermore, debt levels are initially based on a spread (5%) to the local risk free rate (2.5%) and flowed through the model over a chosen payment period (20 years). This is also used as the discount rate. Operation and maintenance is considered an ongoing cost as a percentage (0.5%) of total system cost and is escalated (1%) annually. Lastly, the electricity production is assumed to be taxed if the system produces a net profit. Methodology Our base case assumes straight line 6 year depreciation, the federal 30% ITC, CPF 54'%oU KP GZKUVKPI OCTMGVU CTG VJG QPN[ HCXQTCDNG RQNKEKGU KP RNCEG This implicitly assumes that a third party financier is used so we have used a cost per watt on the lower end of the likely range today for a residential system ($3/w gross). While in reality there will be variations in the $2.50-$4/w range for residential systems with variations between states, we have used a single cost/watt for simplicity. Electricity production from the sample solar array was estimated using a point CXGTCIG KPUQNCVKQP NGXGN HTQO 04'.oU 5QNCT 2TQURGEVQT YG JCXG WUGF NGXGNU HQT GCEJ 5VCVGoU OQUV RQRWNQWU EKV[ OWNVKRNKGF D[ VJG U[UVGO UK\G VJG RTQFWEVKQP days (364), and the conversion loss factor (90%). We use the total system cost, the yearly operation & maintenance, inverter replacement costs, and debt payments to arrive at total cost for a year. We apply a discount rate equal to the total financing cost in order to arrive at a discounted total costs and production. LCOE is calculated as gross total lifetime costs divided by total lifetime electricity production (both are discounted at the cost of debt). Our model spans a 20 year lifespan although we note that this may be conservative as most panels are expected to last 5-10 years longer. Furthermore, we have modeled out the cash flows of each system to arrive at WPNGXGTGF +44oU TCPIKPI HTQO VQ 1WT OQFGN CUUWOGU VJCV VJG electricity is either self used (representing an avoided cost) or sold back into the grid at the prevailing electricity price. The Solar Energy Industries Association (SEIA) reports that 43 of the 50 states + DC currently have some form of net metering in place. Despite some recent challenges to policies, we believe that net metering policies are likely to stay in place for the foreseeable future. The table below represents an unlevered system.   Deutsche Bank Securities Inc.   Page 33 26 October 2014   Clean Technology Vivint Solar   Figure 44: .%1' CPF +44 KP 75#oU /QUV 2QRWNQWU %KVKGU GSuity, ITC, SRECs in Select Markets) City,  State Honolulu,    Hawaii Newark,    New  Jersey Los  Angeles,    California Boston,    Massachusetts Wilmington,    Delaware Baltimore,    Maryland Washington,  District  of  Columbia Philadelphia,    Pennsylvania New  York,    New  York Charlotte,    North  Carolina Las  Vegas,    Nevada Virginia  Beach,    Virginia Bridgeport,    Connecticut Albuquerque,    New  Mexico Phoenix,    Arizona Burlington,    Vermont Columbus,    Ohio Manchester,    New  Hampshire Providence,    Rhode  Island Denver,    Colorado Louisville,    Kentucky Detroit,    Michigan Charleston,    West  Virginia Columbia,    South  Carolina Jacksonville,    Florida Milwaukee,    Wisconsin Wichita,    Kansas Portland,    Maine Birmingham,    Alabama Atlanta,    Georgia Cheyenne,  Wyoming Salt  Lake  City,    Utah Houston,    Texas Jackson,    Mississippi Minneapolis,    Minnesota Des  Moines,    Iowa Oklahoma  