All right. Good morning, everybody. My name is Chris Chaney, and I'm the Director of Investor Relations here at MEMC SunEdison. We're happy you can join us today, and we're excited to teach you more about the company this morning. We have a lot to share with you. But first, I have to go over a few quick items. This meeting will be webcast. It's actually being webcast right now, and the slides we will show you today will be available for download on our website at www.memc.com. Behind me, you will find the agenda for today. It features a number of our senior executives. We will be running straight through until about 11:40, and then we'll open the floor for questions. We ask that you please hold your questions until the end of the last presentation. And also, please mute your cell phones.
Now I will read the Safe Harbor statement. With exception of historical information, the matters disclosed in this presentation are forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties are described in the company's filings with the SEC, including the 2012 Form 10-K, in addition to the risks and uncertainties described on Pages 114 and 115 of this presentation. These forward-looking statements represent the company's judgment as of the date of this presentation. The company disclaims, however, any intention -- any intent or obligation to update these forward-looking statements.
This presentation also includes non-GAAP financial measures. You can find the reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measures in our earnings release furnished with the company's Form 8-K filed on February, 30, 2013, November 7, 2012, August 8, 2012, May 9, 2012, and February 15, 2012, and are incorporate herein by this reference. Each of these Form 8-Ks and copies of those reconciliations are available in the company's website under the Investor Relations tab.
And now I will turn the floor over to Ahmad Chatila, our President and CEO. Thanks.
Ahmad R. Chatila
Thank you, Chris. We're going to have a full agenda today. It's going to be an awesome agenda. You're going to see a lot more transparency from us that you have not seen before. And we're going to show you our businesses in detail, show you our trajectories for the future. And I want to start right now just to give you a quick summary so that it gives you a feel of what you're going to see later today.
Four elements: Number one is we are a purpose-driven company. We have made significant investments in culture transformation in the company, significant investments, especially the last one year. We did it to ensure that we have the most talented executives, that you see many of them today are here with us, and we -- it's a significant retention effort.
More importantly, it is giving us significant amount of financial returns in the future. All of a sudden, a lot of opportunities that we never thought about are coming out of this one.
This page in here on our culture, we spent many months with more than 20, 30 people trying to develop this slide. The core of it is the nucleus. Our purpose is to transform lives through innovation. Innovation is in our heritage from 54 years ago. We have created CMP, Chemical Mechanical Polishing, and epi, as well as the PPA model in our downstream organization. We have Continuous Czochralski. Innovation is through and through in our blood.
That effort was under the umbrella of one company, one culture. And many of ourselves, at some point, we have to also have one name. And because of that today, we're announcing that we are changing the name of the company to SunEdison. The decision was made simply because SunEdison has tremendous amount of brand equity. Tens of thousands of people in the world know about SunEdison. Our MEMC brand has also great brand equity but only with a limited customer set, and we have had a dialogue with these customers and they were very supportive. All our top accounts, we went to visit them face to face, and they've given us a lot of good feedback and they were very supportive in having this single name.
We will seek shareholder approval in our proxy, and it will be implemented May 30.
Now to go and discuss the businesses. 3 elements today you're going to see in detail. Number one, Semi division. Our awesome transformation, classical transformational over 4 years, with Shaker and Dave Ranhoff and others. And you'll see some of the staff today. Not only they have improved the cost structure of the company, but improved safety, quality, market share, everything. And what you're going to see today is there's more to come, more to come.
In the solar space, it is a hyper-growth situation. We estimate that $1 trillion is going to be invested in solar from 2013 to 2020 worldwide across all channels, all geographies, driven by significant reduction in solar cost. Someone is going to make money out of this, and we want to be that company. We have a tremendous platform that is comprehensive in nature, that is capital-efficient, albeit in technology, development, the capital and services.
We will not spend our money to drive this growth. We want to use other people's money. We're going to use our brains and our capability and our brand to drive the growth of the company. So you'll see today, for example, on capital, we're announcing today the formation of SunEdison Capital, but it's all about using other people's money to drive that growth.
And finally, Brian will share with you very exciting forecast for '13 and some view on beyond that in certain segments. He'll show you '14 review as well, very exciting.
So with this, I want to start with first thing with Pashu. He's going to discuss SunEdison Eradication of Darkness and also the business aspect of it and the opportunity in there. Thank you.
Pashupathy Shankar Gopalan
Thank you, Ahmad. Our purpose is transforming lives with innovation, and we've been doing this for more than 50 years. With this intention, we launched a program called SunEdison Eradication of Darkness, SEED, about a year ago, and I'm going to walk you through with what we've done in SEED and what we intend to do.
The context is there is more than 1.5 billion people that don't have access to electricity. They don't have power to irrigate. At best, those that can afford use diesel pumps to irrigate, and they cannot do 3 crops in a year. They maybe do 1 or 2. The children in these families, in this base of the pyramid don't have light for education. These communities don't have clean water because you need energy, you need power to generate clean water. There are 2 million deaths per year, which IFC has summarized in a recent report because of usage of kerosene and biomass for cooking in these houses. So It's a massive, massive problem for the humanity.
The silver lining is the telecom industry has figured out how to deliver economic cell phone service to nearly 3/4 of that market and they make billion of dollars every year. This base of pyramid spends $35 billion to $40 billion a year in the kerosene and biomass that they use for cooking, so it's not like they don't have money to spend. They spend $40 billion a year. So we have to figure out how do we impact and transform their lives while making a business opportunity out of it.
So once this case study, when we started this journey in SunEdison Eradication of Darkness, was to deliver power in the very remote village called Meerwada in Madhya Pradesh in India. We set up a solar power plant, a rooftop project, about 14 kilowatts and we ran a micro grid connecting every household, about 77 houses to be precise and close to 450 people that live -- 400 and 450 people that live in these houses. They had never, ever, in their history, seen electricity. We lit up the first light ever, electric light in this village. We have really transformed the lives in this village. This is just the first example. We actually charge for electricity. Every household pays $3 and $5 a month, depending on -- we offer an ala carte of menu, which they use.
So this is an example of what we've started in the journey in transforming lives. We are also serving economic load, which can afford to pay more. An example of that would be of flour mill, in the bottom left, where a flour mill -- every village in every country, I'm sure, has a flour mill because you have grains and you need to grind the grains. So they would use diesel, and we would switch them over to solar electricity, which is cheaper than diesel today. Everybody talks about good parity, but this is cheaper today.
We're offering power to entrepreneurs that are setting up clean water businesses as clean water ATM and offering clean water service in the village. What you see in the top-right corner is one of the most interesting applications, which, I think, is going to transform the world. It's solar water pumping for irrigation, displacing diesel pumping.
