The year 2008 was an exceptionally dynamic year for the solar industry despite the negative impact of the financial crisis in the second half of the year. Driven by the favorable investment conditions in the core markets of Germany, the USA, and Spain, the solar demand increased very much more strongly than expected. At the same time the competitive pressure also increased.

On the whole 2008 was a successful business year for our group. We made good use of the positive market environment for our own growth. By way of excellence and quality as well as reliable and long-term customer relations, we faced the increasing competition in the solar sector. In Germany, the USA, and South Korea, we strengthened our distribution channels and expanded our production. The result: our strategy of internationalization worked as planned – it was possible to significantly boost sales in the new markets outside Germany.

• International growth targets on plan – international business up over-proportionately. The group-wide foreign sales (all markets outside Germany involved in the wafer, cell, module and kit/systems business) grew during the reporting year over-proportionately by 44.4 per cent to € 486.2 million (previous year: € 336.8m). In Germany our sales rose by 17.3 per cent to € 413.8 million (previous year: € 352.8m).

• Manufacturing capacities expanded in new markets. We succeeded in significantly advancing our market position in dynamic target markets such as the USA or Asia: In the fourth quarter of the year, integrated mono-crystalline wafer and cell production was commenced at Hillsboro, USA, and also the new module production began operations at Camarillo, USA, in the first half of the year. This has made us the largest integrated solar group in the country with its own production activities from wafers through to modules; a strong and promising starting point for further growth in a market that is opening up to renewable energies. Future economic environment
  
  In South Korea we successfully completed our plans to establish a new module production facility in the fourth quarter of the year after only a ten-month construction period since signing the related agreement in February of 2008. As a result, we now have a logistics center in one of the currently most vigorously growing Asian solar markets for on-grid applications as well as a good starting position for the entire Asian solar market. Our Asian activities are operated under the leadership of SOLARWORLD KOREA LTD., a Joint Venture of SOLARWORLD AG and SOLARPARK ENGINEERING CO. LTD., Seoul, in which both partners hold a stake of 50 per cent, respectively.

• Start of ecologically efficient silicon production. Against the background of our comprehensive expansion plans we managed to build a sustainable foundation for our raw materials procurement. On 8 August 2008 we launched our own process for the production of solar-grade silicon, the strategically relevant raw material for the solar industry. The Joint Venture established together with Evonik Degussa GmbH in Rheinfelden, Germany – JOINT SOLAR SILICON VERWALTUNGS GmbH (jssi) – produces solar-grade silicon according to a process that achieves significant savings in terms of energy.

• Long-term order book strengthened. In 2008 the order book up to 2018 grew in the wafer business alone to seven billion € through supply contracts for solar cells with customers in Asia and Europe involving our wafer brand SOLSIX® .

• Production structure made leaner. Group-wide we have concentrated on technologically leading production facilities in the markets that are strategically crucial to us. Against this backdrop we sold 65 per cent of the shares in our Swedish subsidiary, gällivare photovoltaic ab (gpv), to Borevind AB at the beginning of the fiscal year. The purchase price achieved for the module production facility amounted to a total of € 19.6 million, of which a residual purchase price payment will be made in January of 2009, plus supplier contracts. Via these contracts we have secured the possibility for us to buy modules in the years to come.

• Intention to submit an offer. Transport constitutes a considerable and growing share of the world energy demand (28 per cent). In this context a major responsibility is incumbent upon the automotive industry. It must increasingly develop and market means of transport fit for the future. In November of 2008 SOLARWORLD AG took part in a public discussion about sustainable transport concepts. In a Corporate News, SOLARWORLD AG reported about its intention to make a take-over bid for the four German Opel factories and the Opel Development Center in Rüsselsheim to the US car maker, General Motors (GM), that had got into economic difficulties. The idea of SOLARWORLD AG was for Adam Opel GmbH to produce a new generation of vehicles with energy-efficient and low-emission drive systems. General Motors rejected the offer.

Material usage rate down. In the year under review material use accounted for € 454.1 million (previous year: € 333.7m), which is equivalent to 49.2 (previous year: 49.6) per cent of total output. The rate of material usage has thus declined by 0.4 per centage points.

Due to strongly rising raw material prices and owing to capacity bottlenecks, the trend towards price hikes continued in the year under review. We were able to mitigate, and in some cases even to eliminate this trend. We managed to do this through economies of scale but, above all, through the conclusion of long-term supply contracts, larger purchasing quantities, capacity reservations and clearer supplier structuring for strategically important products, some of which extend all the way to the year 2012. The increasing raw material prices refer mainly to consumables: To be mentioned in this context are aluminium, copper, and silver as components of frames, cables, cell connectors, pastes as well as semi-finished products such as raw graphite and also organic and inorganic chemicals. Silicon prices within the framework of long-term contracts were fairly stable in the course of the period under review.