City,    Oklahoma Billings,    Montana Kansas  City,    Missouri Memphis,    Tennessee Omaha,    Nebraska Chicago,    Illinois Indianapolis,    Indiana Boise,    Idaho Sioux  Falls,    South  Dakota Fargo,    North  Dakota Little  Rock,    Arkansas Anchorage,    Alaska New  Orleans,    Louisiana Portland,    Oregon Seattle,    Washington Insolation (kWh/m2/day) Cost  of  Electricity  -­‐  $/kWh  (12  month   State  average) LCOE  ($2.10/w  Cost   with  ITC) IRR 5.97 4.67 6.06 4.57 4.81 4.85 4.87 4.72 4.62 5.19 6.73 4.93 4.54 6.60 6.68 4.30 4.48 4.54 4.59 5.85 4.70 4.41 4.50 5.22 5.31 4.54 5.33 4.04 5.00 5.09 5.53 5.51 4.96 5.11 4.56 4.72 5.41 4.98 4.97 4.99 4.93 4.50 4.60 5.48 4.75 5.16 4.98 2.09 5.12 4.04 3.98 $0.37 $0.16 $0.16 $0.15 $0.13 $0.13 $0.12 $0.13 $0.18 $0.11 $0.12 $0.11 $0.17 $0.11 $0.11 $0.17 $0.12 $0.16 $0.15 $0.12 $0.09 $0.14 $0.10 $0.12 $0.11 $0.13 $0.11 $0.15 $0.11 $0.11 $0.10 $0.10 $0.11 $0.10 $0.12 $0.11 $0.09 $0.10 $0.10 $0.10 $0.10 $0.11 $0.11 $0.09 $0.10 $0.09 $0.09 $0.18 $0.09 $0.10 $0.09 $0.16 $0.21 $0.16 $0.21 $0.20 $0.20 $0.20 $0.21 $0.21 $0.19 $0.15 $0.20 $0.21 $0.15 $0.15 $0.23 $0.22 $0.21 $0.21 $0.17 $0.21 $0.22 $0.22 $0.19 $0.18 $0.21 $0.18 $0.24 $0.20 $0.19 $0.18 $0.18 $0.20 $0.19 $0.21 $0.21 $0.18 $0.20 $0.20 $0.20 $0.20 $0.22 $0.21 $0.18 $0.21 $0.19 $0.20 $0.34 $0.14 $0.17 $0.18 47.11% 15.11% 13.68% 13.32% 12.97% 12.14% 11.39% 11.08% 10.83% 10.73% 9.59% 9.45% 9.42% 8.65% 8.53% 8.42% 8.25% 8.06% 6.57% 6.50% 5.77% 5.26% 5.24% 4.75% 4.71% 4.70% 4.54% 4.13% 3.42% 3.30% 3.21% 3.15% 3.14% 2.43% 2.40% 1.99% 1.93% 1.91% 1.69% 1.68% 1.47% 1.30% 1.11% 0.94% 0.91% 0.80% 0.61% - Source: Deutsche Bank, NREL, EIA 0QVG +PENWFGU +6% HQT CNN UVCVGU CPF 54'%oU HQT [GCTU KP OCTMGVU KP &GNCYCTG 9CUJKPIVQP &% -GPVWEM[ /CT[NCPF Massachusetts,New Jersey, North Carolina, Ohio, Pennsylvania, Virginia, and West Virginia   Page 34   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   SREC Markets State renewable energy certificates (SRECs) have helped to push New Jersey into one of the top solar markets in the country, and several other states have followed suit. While California does not currently utilize SREC markets the same way that other states do, we believe these market based instruments can be an effective means to increase ROI and enhance solar adoption rates. Overview s Active Markets New Jersey, Maryland, Delaware, Massachusetts, Ohio, Pennsylvania, North Carolina and Washington DC all employ active SREC markets currently. Indiana, Kentucky, West Virginia, and North Carolina also have marginal SREC markets because they have territory located within the PJM Regional Transmission Organization, which allows them to trade into active SREC markets like Ohio and Pennsylvania. Furthermore, California allows tradable renewable energy credits (TRECs) which are considerably different from SRECs and less likely to directly benefit distributed generation. What is an SREC? 54'%oU JCXG DGGP KORNGOGPVGF VQ RTQXKFG C RCTVKCNN[ OCTMGV DCUGF KPEGPVKXG for solar capacity additions, particularly for distributed generation. 