This is, in my view, a massive economic opportunity. It's not charity. It's not CSR or corporate social responsibility. But we will transform lives as we build a large business, just like the telecom industry has done. Fortunately, for me, in my role, I manage South Asia and Sub-Saharan Africa, and 95% of those 1.5 billion people live in my region and they don't have access to electricity. If you just want to get a sense of how large this opportunity could be, there are about 25 million diesel pumps that are used for irrigation globally. And if you assume each pump is 5 horsepower and an ASP of $8,000, that's a $200 billion total available market. Obviously, it's going to take decades to convert this market to solar water pumping, but when we do that, we will be transforming lives and building a very, very healthy nice business. This is our journey that we have begun.
Thank you very much, and I'm going to invite Shaker to talk about our Semiconductor business.
Thank you, Pashu and Ahmad. Good morning. I will focus on 3 main topics today: first, give you brief introduction into the semiconductor industry ecosystem and talk about the significant market opportunity; second, talk to you about how we have reposition the business systematically to take advantage of this market opportunity; and finally, I'll introduce you to 2 of my colleagues who will talk about the additional improvements we're making with cost and capital efficiency. Okay?
So let's start with the semiconductor industry ecosystem. Silicon wafers are the foundation of a $1.4 trillion electronic systems market that has a historical compound annual growth rate of between 6% to 8%, so about 2x global GDP. Though the last 6 to 7 quarters have been flat, forecasted semiconductor capital equipment spend in 2013, which is a good leading indicator of silicon wafer demand, is strong. Also, the recovery of the market is expected to start in the second half of 2013.
The key growth drivers are smartphones and tablets and emerging market applications in healthcare, machine-to-machine communications and home entertainment. Silicon wafer demand is a very strongly correlated to silicon device unit growth that are used in all of these applications. So despite device shrink, increasing functionality keeps device size about the same or continues to grow. And if you look at the long-term trend, it's healthy and continues to grow.
Recent downturns have coincided with major macro economic events like the dot com bust in 2001 or the financial crisis in 2008. The market is expected to grow from about 9 billion square inches in 2012 to 14 billion square inches in 2020.
So what is MEMC doing to take advantage of this MEMC -- of this is business opportunity? What is SunEdison trying to do to take advantage of this business opportunity? We have systematically repositioned the business for the last 4 years to take advantage of this opportunity. Following the first wave of restructuring, which included closure of our U.S. sites and started sometime in 2009, 2010, we initiated a second wave of restructuring, which further improved our labor productivity and our cost. And all these actions have significantly improved our breakeven cost structure.
And while we were improving cost, what we also did was improved several operating metrics that Ahmad talked about. On safety, we are better than the top quartile of the semiconductor industry. On quality, we beat -- we were 40% better in 2012 compared to where we were in 2011. On on-time delivery, we exceeded internal targets, which is set at about the mid-90s, and we made significant improvement in facility disruptions over the last 2 years. And this has improved factory productivity.
And all these improvements in operational metrics has resulted in improved customer service, which has been recognized by our customers. In 2012, we got Best Supplier of the Year award at TSMC and Samsung, 2 of the leaders in the Semiconductor industry. And we also improved our supplier ratings across the entire customer base.
In addition, we're also taking advantage of our downstream business. We're working synergistically with a lot of companies that are both in solar and in semi. We're leveraging our technology and our platform to work in a wide range of solutions that add value. 2 examples are Samsung, with whom we have 2 joint ventures, 1 in semi and 1 in solar; and also, partnerships with many leading semiconductor customers with whom we're working closely on solar projects. So both the customer recognition due to improved customer service and the synergy with the downstream business has helped us improve our market share.
From the low of first quarter of 2009, we have steadily improved our market share while we've improved pricing in 8 of the 12 quarters. And in 2012, we did better than the market in pricing to improved product and customer mix.
So in summary, what we've done is we've systematically repositioned the business to take advantage of the market opportunity and improve our market share and improved our business profitability.
Now I'd like to introduce David Springer and Doug Wilson, who'll talk about the additional improvements we're making in cost and capital efficiency to further strengthen our market position and our business profitability. So I'll give it to David.
Thank you, Shaker. So I'm going to talk to you briefly about our lean manufacturing journey, and it's something that we started about 1.5 years ago. And it's been really an integral part of the continuous improvement activities throughout the manufacturing organization. As Shaker alluded, we've seen some very good initial gains through lean methodologies, and we're going to continue down that journey. And I'm going to briefly describe what it is.
So what is lean? I think many of you know, lean is about the Toyota production system. It's based on Toyota's 50 years of continuous improvement activity throughout the automotive industry. It's applicable to all kinds of manufacturing not just in technology or the automotive space, but in everything from medicine to any kind of manufacturing. And really, it is a continuous improvement methodology designed to eliminate waste, improve variability and standardize work across all operations, whether its business processes, whether it's manufacturing processes, equipment reliability, et cetera. It's a philosophy that has been used in many industries, like I said.
It's also a way to reduce lean times throughout the entire supply chain organization that we call the value chain, right, eliminating unnecessary inventories, reducing time-to-market on new product introductions and other business processes that are out there.
It's also a way to align the culture from not just the engineering and the equipment teams, but all the way down to the operators on the floor. Everybody is aligned and looking for continuous improvement opportunities. If you track Toyota in the past, you can see that they have 10x the amount of continuous improvement initiatives that other automotive companies have. It's the same thing in any kind of manufacturing, getting every employee engaged in making a difference in the job that they do day in, day out.
And finally, it's really there to establish a path for a competitive advantage to grow the company on the revenue side and improve the profitability of the operation.
So for us, and specifically for MEMC, we have invested a lot of money and time in the past 1.5 years to really address 3 things that we want to go do. We want to eliminate human error. Eliminating human error provides us with cost benefits through the elimination of rework, elimination of scrap or the improvement in scrap. It's also to the improvement of equipment reliability across the board so that we're more productive on the floor. Doug's going to talk a little bit about that in his presentation next. And also to minimize the manufacturing variability. And when I say the manufacturing variability, this is really to improve the process capability of the factory, to do more sharing between the sites, to match the capabilities between the sites, to provide us with more flexibility for our customers, so that during times of upturns, we have the flexibility to move products around, to maximize the efficiency of our factories and really minimize the cost and drive increased profitability for us to stay.
So for us, in lean, lean is really 4 phases to lean: building a foundation; expanding and focus; integration and reinforcement; and finally, reinforcement and momentum. Each of these things take time. The lean journey is a multiyear transition. It's something that never really ends. Right? It's not an initiative that you start and you stop. It's something that just grows into the culture.
So the first phase is what we've been really focused on in the first year, right, building the foundation, training the people, getting the core people up to speed, proving the results that we can get out of it. Shaker showed some of the results that we got out of this first phase.
Today, we are in the expansion and focus phase. Right? We're deploying it to more sites. We've only really touched 3 of our 7 major sites. In 2013, we are going to be deploying throughout the manufacturing organization, hitting all the sites. So it's really about teaching more people, getting a bigger core involved in lean, expanding it outside of this manufacturing and into the business processes.
And then in the integration, which will be down the road, which will be more of getting everybody involved. Right? It becomes part of the culture. It becomes just part of the way that we do business.