The supply of raw materials and consumables to our manufacturing sites was assured at all times during the year 2008. Thus, the contractually secured quantity of silicon under a supply contract concluded in the first quarter of the year with the Korean silicon producer, DC Chemical Co. Ltd. (DCC), would be enough to produce wafers with an imputed total power output of 600 MW. Furthermore, we concluded another contract for the delivery of solar-grade silicon valued at 580 million US dollars up to the year 2016 that will support wafer expansion in Freiberg and Hillsboro.

For module production in South Korea another long-term contract was concluded in the year under review with the Korean wafer manufacturer, Nexolon Co. Ltd., which is designed to secure the basic supplies for the new module production facility in South Korea as of the year 2009. The contract provides for the supply of 420 MW worth of wafers for seven years.

Internally we strengthen our procurement position regarding the input products for wafers and cells by way of our own integrated production. Around half of the wafers we produce go into the group’s internal cell and module production. In this way we secure the solidity of our business and our growth.

Group-wide organization guarantees efficiency. Purchasing is organized via our group-wide procurement management at our production location of Freiberg, Germany. Purchasing managers in the USA and South Korea back up group-wide buying. The working contents of the purchasing teams are organized by merchandise categories, thus guaranteeing efficient and short internal information channels.

Quality and environmental claim – Supplier Capital. According to an internal supplier survey dating from August 2008, some 77.5 per cent of our suppliers are ISO 9001 certified in the area of quality management and 30 per cent are ISO 14001 certified in the area of environmental management. In addition, we conclude quality assurance agreements with our suppliers. In this way we minimize our own inspection of incoming goods, reduce the risk respecting required environmental and quality standards along the entire supply chain, cut costs as a result, and substantiate the quality and environmental claim of the SOLARWORLD brand vis-à-vis the customer.

Group growth secured through raw material activities. Silicon, the most important raw material for the solar industry, was subject to violent price fluctuations in the year under review. The solar power market By way of long-term silicon contracts, some of them concluded last year, we were able to minimize the impact that the volatilities had on our purchase prices. With our own silicon production and our recycling activities, we additionally managed to further stabilize our raw material position and costs. We secured our 2008 wafer production as well as further expansion plans by using three independent pillars (1st silicon production, 2nd recycling, 3rd external purchasing).

Own silicon production started. Under the coverage of SUNICON AG we are pooling our group’s own raw material activities. Within the framework of the Joint Venture, JOINT SOLAR SILICON VERWALTUNGS GmbH (jssi) with Evonik Degussa GmbH (solarworld: 49 per cent), we evaluate and develop processes in industrial silicon production with regard to their feasibility and economy.

In 2008 jssi took up its silicon production. The so far unique jssi process based on the use of mono-silane is extremely energy-efficient because, in comparison with conventional silicon production, it saves up to 90 per cent of the required energy. The favorable energy efficiency balance was one of the reasons why, in the course of the year under review, SOLARWORLD AG received the German Sustainability Award in the “Production” category. The brand

Another advantage: The investment costs for this process are clearly lower than those for the Siemens process employed so far. The newly developed precipitation process is protected by four patents. All rights are held exclusively by jssi, whose general conditions are laid down in a master agreement. On the one hand, Evonik Degussa GmbH provides the input product, mono-silane, and on the other acts as a partner (in the context of the Joint Venture) in building the precipitation plant for the subsequent production of solar-grade silicon under the brand sunsil®. The Joint Venture thus ensures our supply of inexpensive silicon even at times when silicon is expensive and scarce. On 8 August, industrial production was started with a planned nominal capacity of 850 tonnes per year. After the start-up of the plant the production volumes were increased step by step until the end of the year so that, in 2008, we were able to make available some 46 tonnes of solar-grade silicon from our own internal raw material source for the first time. For further upgrading of the sunsil® product, three compaction processes were developed which will enter production as early as in 2009. Regarding the purchase of the input product, mono-silane, Evonik Degussa GmbH, jssi and SOLARWORLD AG concluded 10-year contracts. In this way we secure the very basis for our silicon production over the long term.