1 SREC is created for every 1 MWh of electricity generated from a solar installation. Using a Newark, NJ example, a 5kw system would generate ~6- 54'%oU RGT year. At current average wholesale prices, a residential system could generate incremental yearly income of ~$1,000-$1,500 per year. SREC markets are primarily based on supply and demand, although the demand is essentially state mandated. The specifics vary across states, but there is generally a target renewable portfolio standard (RPS) with a specific carve out for solar generation over the next 10+ years as either a percentage of total electricity use or total GWh generated from solar. For example, the requirements for NJ are shown below, which have changed from absolute generation targets to % generation targets as shown.   Deutsche Bank Securities Inc.   Page 35 26 October 2014   Clean Technology Vivint Solar   Figure 45: New Jersey RPS Solar Mandate Energy Year Old Solar Carve-Out New Solar Carve Out Energy Year OldSolar Carve-Out New Solar Carve Out EY 2011 306 GWh 306 GWh EY 2020 2,164 GWh 3.38% EY 2012 442 GWh 442 GWh EY 2021 2,518 GWh 3.47% EY 2013 596 GWh 596 GWh EY 2022 2,928 GWh 3.56% EY 2014 772 GWh 2.05% EY 2023 3,433 GWh 3.65% EY 2015 965 GWh 2.45% EY 2024 3,989 GWh 3.74% EY 2016 1,150 GWh 2.75% EY 2025 4,610 GWh 3.83% EY 2017 1,357 GWh 3.00% EY 2026+ 5,316 GWh 3.92% EY 2018 1,591 GWh 3.20% EY 2027 5,316 GWh 4.01% EY 2019 1,858 GWh 3.29% EY 2028 + 5,316 GWh 4.10% *Note: Energy Year Begins June 1st of the prior calendar year in NJ Source: NJ State Legislature Bills, DSIRE 0QVG p1NF 5QNCT %CTXG 1WVq TGHGTU VQ # $ YJKNG p0GY 5QNCT %CTXG 1WVq TGHGTU VQ 5 $ Eligibility and SACP 54'%oU CTG IGPGTCNN[ FGUKIPGF VQ KPETGCUG FKUVTKDWVGF IGPGTCVKQP OCTMGV penetration and focus specifically on smaller system sizes more suited to residential or commercial scale. In some states, residential systems (<1020kw) can use estimated generation for SREC credits but this is starting to change. Solar Alternative Compliance Payments (SACPs) are effectively a price ceiling HQT 54'%oU CU VJG[ CTG VJG RTKEG C WVKNKV[ YQWNF RC[ KH KV ECPPQV RWTEJCUG SRECs for a lower price. The existence of this mechanism encourages market development but we believe it is unlikely that longer-term prices will rise above a certain discount to these levels, given the attractive economics from SRECs and relatively high prices for SACPs (~$300-400). SRECs in Perspective One of the most obvious benefits of an SREC is a notable reduction in the payback time for a solar system. Given that 1 SREC is created for 1MWh, each $100 in SREC prices is effectively equal to 10 cents per kwh. The average US retail electricity price is only 12 cents per kwh, so we can see that the economics improve with a functioning SREC market which is not dramatically in oversupply. This has happened before (NJ specifically has been in relative oversupply recently) which can cause a precipitous decline in SREC prices and hurt the economics of legacy projects. However, state legislatures which choose to implement RPS with a solar carve out may be more likely than others to revise as needed. SRECs in our Model States with high insolation levels showed the greatest improvement in IRRs because they produced the most SRECs.   Page 36   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 46: Theoretical $100 SREC Project IRR City,  State Birmingham,    Alabama Anchorage,    Alaska Phoenix,    Arizona Little  Rock,    Arkansas Los  Angeles,    California Denver,    Colorado Bridgeport,    Connecticut Wilmington,    Delaware Washington,  District  of  Columbia Jacksonville,    Florida Atlanta,    Georgia Honolulu,    Hawaii Boise,    Idaho Chicago,    Illinois Indianapolis,    Indiana Des  Moines,    Iowa Wichita,    Kansas Louisville,    