And then finally, in the last phase, it's really something that's unstoppable. It's just -- that's who we are. That's how we operate.
Today, as I show in this graph, our current status is we are in the expansion and focus phase. We've really just started to scratch the surface of the opportunities within the manufacturing organization to drive continuous improvement and results. Shaker showed some of the good result. I'm very pleased with the progress that we've made in the last 1.5 years. But I'm really excited about the opportunities that we have going forward because there's a lot more opportunity as we start deploying these methodologies into other parts of the business, including business processes outside of just manufacturing.
So today, we've got a good start in 3 of the factories. We've got 7 major factories that we're going to be continuing to roll this out, and I see nothing but upside and opportunity here with lean manufacturing.
So thank you for your time. I'm going to turn it over and introduce Doug Wilson.
Thanks, David. So the first thing I'm going to talk about is epi as far as our efficiency -- capital efficiency and OEE. The first thing I'd like to talk about is we certainly realize that over the recent history, epi is expanding as a percentage of total silicon volume, and we expect that to continue in the future. The nice thing about that is it's fueled by our leading-edge foundries and also logic manufacturers to fuel the smartphone growth and the tablet growth that we've all seen recently. And so -- and we expect that to continue as well, as Shaker alluded to, and some of the other applications to pick that up.
Epi wafer sell at a higher ASP than other products that we have, which is a benefit for us. And in 2013 or by the end of 2013, we expect to achieve a greater than 25% OEE efficiency improvement on epi production. And so that's also one of the things we're working on.
So in summary for epi, we realize what the market is doing. We realize that epi is going to continue to grow as a percentage of the volume, and we believe we have a very capital efficient approach to resolve this and grow with the market as epi continues to grow.
For the rest of our business, not just focusing epi, we also have to focus on the crystal portion of our process and the wafering portion of our process. And we have plans to do that as well. As you can see, our efficiency -- our capital efficiency is ahead of our historical average, and we're continuing to improve every year on those averages. As we continue to improve on those averages, we will be able to maintain our asset turns ratio greater than 1 and -- which is a big benefit for us as well.
And in summary, our very high asset turn and capital efficiency plans will allow us to manage the -- to maximize the ROIC through all of the business cycles that's semi will incur.
And so with that said, I'll conclude and turn it over to Steve O'Rourke, who we will begin the solar portion of the presentation.
So good morning. I look around and I actually recognize many faces, so welcome. I'll extend that welcome on top of Ahmad's welcome earlier today. Thank you all for being here. I think those of you that may have come from the East brought the good weather with you, so we have some very good weather here, at least for all us, to enjoy. So again, thanks.
I'm going to start off the discussion now on our Solar Energy business. Okay? There's a fair amount that we need to address. It's a fairly complex business overall. It's an immature industry. Right? It's one that's growing now, and there are a set number of folks that are able to capitalize on this. So as we look at this, I want to talk about 3 things. I want to talk about the market opportunity, that is the price that we're playing for. That's one. I want to talk about our position within it, that is SunEdison's position to address that market and to capitalize on it. And lastly, I want to talk about the platform architecture that allows you to seize that opportunity. What does that mean? It means that we built a company, we built a company over the past several years and we've assembled the pieces that allow us to most effectively go after that opportunity and seize that opportunity.
I'm going to provide the initial introduction. And all that follows, with respect to the rest of the folks you'll hear this morning on energy, will detail that platform architecture and detail what we're doing in each of the areas to capitalize on that opportunity. This is a long-term time horizon. This is not something we look at over the next 1 quarter, 2 quarters, 3 quarters but many, many years, many years.
So that said, I'm sure many of you have seen something like this. This is an economic snapshot of the industry. So what do I mean by that? The X-axis is an installed cost per watt for a solar PV system. The Y-axis is levelized cost of energy. What this means is we have 2 curves on here. 1 is for a solar radius of 5-kilowatts per meter square per day, another is 6-kilowatts per meters square per day, where the industry is at any given point, can be seen based upon an installed cost, which equates to a levelized cost of energy. Now this is a general format. You have to tailor this to specific regions, but this is a pretty good picture of where the industry is.
So what's important about this? What's important about this is that the industry today is in the process of transitioning from policy to economics driven. Meaning, we're moving to an incentive-free world. And if you look on the right side of the curve, you'll see a whole bunch of indications of what the cost of energy is in these different areas.
And if we think about where the industry is today, we're below that cost of energy for PV in many parts of the world. One I'll point out that has gotten a lot of press lately is Chile in South America. We've recently a project. The cost of energy off the grid in Chile is about $0.15 to $0.20 per kilowatt hour, fairly good estimate. A solar PV system can provide meaningfully lower electricity cost in a place like Chile, very high solar rating. So when we think about this transition from incentive policy driven to economics driven, the industry is further down that path than a lot of people realize.
So what does that mean in a sense? It means the market is growing and the market will continue to grow. This is effectively third-party data, and it's on a regional basis. So point number one, the market is large and the market is growing and it will continue to through the remainder of this decade and into the next.
Can you ever accurately predict this stuff? I think, probably most people here in the audience, myself too, it's hard. It's really hard to do. But what we do know is with the transition from incentive to economics driven, with the cost profile that's being driven by the industry today, this market is big and it will become bigger. So when we look at this overall, you can see with third-party data out through 2016, we extrapolated data from 2017 to 2020. The market's big. It's about 500 gigawatts through 2020 and probably an investment of about $1 trillion cumulatively to be able to implement that.
It's a huge market opportunity but let's make an assumption here. Let's be conservative. Let's assume only half of that happens. If half of that happens, it's still a very big market. And when you look at the industry and you look at the positioning of the companies within it, all the companies we hear about, there aren't that many that will be able to seize upon this as effectively as a few. That's point one.
Now think about where the value is shifting within the industry. Right? So this is a separate slide. It's a separate picture of this overall. And where does everybody play today? What do you hear about today? You hear about big projects, utility projects all over the place. Utility has been in the forefront of people's and the industry's mind, and that's where the value creation has been for a lot of company.
But now take a step back and think about distributed generation, smaller, commercial, and now think about residential small commercial. Those 2 segments of the industry -- there's really 3 fundamental segments. We can talk about all 3 of them, but it's small. So if you think about from that perspective, the growth rates of the distributed generation segment, the residential small commercial segment are higher than that of utility, point number one.
Number two, the ASPs are higher. The pricing per projects going in is higher, and the margin profiles are higher. So what we're seeing in industry, and this shouldn't be a surprise, is a transition of value in the industry towards the distributed generation segment.
The thing about utility, also, is what you've heard, too, is some very low prices, right? When you look at this industry, you delve into it, you all year these announcements about PPAs. You hear really low prices on PPAs for utility. It's more mature. It's being driven in such a way that you're seeing some margin compression with it as well. And when you really think about it, what does utility have to compete with. It competes with central generation sources. It will compete with natural gas. So in here in the U.S., with natural gas being pretty inexpensive, the input source for natural gas plant, the competition is a little stiffer, which compresses margins on utility.
