• Reducing costs: Production and installation costs are crucial with regard to the competitiveness of solar energy. If we succeed in reducing average production costs by around eight to ten per cent per annum by means of productivity improvements – all the way from silicon, wafer, cell and modules to complete systems – we will be able to cope with the expected price reductions in the market without any major margin losses. At the same time, solar power will thus gradually move closer to grid parity. Vision We therefore place one of the key development priorities on efficiency enhancements, accompanied by reductions in silicon consumption, e.g. by means of reducing wafer waste. Other priorities are to increase throughput while maintaining plant investments and to substitute for cost-intensive consumables.
• Increasing innovation: The competitive edge of the SOLARWORLD brand is based on our quality assurance and our ability to innovate. We exclusively rely on wafer-based silicon technology since, in our view, it offers major cost reduction potential due to a large number of fundamental technology development projects. From a sustainability viewpoint, this also includes manufacturing solar systems under ecologically compatible conditions. Our environmental management for 2008 sets targets for reducing energy and water consumption and for our production-related CO_2eq emissions and waste volumes. Quality and environmental management
• Securing raw materials: Group-wide silicon supplies are the key strategic issue for our group. They are covered by SUNICON AG (our subsidiary which was specifically established for that purpose), all the way from development to production. The SolarMaterial recycling unit, which was a business unit of DEUTSCHE SOLAR AG in 2008, will be transferred to our commodity subsidiary, SUNICON AG, in 2009. Future legal group structure

Enhancing efficiency. Researchers of SOLARWORLD innovations are already working full steam to develop poly-crystalline cells with efficiency rates of more than 18 per cent and mono-crystalline cells with efficiency rates of more than 20 per cent, both in production and in cooperation with corresponding research partners and plant manufacturers. Efficiency enhancements already achieved at our laboratory are to be implemented at our production sites as soon as the Freiberg pilot plants are finished. Average industry efficiency rates are 15 to 16 per cent for poly-crystalline silicon and around 17 per cent for mono-crystalline silicon.

Ensuring quality. We consider comprehensive product testing at all stages of the value chain to be our second core task. This enables us to meet our customers’ demand for long durability of our solar modules. We already provide a guarantee of 25 years on the solar modules of our product range. However, quality implies further developing and not just maintaining our strengths. In order to continually secure our product quality, we are expanding our test laboratories: the chemical, materials, solar cell and module test laboratories will be incorporated into the future module pilot plant and will facilitate extended tests of manufacturing processes. Research and development 2009+ This will help SOLARWORLD production sites worldwide in monitoring their industrial processes, thus avoiding manufacturing defects and securing the quality of our products in future, too.

Expanding systems competence. Our quality claim at SOLARWORLD does not end with our modules; it builds on the technological maturity of our systems. This allows us to differentiate our brand from the strongly expanding module portfolio offered by our competition and to position ourselves with industry partners and end customers. Risks from from tougher competition

Our R&D activities drive our growth and contribute considerably to group performance because boosting our innovation enables us to cut costs.

• Thanks to the optimization of wire sawing technology, we achieved a relative yield increase of five per cent.
• The reduction in wafer thickness from 210µm to 180µm which we realized for numerous wafer customers in 2008 resulted in an effective reduction in silicon consumption of five to six per cent.
• We gained a further technology edge in the market by means of joint development projects in material and solar cell characterization with deutsche solar and DEUTSCHE CELL. In 2008 we achieved a four per cent increase in the mean efficiency rate of poly-crystalline solar cells.
• In cooperation with SOLARWORLD INDUSTRIES AMERICA we planned a 100 MW line for mono-crystalline silicon-based solar cells for the new site at Hillsboro, based on production experience in Freiberg. Since the launch of production in the autumn of 2008, solar cells with efficiency rates of more than 17 per cent have been produced at Hillsboro. Thanks to our successful transfer of know-how, we have not just successfully expanded our top position in this product area but also transferred it to one of the key markets of the future, the USA.
• In the year under review we also performed successful work in the field of crystallization of poly-crystalline silicon. We substantially increased the mean block mass and reduced mean cycle times. As a result, we achieved overall productivity increases of up to 18 per cent.
• We recorded a further achievement in the field of commodity-saving RGS (Ribbon Growth on Substrate) technology, which forms an alternative to classical wafer production (block crystallization and sawing process) and was further developed by our affiliate, RGS DEVELOPMENT B.V. Notes/Scope of consolidated financial statements and legal group structure Reducing losses of materials by 50 per cent, this wafer technology is significantly more productive than competing processes. We already built a 60 MW pilot plant for RGS wafer manufacturing in prior years. The first casting tests took place at the end of 2008 so that we are planning plant ramp-up for 2009. In the year under review we also intensified our solar cell production activities from RGS wafers based on a publicly sponsored project funded by the Federal Ministry for the Environment. The goal is to develop solar cells with enhanced efficiency rates on RGS wafers by means of further improvements in crystallization, and the development of a solar cell process geared to RGS. Corresponding planning activities for an RGS solar cell pilot line at the Freiberg module pilot plant have been launched.
• In systems and frame technology we achieved cost cuts with newly developed products and launched the product test phase for new markets in 2008. Examples include the patented SUNTUB® assembly system, launched on the market at the end of 2008 and designed for the installation of photovoltaic modules on flat roofs without interfering with the fragile roof covering. By means of a fast-assembly system we achieved a substantial reduction in assembly times at customers thus strengthening a key factor for customer satisfaction and retention. Our energyroof®, already successfully established on the German market, and our systems for inclined roofs were further developed for new markets and entered the long-term test phase which will expire at the end of 2009. This allows us to respond to regional authorization prerequisites and opens up market opportunities in new European markets and the US market.
• We also achieved a substantial increase in the sustainability of our solar cell production by further cutting greenhouse gas emissions in 2008. We achieved complete avoidance of perflourocarbons emissions in cleaning boats for silicon nitride deposition in 2008. We also implemented preparatory activities to recycle energy from process cooling water and water reprocessing. We will complete these measures in 2009 and thus further enhance the ecological efficiency of our products.