Kentucky New  Orleans,    Louisiana Portland,    Maine Baltimore,    Maryland Boston,    Massachusetts Detroit,    Michigan Minneapolis,    Minnesota Jackson,    Mississippi Kansas  City,    Missouri Billings,    Montana Omaha,    Nebraska Las  Vegas,    Nevada Manchester,    New  Hampshire Newark,    New  Jersey Albuquerque,    New  Mexico New  York,    New  York Charlotte,    North  Carolina Fargo,    North  Dakota Columbus,    Ohio Oklahoma  City,    Oklahoma Portland,    Oregon Philadelphia,    Pennsylvania Providence,    Rhode  Island Columbia,    South  Carolina Sioux  Falls,    South  Dakota Memphis,    Tennessee Houston,    Texas Salt  Lake  City,    Utah Burlington,    Vermont Virginia  Beach,    Virginia Seattle,    Washington Charleston,    West  Virginia Milwaukee,    Wisconsin Cheyenne,  Wyoming Cost  of  Electricity  -­‐   Base  IRR   $/kWh  (12  month   (No  SRECs) State  average) Insolation (kWh/m2/day) 5.00 2.09 6.68 4.98 6.06 5.85 4.54 4.81 4.87 5.31 5.09 5.97 5.48 4.50 4.60 4.72 5.33 4.70 5.12 4.04 4.85 4.57 4.41 4.56 5.11 4.97 4.98 4.93 6.73 4.54 4.67 6.60 4.62 5.19 5.16 4.48 5.41 4.04 4.72 4.59 5.22 4.75 4.99 4.96 5.51 4.30 4.93 3.98 4.50 4.54 5.53 $0.11 $0.18 $0.11 $0.09 $0.16 $0.12 $0.17 $0.14 $0.12 $0.12 $0.11 $0.37 $0.09 $0.11 $0.10 $0.11 $0.11 $0.09 $0.09 $0.15 $0.13 $0.15 $0.14 $0.12 $0.10 $0.10 $0.10 $0.10 $0.12 $0.16 $0.16 $0.11 $0.18 $0.11 $0.09 $0.12 $0.09 $0.10 $0.13 $0.15 $0.12 $0.10 $0.10 $0.11 $0.10 $0.17 $0.11 $0.09 $0.10 $0.13 $0.10 $100  SREC  IRR 3.37% 10.45% 8.48% 0.53% 13.57% 6.44% 9.39% 5.80% 4.37% 4.75% 3.23% 47.20% 0.86% 1.43% 1.02% 1.99% 4.44% 20.43% 7.06% 25.65% 15.94% 16.88% 12.97% 11.39% 12.61% 10.48% 65.75% 8.31% 7.08% 7.02% 8.26% 12.44% 5.77% 6.49% 9.64% 12.14% 13.32% 11.61% 8.47% 9.46% 8.33% 8.61% 7.99% 21.94% 15.22% 15.11% 20.40% 18.76% 10.73% 7.58% 8.25% 9.39% 3.04% 11.08% 13.51% 12.49% 7.02% 8.34% 10.05% 11.07% 15.18% 9.45% 0.71% 5.24% 11.17% 11.18% 4.14% 5.06% 6.42% 5.19% 2.31% 2.31% 1.59% 1.88% 1.40% 9.61% 8.02% 7.80% 8.61% 10.71% 3.30% 0.79% 2.26% 1.80% 4.37% 6.53% 4.61% 0.88% 1.64% 3.08% 3.06% 8.30% 2.72% 4.65% 3.19% Change 7.08% 0.00% 11.95% 6.53% 12.08% 9.49% 7.49% 7.17% 7.02% 7.87% 7.25% 18.56% 7.45% 5.65% 6.00% 6.27% 8.00% 5.77% 6.49% 5.49% 7.08% 6.90% 6.42% 6.16% 7.16% 6.74% 6.73% 6.59% 12.34% 7.20% 7.31% 11.78% 8.05% 7.42% 6.80% 5.99% 7.59% 3.04% 6.71% 6.98% 7.88% 6.14% 6.71% 6.97% 8.01% 6.89% 6.73% 0.71% 5.24% 6.52% 7.99% Source: Deutsche Bank, NREL   Deutsche Bank Securities Inc.   Page 37 26 October 2014   Clean Technology Vivint Solar   Effect of Leverage on Model We conducted a basic scenario analysis and lowered the equity contribution from 100% to 50% in 10% increments using the same assumptions in previous iterations ($3/w gross cost, 6 Year $100 SRECs, 30% ITC, etc). We use a 7.5% cost of debt and 20 year payment term. Although some markets cannot sustain their own projects, we see returns increasing notably across the most important markets as leverage is added.   