So where is the value creation shifting? It's shifting towards distributed generation and residential. So you think about it, higher growth rate, higher price, put the 2 together and that's where the value shift. So when you think about that, now you've got to think about position. Large market, shift in value towards distributed generation, companies that want to succeed over the long term and build that platform and architecture throughout the world, you have to be able to pursue the market opportunity and position the company to do so.
So what has SunEdison done over the past few years? SunEdison, in 2009, was about 38 megawatts, relatively small. Over the past 3 years, the growth has been about 10x, more than 10x. Large company in this industry -- and I'll show you a chart in a moment here about some positioning. And if you think about 430 megawatts in 2012, that is the second-largest installer on a global basis in the industry. Total installs for in the industry, roughly 30 gigawatts, maybe. So it's still relatively fragmented. But the big players are 400 to 500 megawatts. Those are the big players in this industry, and those are the ones that are positioned to grow. They're the ones that are positioned to aggregate more of this market, pull the market in and actually grow with.
So we expect that growth to continue. We expect to be able to capitalize on that. And others, you'll hear all of the regional folks talking. Brian will talk at the end about our pipeline. And when you think about the translation of the pipeline into these kind of numbers, you'll see that growth going forward. It just makes sense.
So now I want to talk a little bit about positioning. This is data from IMS, right, and this data shows the top 10 installers. This is their fourth quarter report on a global basis in 2012. We pulled out the company names, but this is all public data. You can actually go find it. So I'm not going to talk about companies per se, but I want to talk about positioning. We talked about 2 things. We talked about the size of the market, geographic diversification. The size of the market globally is big. And as it is big, you have to be positioned to be able to seize it where it is throughout the world. If you play in a single place, you will, by definition, limit your opportunity. So geographic diversification is important to seize the whole opportunity or as much of it as you can.
Number two, you have segment diversification, utility, distributed generation, residential, small commercial. So we talked about you see the value shifting towards distributed generation, residential, small commercial. Utility is still good, but these other elements will actually take up more of the industry as we go forward. And so you have to be positioned for both. So positioning is very important.
What I mentioned before, the whole world looks at utility. That's what's driven industry for the past several years. That's where everybody plays. That's what you hear about with all the announcements in these 50-megawatt, 100-megawatt projects. And that's good, it's all good.
So if you look at the top 10, what drives it? Utility drives it. Utilities has driven it. And then you think about geographic diversification. Most of these companies operate in a very particular region. China is one of them. You see it there. China is going to be a 9- or 10-gigawatt market this year. A lot of it is going to be driven by China-focused developers. So it works in some respect.
So all that said, what's important is to be able to play across, as well as why we diversify geographically. You need both to be able to really seize the size of this opportunity and build out a platform that can work all over. So when we think about what we've been doing, yes we played in utility, the core of the company, SunEdison, is distributed generation from years ago. We ramp flow businesses. Distributed generation is unique and interesting and very good in many ways. It is higher value, but it's also smaller projects that happen more quickly. The whole development and implementation cycle is faster. That being the case, you can drive what we consider and call flow businesses. That is rather than these giant lumpy things that come in quarter-to-quarter. You can actually start to drive a smoother revenue stream and implementation stream over time.
So all this said, there aren't that many companies that are broadly geographically diversified and segment diversified. What we have very actively built out over the past several years is precisely that profile. So this is the positioning side of it. This is to take a look at the market, see where the value is geographically and by segment and to build the platform that allows us to capitalize on it. That's the development part of this overall, the development part of it.
Lastly, I'm going to spend a few minutes on this. What do you need to do to seize this opportunity, to take advantage of this huge opportunity, $1 trillion over the course of the next 8 years and in this investment around the globe? $1 trillion. Let's assume it's $500 billion. It's large. It's very, very large. What we have done over the past few years is we have built a company architecture, a platform architecture. Ahmad alluded to it. We're going to talk about it in detail as we go beyond this.
On the energy business to be able to seize this opportunity, you cannot be a point solution and win the day in this business. You can't be just a point solution developer or just a single point solution technology owner developer. It's hard. It's hard to capitalize on the whole industry if you do that. You can be a niche player if you do that. But what you can't be is someone that's big, drives the industry, drives the maturity of the industry and grows with it in a very meaningful way and capture the value within it.
So what do we you need? You need 4 things. You need technology, a deep capability in technology. You need development capability. You need the ability to aggregate and use capital. And you need service, which wraps it all at the end. Those 4 things. Most companies go out and look, will do one of these. Maybe some will try to do 2. The platform you need to seize this opportunity, to drive this industry, drive maturity and actually aggregate the value to the company, you need the whole platform.
So when we think about technology, high efficiency, low cost, we're going to talk about that next. What have we done today? 330-watt module at $0.65 a watt cost. Where are we going to 2016? 400-watt module at $0.40 cost. A technology is critical, a technology road map is critical for a post-incentive world. We all have to make the assumption that incentives will go away over time, and they should. If incentives go away over time, how do you drive the cost profile most effectively to be able to capitalize on an economically driven industry, not a policy driven industry? You drive technology. You drive technology. You have to have that knowledge, that deep technology capability and you have to be able to drive it. That's one.
Two, development. Talked a bit about this from a market perspective, diversification, global diversification geographically, segment diversification. You have to build both. 430 megawatts installed in 2013 -- 2012, I'm sorry, completed. 430 megawatts completed. Geographically, very distributed, as well as from a segment perspective. Very important, we will be driving that distributed generation smaller system mix into our overall business going forward for all the reasons I stated. The value is greater. It's the value shifting within the industry, and it's what accrues the greatest value to the company and enables our ability to continue.
Third, capital. You need to have ample access to low-cost capital. Why? Because you need to grow. Right? If you think about a $1 trillion of investment, you've got to underwrite a big industry now. And if you think about the financing capability for this industry, it's relatively immature. Everyone here should understand that pretty well. I remember from my days in the past, in the prior life, we used to push very, very hard at the bank I used to be at for investment into this kind of an area, develop new asset bases. And if you're ahead of the curve, it's incredibly lucrative over time. So capital is very, very important. We raised $2.3 billion in 2012. We will be raising more going out. We are aligning structures, driving the maturation of the capital base for this industry and capital structures for the industry just like every industry that's come before it. We're in a position to drive that, and we feel we have to. As we drive it harder and harder, it enables the growth of the industry. And those that are in the lead to do it, can again seize upon this enormous opportunity in a much more effective way.
And then services. Now that you have these assets, now that you have these things out in the field, what's critically important is driving those asset returns, superior asset returns. Today, we have over 1 gigawatt of projects under management on a global basis, over 1 gigawatt. That, by 2016, we will drive to over 5 gigawatts of assets under management. So this is a service opportunity. But what does it also do? It provides us with the ability to aggregate an awful lot of the industry, to drive the industry from a company perspective very specifically. And it doesn't have to be just our asset as well when you think managing it from an OEM perspective over time.