In an additional process development we are working on the production of solar-grade silicon from processed metallurgical silicon. The cleansing process investigated by the Joint Venture, SCHEUTEN SOLARWORLD SOLICIUM GmbH, at the Freiberg site is a new development. By means of different process steps, boron and phosphorous are eliminated and the silicon is processed as an input product for subsequent wafer block production.

Recycling to secure the supply of raw materials. With our broad range of recycling activities we hold a leading market position worldwide. Our activities range from by-products of solar and semiconductor production and processing via wafer and cell scrap all the way to the recycling of all commercially available solar modules. Production residues from wafer and column manufacture are also completely recycled.

Cells and modules made from recycled wafers meet the same quality and performance criteria as modules from non-recycled raw materials. We have succeeded in increasingly automating the internal recycling processes thus making them more cost-efficient. For example, in 2008 we used a fully automatic fine grain etching and sorting machine. Another advantage: The energy employed in recycling is substantially lower than that in primary silicon production. The costs of the preparation of secondary silicon amount to between ten and 50 per cent of the raw material purchase prices (excluding spot market transactions), so that, in 2008, recycling also made a contribution to cutting the average raw material costs of the group.

In 2008 we succeeded in optimising the inspection of incoming merchandise and the relevant analysis processes and in implementing new preparation technologies: As a result a wider spectrum of recycling material has become usable.

In the year under review we maintained the recycling result of about 900 tonnes as well as a constant material quality – in spite of the increasingly complex raw materials mix and the greater efforts required. SolarMaterial works at full capacity utilization. All in all, a nominal etching capacity of 1,200 tonnes per annum is available.

As a service to external customers we offer recycling from the preparation of raw materials provided by the customer all the way to block and wafer production. About one third of our recycling sales are generated in this way. However, the priority is on our own raw materials supply within the group. Our recycling contributes about 20 per cent to the raw materials supply of the group.

Above and beyond this commitment within the group, we are among the co-initiators of the PV CYCLE association founded in 2007 and located in Brussels. www.pvcycle.org The tasks of this association include the creation of a voluntary European system for the return of solar power modules as well as the guarantee of expert recycling. PV CYCLE represents some 70 per cent of European module and solar cell producers today. Through its activities, the association preempts the legal duty of redemption that has been announced creating manufacturers’ responsibility for the entire product life cycle based on their own initiative. Opportunities

Solar power technology from wafer to module. Our production ranges across the value chain from wafer to the finished module. This creates a high level of process transparency and facilitates process control and optimization. As a result, we cut the use of resources under economic and ecological aspects. Furthermore this provides us with some additional levers for increasing the performance and competitiveness of our products. Through this value creation we achieve internal cost cutting effects every year through which we can largely compensate for the reduction of feed-in rates provided for by law. Legal and economic factors of influence We have three production sites worldwide and produce directly in our core markets in Europe, the USA, and in Asia. This keeps transport distances short and logistics costs low.

Wafer production is that stage of the solar value chain which requires the highest amount of capital and know-how. In this area we possess a great deal of competency that was acquired over many years and which helped us gain a position of market leadership – which, in turn, gives us essential competitive advantages today. On top of this, wafer production is a valuable business for the group.

New production sites established, existing ones expanded. In the USA we created market access for ourselves in 2008 by way of building up an integrated production facility from silicon to the finished module. After a hitch-free construction phase lasting only 18 months, we commenced operations at a highly advanced wafer and cell production facility at our new US location in Hillsboro. This makes us the largest solar integrated technology group (from wafer to module) with its own production in the USA. The official start of production was on 17 October. Optimum site conditions, our group’s own “Intellectual Capital” as well as our special technology and process know-how from the Freiberg facility made the expansion possible in such a short time frame. Human resources

Camarillo is another strategically important location for us in the USA – due to its logistic proximity to the important Californian retail market. There, we were able to commence operations at our technologically completely revised plant for module production in the middle of 2008. This means that, group-wide, we are now working at the same high technology level.

Another strategic entry into new markets was successfully completed in 2008 when we established a module production facility in South Korea in less than one year. Towards the end of the year under review production was started and the initially planned capacity was successively reached. The high level of process and plant know-how of the two Joint Venture partners made possible the construction of this modern, fully automatic module manufacturing facility within such a short time frame. Important events during the business year

In our cell production at the German location of Freiberg we were able to fully utilize our capacity of 160 MW in 2008. We increased our module production capacities in Freiberg from 120 to 140 MW – which could be realized through rationalization investments in technologically improved plants in the production lines. For the planned expansion of wafer production by 250 MW up to the end of the year 2009 we started construction work at the new Industrial Estate East in the middle of the fiscal year under review

Distribution strategy – quality and coordinated systems technology. We position ourselves with our modules and systems as a high quality provider in the volume segment of solar power technology. In line with the concrete demands of individual markets, we continuously fine-tune our already mature systems. Through systems competency we create added value for our brand. Research and development Our philosophy is based on including our customers in our growth. Our direct customers are the wholesale and the retail trade, through which we reach the installers who in turn sell our modules and kits to the end customers.