Page 38   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Figure 47: Debt on our Model City,  State IRR (100% equity) IRR (90% Equity) IRR (80% Equity) IRR (70% Equity) IRR (60% Equity) IRR (50% Equity) 3.42% 8.53% 0.61% 13.68% 6.50% 9.42% 12.97% 11.39% 4.71% 3.30% 47.11% 0.94% 1.30% 1.11% 1.99% 4.54% 5.77% 4.13% 12.14% 13.32% 5.26% 2.40% 2.43% 1.69% 1.91% 1.47% 9.59% 8.06% 15.11% 8.65% 10.83% 10.73% 0.80% 8.25% 1.93% 11.08% 6.57% 4.75% 0.91% 1.68% 3.14% 3.15% 8.42% 9.45% 5.24% 4.70% 3.21% 2.69% 8.72% 14.80% 6.32% 9.76% 14.28% 12.33% 4.22% 2.56% 55.89% 0.18% 1.01% 4.02% 5.33% 3.54% 13.26% 14.68% 4.87% 1.49% 1.53% 0.65% 0.91% 0.37% 9.95% 8.16% 16.91% 8.85% 11.42% 11.53% 8.43% 0.93% 11.94% 6.41% 4.27% 0.63% 2.37% 2.38% 8.58% 9.93% 4.67% 4.21% 2.45% 1.67% 8.97% 16.43% 6.08% 10.25% 16.41% 13.89% 3.53% 1.51% 71.09% 3.28% 4.57% 2.70% 15.10% 16.90% 4.32% 0.20% 0.25% 10.48% 8.30% 19.80% 9.14% 12.27% 12.88% 8.73% 13.35% 6.18% 3.59% 1.27% 1.29% 8.81% 10.74% 3.69% 3.51% 1.37% 0.15% 9.38% 19.08% 5.70% 11.00% 20.12% 16.88% 2.49% 104.46% 2.18% 3.01% 1.44% 18.54% 20.69% 3.48% 11.30% 8.51% 24.10% 9.59% 13.61% 15.55% 9.31% 16.06% 5.82% 2.56% 9.16% 12.34% 1.72% 2.47% - 10.09% 23.89% 5.06% 12.37% 26.61% 21.74% 0.79% 243.33% 0.37% 24.12% 27.33% 2.09% 12.79% 8.89% 32.87% 10.39% 16.11% 19.92% 10.53% 20.57% 5.22% 0.87% 9.79% 15.15% 0.75% - 11.74% 34.23% 3.77% 15.50% 52.27% 42.11% 47.04% 52.97% 16.16% 9.74% 66.19% 12.24% 21.23% 39.78% 8.96% 39.00% 4.02% 11.23% 28.04% - Birmingham,    Alabama Anchorage,    Alaska Phoenix,    Arizona Little  Rock,    Arkansas Los  Angeles,    California Denver,    Colorado Bridgeport,    Connecticut Wilmington,    Delaware Washington,  District  of  Columbia Jacksonville,    Florida Atlanta,    Georgia Honolulu,    Hawaii Boise,    Idaho Chicago,    Illinois Indianapolis,    Indiana Des  Moines,    Iowa Wichita,    Kansas Louisville,    Kentucky New  Orleans,    Louisiana Portland,    Maine Baltimore,    Maryland Boston,    Massachusetts Detroit,    Michigan Minneapolis,    Minnesota Jackson,    Mississippi Kansas  City,    Missouri Billings,    Montana Omaha,    Nebraska Las  Vegas,    Nevada Manchester,    New  Hampshire Newark,    New  Jersey Albuquerque,    New  Mexico New  York,    New  York Charlotte,    North  Carolina Fargo,    North  Dakota Columbus,    Ohio Oklahoma  City,    Oklahoma Portland,    Oregon Philadelphia,    Pennsylvania Providence,    Rhode  Island Columbia,    South  Carolina Sioux  Falls,    South  Dakota Memphis,    Tennessee Houston,    Texas Salt  Lake  City,    Utah Burlington,    Vermont Virginia  Beach,    Virginia Seattle,    Washington Charleston,    West  Virginia Milwaukee,    Wisconsin Cheyenne,  Wyoming Source: Deutsche Bank estimates   Deutsche Bank Securities Inc.   Page 39 26 October 2014   Clean Technology Vivint Solar   Management Greg Butterfield (CEO) - Gregory S. Butterfield is Vivint SolaroU %'1 CPF President since Sep 2013. He also became C OGODGT QH VJG EQORCP[oU DQCTF in Mar 2014. Prior to joining Vivint Solar, Mr. Butterfield was a managing partner at SageCreek Partners (from 2008 to 2013). He has also served as a director for RES Software, Needle Inc., Omniture Inc., Utah Valley University CPF 7VCJoU 6GEJPQNQI[ %QWPEKN /T $WVVGTHKGNF YCU CNUQ VJG ITQWR RTGUKFGPV QH Symantec Corporation, and CEO of Altiris Inc. He holds a bachelor of science degree in business administration and finance from Brigham Young University. Dana C. Russell (CFO) - Dana C. Russell is 8KXKPV 5QNCToU CFO and Executive Vice President since Nov 2013. Prior to joining Vivint Solar, he was the CFO of Allegiance, Inc (Jan-Nov 2013). From May 2011 s Dec 2012, Mr. Russell was an independent contractor and provided financial services and business consulting to various organizations. He was the CFO of Novell, Inc. (from June 2006 to April 2011). He JQNFU C OCUVGToU FGITGG KP