So this is key. We talked about the market opportunity that's big. We talked about diversification of that market opportunity on 2 dimensions. We talked about our positioning within it, which, I think, is probably the most diversified in the industry. And very importantly, it's the platform architecture to seize upon the opportunity. You got to have these things. You got to have technology, development, capital, service capability. You put those 4 things together and those 4 things provide you with a platform to build a business, a very profitable, very large business.
And now having said that, I'm going to turn this over to Vijay, who is going to talk about technology, the first of these overall. So Vijay.
Vijayan S. Chinnasami
Good morning. As you know, the industry -- so the upstream industry, the solar, is really going through a bad time, a bad shape. A lot of companies are losing money and burning cash. So I'm pretty sure a lot of you, in your thoughts, right now, are thinking, why are we still in the materials business. We're going to try to explain why and also explain the strategy around what we are trying to do.
In solar materials, we have 3 mandates. One is optionality. What does optionality mean? It means secure capacity in all cycles of demand, leveraging both internal capacity and external capacity. Mandate two, drive aggressive cost roadmap, being able to provide at least 4 to 5 years of roadmap to our downstream business so to enable them to grow the pipeline. Mandate three, technology, invest heavily in technology but have an asset-light strategy. Three mandates that we have in solar materials, and all these 3 mandates comes to 1 objective, which is to control our destiny.
And I would -- actually, what's control our destiny? Why is controlling our destiny important for us? Before I go there, I would like to sort of reset the -- give an overview of the mature businesses within SunEdison. We did a restructuring in 2011. Since restructuring in 2011, we have reduced our OpEx by half. We have realigned our capacity for poly, focusing only on semi-grade. We have continued to drive both the module cost and the wafer cost to the point where, today, we are in the leading -- one of the comparatives in the industry since we started 2 years ago. This restructuring effort has helped us to achieve positive EBITDA in the last couple of quarters, and I'm proud to say that because of this restructuring effort and the achievement of positive EBITDA, we are no longer a burden to the corporation.
Going back to controlling our destiny, why controlling our destiny is important. This slide provides a picture of where the industry is today. Both in upstream, in the module space and also in the poly space, companies are losing money. The spot price is way below cost. Module ASPs are below production cost, and the industry is not sustainable. The current situation is not sustainable. And from our perspective and we look at it and say, we see multiple risks. One, we see module supply, and we begin to see it only in Q1. Q1, today, if you want to seek out capacity, you probably have to get a longer lead time than what you used to do last quarter.
Quality. We are worried that cutting corners in this environment. So there's price volatility and again, we see it in Q1. Compared to Q4, we started to see pricing is inching up. When you have a downstream business, where the focus is to grow the downstream business, we cannot have a strategy that's going to be dependent on 100% of external factors. And the risk for us is very high when you have such volatility in the industry and the industry is in an unsustainable mode right now. And in addition to that, the trade wars. Every other month, you get trade wars between countries, and that is creating more uncertainty in the industry. And it's very important for us to figure out how do we really control our destiny with what's going on in the industry today.
This slide, sort of gives you a perspective what we are trying to do from a supply chain and business model perspective. I talked about, in the very beginning, about asset-light strategy. An asset-light strategy means really being smart about where we put our capital and how we drive the right profitability mode for the company. We played all this modes: from module, cell, wafer to poly. And if you look at where we play in modules today, our objective is we control the technology, we develop, we invest in technology but we're not going to manufacture it ourselves. We do contract manufacturing. We take advantage of local content and being in different regions around the world.
Cell is the same thing. We toll using our wafer technology and leverage. Again, the reason why we do it is because of the trade wars and to utilize the capacity that is only available in the industry. Wafer and poly is a bit more broader for us, where we have both internal capacity, we have JVs and also we buy externally. We go out and secure whenever we can, when the price is right to drive as much capacity as we can in the industry. So we keep a very flexible supply chain to really manage the business in such a way that we can leverage both our technology capability internally and also leverage what the industry could offer us.
So coming back to controlling our destiny and what we are trying to do from a technology piece. If you look what the cost of module in the system costs, couple of years ago, module was like 70% of total system cost, and now, it's less than 30%. What it tells is us is as much as cost of module is important, the efficiency of the module is becoming more and more important, too. A 1% increase in module efficiency is equaling to $0.05 or $0.06 reduction in the BOS. So that's helps us to define our strategy. Where do we want to focus our technology? And the answers is pretty simple, focus on low-cost panel, at the same time, increase efficiency of the panel. So that not only do we look at getting a lower-cost panel, overall, we also achieve a reduction in the balance of system cost.
So as Steve alluded to, we have a clear goal, what we want to achieve. We have a target of achieving 400 watts at $0.40 per watt by 2016. We will exit 2013 in the low 60s, above 300-watt panel, and we have a clear path to get to the 400 watts, $0.40 by 2016, clear goal. We know, with all the technology we have, and I'm delve a bit on the technology piece to give you an indication of how we're going to go and try to make this happen.
So how are we going to execute? What are we going to do to try to achieve the 400-watt, $0.40 panel? Four-pronged approach: one is lowest poly cost and high quality. You can go -- you can get low-cost poly today, but quality is a suspect. Low-cost poly, high quality; the second is getting the lowest-cost mono wafer at the highest efficiency; third, high-efficiency cell; and fourth, I alluded a few times, having a flexible supply chain, leveraging partners and leveraging the different locations we have to maximize our growth and profit. Four-pronged approach towards achieving our technology roadmap.
This is an interesting slide. We took out the companies' names, but probably you have seen this. This is Bloomberg, New Energy forecast for poly. One thing I'd like to reset -- review on the slide is this is about variable cost. This only captures the variable cost of poly. And we can -- well, fully-loaded cost is probably around -- you have to add between $8 to $10 on top of these variable costs. To give you an indication, raised all-in cost is from most of the players in the industry today.
Our proprietary technology, high-pressure FBR, that we are working on with Samsung and will be launched end of this year, end of -- in Q4 this year. We will deliver the lowest-cost poly in the industry, less than $15 all-in cost. When I say all-in cost, that includes OpEx, depreciation and interest, and we will be the lowest in the industry by the time we launch our JV end of this year. That will not only give us the lowest-cost poly, the proprietary technology also allows us to get high-quality poly. So that's the first prong approach, get the lowest-cost poly with a high quality.
Second is getting the lowest-cost mono wafer. Two clear actions that we are in the path to achieve: one is achieving the cost of growing an ingot at the cost of multi. One of the things that have been eluding the industry is, "How do you get a mono wafer cost equaling to multi?" The cost of a Cz batch production today is approximately 2 to 3x more expensive than a multi DSS process, and that's what's been eluding the industry. Efficiency is pretty good, but how do you get the cost down? So we have a proprietary technology, came as part of the acquisition we made with Solaicx a couple of years ago, and that technology allows us to get the cost of growing an ingot with a continuous Cz process, as close to a DSS process, which is the multi cost. So now think about it. You get the cost of growing ingot closer to a DSS cost and you get the benefit of the efficiency. Now, you get a cost of a wafer cheaper than a multi cost or equivalent to multi cost so that's a game changer.