Strong growth of our international business. We were able to use the strong market growth in 2008 for expansion of our international module and kit business. Thus, the share of our shipments in the trading business outside the German market increased to 54 (previous year: 48) per cent. Germany remained our strongest sales market.

Until the end of the third quarter of 2008 we benefited from the intensive demand and a readiness to pay high prices on the Spanish solar market. The solar power market In 2008 that country was our most important trading market after Germany, as well as a major growth driver for our international business. Despite the exceptionally high module delivery for the large-scale project in Extremadura, we were able to make enough volume available so as to strategically expand our position on the Spanish roof systems market. In Italy we also succeeded in boosting our sales by more than 60 per cent and strategically enhanced our partnerships in distribution. Italy is one of the most important young solar markets in Europe. In France, Benelux, Greece, and the Czech Republic – all of them still fairly new solar markets – we succeeded in placing our customer portfolio on a sound basis for further growth. In these countries we increased our sales significantly.

Outside Europe the USA remained our most important strategic foreign market and, after Germany and Spain, our third largest trading region. Our original target of doubling our sales of modules and kits could be exceeded in 2008. The major sales area in the USA was once again California. Thanks to our module production as well as our sales office in California, we were able to grab additional market shares in comparison with the previous year. One further site advantage: As a result of our logistic proximity to this important sun-drenched retail market, we could cut our transport costs.

Our trading sales in Asia went up in double digits in the year under review. The driver was the South Korean market, where we could use a large-scale project to strengthen our position as market leader and to more than double our sales.

On the African Continent we were able to demonstrate our competency as SOLARWORLD especially by way of off-grid solar systems. Our sales team in Cape Town, South Africa, succeeded in significantly increasing our market share.

Plant competency for Solar Megawatt Parks enhanced. In 2008 we successfully demonstrated our competency in the planning and construction of large-scale solar plants: In a consortium of Deutsche Bank AG, the Spanish ecoEnergias and SOLARPARC AG, we completed a 30 MWp solar park in the autonomous community of Extremadura in the South West of Spain in the third quarter of the year and connected it to the grid in September. The special feature: The plant is equipped with solar tracking technology.

In addition, we equipped one of the largest Asian solar parks with solar power technology on behalf of our South Korean partner, SOLARPARK ENGINEERING CO. LTD.. In the Vatican, SOLARWORLD built a 220 kWp solar power roof system on the Papal audience hall.

Gaining new customers at international trade fairs. We met the increasing worldwide demand for solar power products by an increased international presence at 15 (previous year: 14) trade fairs. In this process we were also particularly active in the USA, the market of the future. Worldwide we were able to consolidate our position as a wafer supplier, recycling service provider, and integrated module and systems producer with new and existing customers.

Our product and systems competency was evidenced and enhanced over the course of the year under review by several innovations we launched at exhibitions. Specifically, we presented SUNTUB®, SUNTROL® and SUNTRAC®, as well as the new SUNKIT® solar kits that were specifically developed for the flat roof architecture in the Southern European region.

Customer Relationship Management – customer satisfaction enhanced. Our customer networks constitute a strategic resource for us in which we make sustainable investments. Particularly at times of crisis it is indispensable to be seen to be a fair and reliable partner. By the same token, we in turn demand fairness and reliability from our business partners. Our distribution strategy, which even at times of increased demand and a scarce supply, is always geared to the motto that “We make our customers successful”, again paid off in 2008 in the form of stable customer relationships.

In 2008 we expanded our SOLARWORLD specialist partner network significantly both quantitatively and also qualitatively through dealer training. The SOLARWORLD planning software suntool® was further developed on the basis of customer demands and wishes we identified, and the document output was improved and the computing speed increased.

Our annual international trade customer survey (as part of our quality management) serves the goal of identifying strengths and weaknesses as well as of optimizing our customer service, in particular. The survey profile identifies customer satisfaction with the service of the Sales Team, with the delivery service, with product quality (also in comparison with competitors), as well as with the way we handle complaints. In the year under review we succeeded in maintaining – and in some cases significantly improving on – our good results of the previous year at all our major locations.