CEEQWPVKPI HTQO 9GDGT State University and a CPA license in the State of Utah. L. Chance Allred (Vice President of Sales) - L. Chance Allred KU 8KXKPV 5QNCToU Vice President of Sales since Mar 2012. Prior to joining Vivint Solar, Mr. Allred served as a founding partner and vice president of sales for Platinum Protection (from Sep 2006 to Mar 2012). From Mar 2000 - Oct 2006, he served in various positions for Vivint, Inc. (a home automation and security company and 8KXKPV 5QNCToU sister company). He holds a DCEJGNQToU FGITGG. in marketing from Southern Utah University. Paul S. Dickson (Vice President of Operations): Paul S. Dickson KU 8KXKPV 5QNCToU Vice President of Operations since Nov 2013. Prior to this, he served as the EQORCP[oU Vice President of Financing (from May 2011 to Nov 2013). Before joining Vivint Solar, he was the director of smart grid and energy management for Vivint, Inc. from Dec 2010 to May 2011. Mr. Dickson also co-founded and served as the president and CEO of Meter Solutions Pros, which was acquired by Vivint, Inc. Mr. Dickson holds a Bachelor of Arts degree from Brigham Young University. Dwain A. Kinghorn (Chief Strategy and Innovations Officer) - Dwain A. Kinghorn JCU DGGP 8KXKPV 5QNCToU Chief Strategy and Innovations Officer since Mar 2014. Prior to joinig Vivint Solar, he served as a partner for SageCreek Partners (from July 2008 to Mar 2014). From Apr 2007 to July 2008, Mr. Kinghorn served as a vice president for Symantec Corporation; and from Oct 2000 to Apr 2007, he was the chief technology officer for Altiris, Inc. He has also served as the CEO of Computing Edge (from May 1994 to Sep 2000). He holds a degree in electrical and computer engineering from Brigham Young University.   Page 40   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Appendix 1 Important Disclosures Additional information available upon request   Disclosure checklist Company Ticker Recent price* Disclosure Vivint Solar VSLR.N 13.07 (USD) 23 Oct 14 1,7,8 *Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Data is sourced from Deutsche Bank and subject companies. Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. 8. Deutsche Bank and/or its affiliate(s) expects to receive, or intends to seek, compensation for investment banking services from this company in the next three months. Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=VSLR.N Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Vishal Shah   Deutsche Bank Securities Inc.   Page 41 26 October 2014   Clean Technology Vivint Solar   Historical recommendations and target price: Vivint Solar (VSLR.N) (as of 10/23/2014) 18.00 Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating 16.00 14.00 Security Price 12.00 10.00 Current Recommendations Buy Hold Sell Not Rated Suspended Rating 8.00 6.00 4.00 *New Recommendation Structure as of September 9,2002 2.00 0.00 Oct 14 Date Equity rating key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Equity rating dispersion and banking relationships 600 500 51 % 47 % 400 300 52 % 38 % 200 2 % 29 % 100 0 Buy Hold Companies Covered Sell Cos. w/ Banking Relationship North American Universe Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period   Page 42   Deutsche Bank Securities Inc. 26 October 2014   Clean Technology Vivint Solar   Regulatory Disclosures 1. Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. 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