The second piece of improving -- getting to the low-cost mono wafer is processing the wafer, slicing the wafer with diamond wire. We've been working on diamond wire technology for the last couple of years. We've come a long way in perfecting the process and the know-how. We have come to a point where diamond wire will give about 20% to 25% reduction in cost compared to slurry. It gives us lower kerf loss, thinner wafers and increased cutting speed.
And now, you get a mono wafer that is -- ingot that is lowest in the industry, and in addition to that, you're able to lower also the cost of slicing the wafer. And ultimately, these drives the cost of mono wafer equivalent to a multi cost. And then, you get a total game changer when you have high efficiency mono wafers being able to get high efficiency cell processing and the wafer cost is as close to a multi cost. So that's the 2 piece of proprietary technology that we're working and we're developing, and we're in the right path to achieve where we need to go.
The last piece is flexible supply chain. I've talked about it a few times, about flexible supply chain. The whole objective is being asset-light, being smart about where we put the capital, leverage where our technology is, leverage where we have partners and really capitalize where we have captive market, where local content is required, where trade wars plays a part and really create a flexible supply chain that we could maximize profit for the company. That's the whole thinking around flexible supply chain business model.
And finally, again I just want to go back to 3 mandates that we have in solar materials. One is optionality, secure capacity throughout all demand cycles, both looking at internal and external. And here, the important part is we will continue -- even to the industry, cost is below production cost, but we will continue to leverage the industry, wherever it makes sense. That's one. Second is drive aggressive cost roadmap to be able to give the visibility 4 to 5 years for downstream business so they can grow the pipeline. And last is invest heavily in technology so that we can create differentiation, and we can also have the strategy of asset-light implementation. Thank you.
Thanks, Vijay. So I'm Tim Derrick, lead our North American team. I'll take the first cut on development, closely followed by my colleagues in -- from Europe, Asia and China. So the story in North America is really about steady and sustained growth. If we look at 2013, 3 gigawatts, 4 gigawatts, 5 gigawatts, growing out through 2015, roughly 8 gigawatts by 2016. On average, it's about a 25% CAGR in North America, really underpinned by the 30% ITC, which we have through the end of 2016, which steps down beyond that to 10%.
If we look at it by way of segments, the smallest but fastest-growing segment is residential, growing at about 3x during this time. The segment which is our key driver, the DG/Commercial side, growing at about 2x. It's a highly fragmented market, but it's what we describe as the largest uncontracted opportunity between 2012 and 2016, and I'll explain a little bit about what that means. Utility segment is still the largest segment in solar in North America but it's growing the slowest. The challenge of the new ones -- and this data comes largely from Greentech Media and IHS, the challenge here is this represents built capacity. What it doesn't represent is capacity that's already contracted.
So with the 3- to 5-year cycle time on a typical utility plant, a lot of this growth, a lot of this capacity from 2012 to 2016 is already contracted. Now the good news is SunEdison has a significant chunk of those contracts, but the opportunities for new projects and new contracts will be difficult, less than 1 gigawatt per year in the utility segment. But what we do see is a tremendous opportunity. What we have seen already is the opportunity to codevelop projects, to jointly develop projects with other developers who, for whatever reason, may have had difficulty bringing their project to the finish line. So we see sustained opportunity on the utilities side, codeveloping, managing some of the fallout that we'll expect coming from that segment.
A key market for us still remains Canada, capitalizing on the Feed-In Tariff Program. We have both our development assets, we're one of the largest players in Canada on the development side, but also on the manufacturing side. And our manufacturing line there is, I believe, our most profitable globally, given the domestic content requirements in Ontario. We're eagerly awaiting development of the FIT 2.0 market. That's just kicked off in January. We'll be receiving news on how that is going to launch in the June time frame.
In terms of key accomplishments in North America, 2012 was a great year for us, 223 megawatts in the ground. That was our biggest year ever. To characterize, I think something Steve said, the diversity of our portfolio is important here. The 2 projects you see at the bottom, Picture Rocks in Arizona and this is Las Cruces in New Mexico. They're somewhat representative of our "large" utility projects, still in that 10 to 20, 25-megawatt range, the largest projects that we've built. So we're well diversified from DG to utility. And what you see in our portfolio that may differentiate us from some competitors is, in fact, the absence of the big multi 100-megawatt projects. We do it on an average project size, that's well under 10 megawatts. A lot of it's coming on the DG side.
So that puts us in the #3 position in North America. An exciting milestone, not just for SunEdison but for the industry, is the "achievement" of grid parity in 2012. We see easy examples or well-defined examples of this in island markets of Hawaii and Puerto Rico. On the DG side, on the retail side, we're building projects for our customers like Walmart and others at or below the rates they're paying for the utility. So in these key markets, we've hit that important milestone of grid parity, but it's a bellwether of where we're going, as Steve addressed.
We see also pockets of grid parity, if you want to call it that, in the high-insulation regions of the deserts, California particularly. We're also beginning to see it in retail markets, somewhat in New England. So it's an important milestone for us in 2012 to have achieved that in a couple of key markets. Whereas most of our utility work in the past has been -- this year is a good example, Arizona, Nevada, New Mexico, Texas. California, really, our utility work in California begins in 2013, approximately 160 megawatts, under. We'll start construction in 2013. At the same time, a lot of our focus is both -- remains on scaling our DG platform, growing our DG platform for a high-volume flow business.
With regard to opportunities and challenges. I spoke about growth. Grid parity, I'll say a few more words. A lot of our planning as a development shop is really planning beyond using our technology roadmap, using our forward cost curves, using our understanding of markets to really plan for a market without incentives, and that has to be our focus. We will obviously take advantage opportunistically of different regulatory regimes in the near term, we have to, but most of our planning is driven long term. And we're excited to begin to see those markets open up. And as we continue to drive down, particularly our COGS, particularly, as we see, as Vijay described, the efficiency gains, et cetera, tremendous opportunities, we can see and predict how those markets will open up as we drive down the cost of our systems.
Industry consolidation is an opportunity. As what I mentioned before, 2012 was a tough year, not just for the manufacturers but for a lot of developers, a lot of small developers. We see a steady stream of developers who need help pushing their projects across the finish line, and we've kind of rebuilt our capacity to work with outside players really in a joint development capacity, and we expect a steady stream of opportunities from inorganic type opportunities, more on the joint development side versus acquisition.
A big story for us in the solar industry, but I think particularly SunEdison, given our leadership position, is on the cost of capital side. It's a tremendous advantage for us, and then Chris is going to address that in some greater detail this afternoon, as well as Carlos. So this is a huge lever that we can use.