Scientific support by universities, institutes, and other external centers of excellence is and continues to be a key pillar of our development activities, despite the strengthening of our internal research operations. In the year under review, we continued to expand our external research cooperation activities, which range from scientific cooperation with institutes all the way to the specific development of processes with suppliers. The goal of these cooperation schemes is to evaluate and develop new processes and technologies before transferring them to our pilot plants from the laboratory stage and testing them on production plants.

In 2008 we maintained development cooperation schemes with more than 21 international research institutes, including the Technical University and Mining Academy Freiberg (TUBA) and the Technology Center for Semi-Conductor Materials (THM).

For many years, TUBA has been cooperating closely with SOLARWORLD in research activities concerning silicon-based solar power technology. The programs which we support include the “Post-Graduate Photovoltaic College”, which addresses highly qualified junior scientists wishing to do a PhD in photovoltaic. Human resources We also offer periods of practical training, dissertations, and doctoral theses for students. In addition, SOLARWORLD experts offer lectures and seminars complementing the curriculum of the Mining Academy within the framework of the new course on photovoltaic materials. The topics covered range from solar-grade silicon and the breeding of mono-crystals to manufacturing processes for solar cells.

The Technology Center for Semi-Conductor Materials is located close to SOLARWORLD in Freiberg. The THM is jointly operated by the Fraunhofer Institute for Integrated Systems and Construction Element Technology (IISB) and the Fraunhofer Institute for Solar Energy Systems (ISE). Based on the expertise of these two institutes, the THM supports the photovoltaic and microelectronic industries in the development of materials and wafers. A large number of projects are implemented with SOLARWORLD, with THM supporting the crystallization production area of deutsche solar by means of measurement and simulation tasks in order to increase yields. In addition, we maintain cooperation schemes for the development of the next generation of silicon-based crystallization processes.

We also benefit from the direct vicinity of the Freiberg Start-up and Innovation Center. In the year under review, further photovoltaic and microelectronic companies moved to the area and the Freiberg technology campus was further expanded. SOLARWORLD provided start-up funding in combination with research projects to facilitate new start-ups by strategic partners in 2008. Examples include the Freiberg-based »Instruments inline Metrology«, a spin-off of TUBA Freiberg, with seven employees developing and producing measuring devices for the non-destructive electrical testing of semi-conductors. With these companies located close to our site, SOLARWORLD benefits from short communication paths, rapid and uncomplicated support of production inquiries, and synergies in joint development activities.

Our R&D headcount rose by 52 (previous year: 54) per cent year-on-year. Where necessary, we drew on the skills of related external institutes and universities.

As in 2007, we did not purchase any essential know-how in 2008 either. Of course, SOLARWORLD drew on the supplementary know-how of third parties (primarily equipment manufacturers or research institutions), within the framework of contracts or cooperation schemes.

In 2008, 18 (previous year: 12) inventions were registered, including, for example, activities concerning the galvanic coating of solar cell contacts that facilitate, among other things, a significant increase in the efficiency of solar cells.

The group holds a total of 103 (previous year: 85) industrial property rights families and over 220 (previous year: 170) industrial property rights and/or registrations.

Research efficiency. The indicators used to display research efficiency are the annual rise in efficiency (efficiency rate/Wp) and average group-wide cost reductions. Our minimum goal has been determined in the light of the annual decline of five per cent by 2008, and eight per cent as from 2009, established by the German Renewable Energies Act. Internal targets achieved and targets set for 2008/2009+ This decline has to be offset on an annual average by means of internal cost reductions (€/Wp). In 2008 we achieved cost reductions in line with this target corridor thanks to our continuous improvement process.

In the year under review, consolidated sales rose by 30.3 per cent while research and development expenditure grew by 20.4 per cent in the same period. The research ratio declined due to disproportionate sales growth (research ratio = R&D expenditure/revenues x 100).

In the framework of the growth in our business volume, our cost of materials and personnel expenses as well as depreciation/amortization due to capacity expansion rose more strongly than our research and development expenditure. Our research intensity thus decreased year-on-year. We also invested an additional € 13.0 million in expansion of the infrastructure of SOLARWORLD INNOVATIONS GmbH at our Freiberg site (research intensity = R&D expenditure/total expenditure x 100).