Challenges in the market, natural gas pricing continues to stay low with abundant domestic supply. It's an issue maybe more on the utility side than others. Ultimately, in California and other states, natural gas is used as a proxy for the avoided cost of electricity. It provides a relatively stable low-cost solution for utilities. But -- and by the same token, on the DG side and residential side, there's -- it's not a huge obstacle for us. And long term gas is our friend, from a complementary perspective, complementing the peaking characteristics of solar.
We still remain in regulatory-driven markets. I think we have one of the best government affairs, regulatory affairs teams in the country, so we're actually shaping a lot of that policy and those incentives. So I feel like we have a distinct advantage in terms of seeing what's coming, in terms of incentive regimes and being one of the first players in those markets to capitalize on those opportunities, but we are still reliant on those -- on a lot of those opportunities in markets, at least through the next several years.
Market friction, I'll just throw this up there. Grid parity doesn't mean free market, it's still energy markets governed by regulated monopolies. So there are issues within our connection, so we're continuing to leverage our strength and position SunEdison as a partner of utilities, working with them to deliver renewable solutions. So it remains something that -- we view the utility, whether -- regardless of the segment we're in, the utility still is our primary customer and partner and working with them to facilitate the integration of solar in the future.
Just final slide on strategy and pipeline. I'll start with DG, again a primary focus for us. We have to continue to position and grow our platforms to take advantage of rapid growth in DG. We're targeting 12% market share by 2015. This is in a very fragmented market today. It's really about building a machine through which we can drive high-volume flow business and ultimately, linearity. We've got a growing backlog and pipeline on the DG side that we continue to leverage. And a lot of this is on lock as we drive down the cost of the systems and drive down our COGS and complement that with competitive cost of capital.
On the utility side, it's -- another focus is just operational excellence, taking our seasoned engineering and construction operations team and delivering on high volume of projects, and that's what we're going to see in 2013, focusing on quality and safety and execution. Very proud of the job that the team has done in 2012. We need to continue to improve on that as our volumes grow. I mentioned here, selective targeting of partners that come to us with projects that, typically, in need of capital, sometimes in need of equipment, and we're going to be bringing in some additional projects through external channels, and it's really in the utility space where we drive capital -- efficient capital allocation really drives our business, future lever for us. And again, look forward to Chris' comment here in a little bit.
Canada still remains an important market for us. We're in a harvest mode from FIT 1.0. This is the first iteration of the Ontario Feed-In Tariff utility scale. That's a $0.44 tariff. It's a very robust incentive regime. 2013 is a big year for building out our capacity in Ontario, that stretches into 2014. And again, converting our next round of FIT 2.0 projects. This is now focused -- FIT 2.0 is focused more on smaller, less than 500 kW systems, and we're going to continue to exploit the opportunity presented by the domestic content market there for modules. In sum, pipeline in both utility and in Canada continue to drive the volume that we're seeing, both in 2013 and 2014.
With that, I'll pass the mic to my colleague from Madrid, Pancho Perez.
Good morning. Good morning, everyone. My name is Pancho Perez, and I oversee SunEdison operations in Europe, Middle East, North Africa, Latin America and Japan. I will start the presentation by giving you a very brief overview on the markets and the areas that I manage. I will then talk about achievements that we have done in the last few years. We will talk about opportunities and challenges, and we will finish by explaining to you how we are positioning our strategy in the different geographical areas where we operate.
So if I were to leave a message with you from this page is just that we see, with the excitement and optimism, the development of the image of the regions. Each of them presents different opportunities, different challenges. But if I were to leave 4 thoughts with you about this growth that we foresee is one, Latin America is transitioning towards a sustainable market, and this creates, even today you saw some of our announcements, long-term opportunities for us. Very exciting region, where we are seeing solar developing in a very efficient way, not just driven by feed-in tariffs or high subsidies, but really by energy mix from the players -- or for the customers that we identify in those markets.
The other one is Europe. Europe, we don't consider Europe as a dead region. We see short-term opportunities like, for example, the U.K., very liquid market with still an interesting feed-in tariff with medium-term opportunities like Turkey. And also, markets like, for example, Poland, that will develop in the next 12 to 18 months, also with interesting liquidity that will enable projects in that market. Long term, we are seeing the opportunity to position solar in grid parity market in the south of Europe, and we will be taking procedures more in a long-term basis, and all of this on top of a very solid residential market that will continue to develop for the years to come and dominate, probably globally, the residential segment in the industry.
Also, we see, in Europe, a tremendous opportunity to try to channel the growth of our service business and our asset management by capturing on our brand strength in the region and really attacking those 8 gigawatts of projects, more than 5 megawatts, that are now renegotiating the guarantees when coming into service opportunities. So all in all, I should say, interesting growth from each of the regions, and I will come back to you in a few minutes about how we are going to position there.
Let me talk a little bit about achievements. You have here -- we have tried to take some of them and put them into this slide. But if there is one that really makes me feel proud about what we have done is the quality of the downstream organization. I truly believe that we have built a team that can operate across many different regions, across many different markets and capture projects everywhere we go. When I think that we have started in 2009, going into Europe, and we didn't have an organization and we didn't have a team and we have built almost 300 megawatts. And from there, taking that knowledge and expanded that into Latin America, into Japan and into the Middle East, this is truly the value of the downstream organization and what I feel really proud. We are well known, and I know that for some of the marquee projects that we have done, call it Rovigo or maybe Kera Telovo [ph] or now CAP, which is 100-megawatt project in Chile. What's really exciting to me is those things that don't have that visibility, that is the true meaning of growth for us.
Let me give you some examples. We signed, a few months ago, a 35-megawatt project in Israel, what was, at that point in time, the largest power plant in Israel to be built. We are working with the government of Jordan on developing a 20-megawatt plant for them in the country, and we are in bilateral discussions there. We are developing relationships in Latin America. As you can see, we are working with the state of Sonora, where we signed an MOU to build a 50-megawatt plant for them to supply energy for the government and for the municipality of the government. We have signed agreements with Petrobras, the oil giant in Brazil, to build a project this year for them. We have signed agreements with CPFL, the largest private utility in Brazil, where we are building a project for them, and we are continuing to have discussions on other projects.
We are building a project for GDF-Suez, who owns 50% of ECL, who is the largest generator of the northern grid in Chile, with 50% of the generation. All of this, we have been able to do because of the quality and the strength of the downstream organization, and this is what really, really drives SunEdison. I feel very excited when I talked to you about CAP and when I talked to you about Rovigo. There is multiple, many different opportunities that will turn our growth, really, on these marquee projects.
Let me briefly talk on opportunities and challenges, and I will not go on one by one, but really focus on a couple of them. Opportunities, obviously, U.K., Japan, feed-in tariff markets, liquid markets. We are going to play into those markets, and we are actively developing projects. So you'll see it in the pipeline numbers. But one opportunity that I think will really play to our advantage is the development of solar in new markets like Latin America or it will be the Middle East.
When you are in a feed-in tariff market, all that you want to do is develop and grow very quickly. When you are in a grid parity market, like for example, Chile or Mexico, for residential, commercial and government consumption or Brazil in residential, it's all about business-to-business relationships. What companies want to see is an industrial group with depth and with a history behind it. So when I go to Chile and I talked to CAP and I talk to many of the other mining companies, they are really excited to see a company that has 50 years of history, manufacturing semiconductors, manufacturing -- with a vertical integration, flexible supply chain.
This is one of the key advantages that I see that we have in this -- what I consider this transition from solar, from feed-in tariffs to grid parity. I think we are incredibly well positioned as a company to capitalize on those advantages and develop projects for these customers. We are moving from develop and build to business-to-business relationships, and I think that we are very well positioned, as I said, to capture those relationships and continue to build projects in those regions.
Let me talk a little bit about the challenges. Obviously, we are not pleased to see still retroactive changes in Europe. It's a concern that undermines investor confidence, and this is something that worries us. And then, there is other challenges that I think we will transform into opportunities in the near future. Let me tell you which ones are those. Financing different business models. When you are in Mexico, you want to build a solar plant but you have to consolidate different customers that will be buying energy from you. When you think about potentially building merchant plant and some of its parts are off-the-wall, you need to be innovative in the way that you create the financing structures. This is the challenge. As my colleague, Tim, was saying before and Carlos will talk to you and Chris, we have been -- we have very unique capabilities in terms of structuring transactions. And I think that if someone will develop those business models and the structuring, we are one of the companies that are going to do it faster than others.
The other challenge that we have in the market is people want to have base load. They want to have 24/7 supply, not only 7 hours of supply from solar. So the challenge from there will come in developing hybrid solutions for all these customers that want to have a 24/7 offering. And on that, we are working, and we are already innovating into that area, with some of the customers and other companies that are not just the bigger players.
These are the ones that I wanted to leave with you. The other are -- many of them are quite obvious and self-explanatory. So let me spend just a couple of minutes saying how we are going to position in the different regions. Latin America, it's all about customer relationships. I mentioned to you, we're building projects for Petrobras, CPFL, GDF. We are doing a bigger effort of positioning the company and developing relationship with these top players. And I think that we are now doing probably some of the very few projects in the Latin America but our expectation and our belief is that we will continue to capitalize in these relationships to continue to create business. And then our large-scale PPL -- PPAs and self-consumption, as I was explaining before. Mexico, we're trying to get plants below 30 megawatts. And output to CFE, for example, is doing -- consolidating PPAs and cell managing. These are business models that, I think, in the next few months, you will see us make significant progress in these countries.
Europe, quite simple strategy: operate in markets that are highly liquid and have what we call sustainable feed-in tariffs. And we feel comfortable with the regulations, and no regulatory changes, this is the prices that we pay. Midterm, Turkey, I think it will be a significant market for us. We want to play long term. We will take sensible -- not material positions but definitely, we will take positions in grid parity in southern Europe because they are approaching grid parity and there will be a substantial market in the not-long future.
And then, we are evaluating residential and definitely, services, and Mark will talk about it, a process that creates opportunity for us. The brand that we have built in Europe, we are one of the leaders. The knowledge that investors have about SunEdison and the ability of us operating the plant and capturing the business is quite significant, and we have already signed different contracts, but I don't want to steal the thunder from Mark, so I won't talk much about that.
Japan, we are going to be selective. That is an interesting feed-in tariff program. All the signs that we have received from the market is that the government wants to continue with the program, and there will be small reductions in the feed-in tariff, probably 10% to 15%, that's what we are hearing. And therefore, we'll see a market that will go beyond in a year or 2. Projects will take time to develop, but still a market that's very attractive in terms of feed-in tariff. And we want to be selective about how we're going to that market.
And then, MENA, it's all about -- what is exciting about MENA is that, having followed the reason for about 2 or 3 years, there has been a lot of regulatory discussions. And finally, we are starting to see them taking the first steps into developing projects, and I think we are well positioned in some of the countries that we'll star the market in that region. So we are taking development positions, and we are continuing to develop relationships with some of the governments there and some of the most important players. So overall, quite exciting there. The approach is very different from some regions to the other, but the opportunities that we see in the foreseeable future are very interesting.
And now I'm going to pass the stage to Pashu, who will talk to you about other regions.
Pashupathy Shankar Gopalan
The market opportunity in the region that I oversee for SunEdison is broken into 3 areas: India, Southeast Asia and Sub-Saharan Africa. The policy which drives each of these markets or the driving factors for how these markets are performing is very, very different.
India is actually also a complex country. There are many, many driving forces, so it's very hard to use a broad brush and say: "This is what is happening." But the beauty is, I think, you can make a couple of very key takeaways. Because of the dramatic reduction in levelized cost of energy from solar, you see each of these emerging countries wanting to do something in solar. And if you ask yourself, "Why is that?" Primarily because most of the countries in my region have huge power deficit. There is rapid growth in India. I think -- I'm sure, a lot of you are aware that there is significant shortage of power.
If I look at even the states that we are in, which is Tamil Nadu, there is 25% to 30% deficit of power. There is 6-, 8-, 12-, 18-hour rolling blackouts in our neighboring state, which is Andhra Pradesh. Businesses our forced to shut down for 3 days in a week. They can only operate 4 days. So this is -- I mean, it's not that these countries in this region is doing solar because of green reasons or climate change reasons, it is because there's so much need and deficit for power, that solar is able to start solving some of those problems and starting to get the support.
Second main driver is significant amount in diesel usage. I've already talked to you about solar water pumping. But diesel usage is the maximum problem. In a country like India, diesel is a subsidized fuel, and the price of diesel over the last 10 years has been increasing 7% to 8% per year. So it's very difficult to absorb. So if solar, which is cheaper than diesel today in levelized cost of energy, can start displacing and reducing, it creates a huge market, and that's been a big driver. So bottom line, I think, the levelized cost of energy reduction has been so dramatic that these countries now suddenly want to do a lot of solar. There is a lot of shortage of power, and diesel abatement is a massive opportunity in my entire region. If you add up all of that, the projections are more than 20 gigawatts in the next 3 years.
And one thing I would very proudly say is SunEdison is at the forefront of creating these markets working with the policymakers. So it's not like policymakers have created the market and the research staff have published this for us to actually estimate the market size, we are creating the market. In most countries, in a bilateral dialogue with the governments and working with them to create a framework for solar. What we have done in the last 3 years, I think, is remarkable. I'm very proud of my team. In the last 3 years, we have created -- we started in early 2010, so it's been about 3 years. We have created the leading solar platform in emerging markets. A testament to that was the investment, which I actually made, equity investments in our regional operations last year.
We've had many, many industry firsts. We've done several projects which are unique and first in the industry across all segments. Like Steve was pointing out earlier, we don't think just utility. Solar is utility distributed generation, and in my region, we're doing canal-top solar, solar water pumping in village, micro grids that we talked about. We were the first one to do a commercial Power Purchase Agreement, selling power to Standard Chartered Bank, borrowing from our deep heritage and commercial PPA from SunEdison in the U.S. So we have completed and under construction 230-plus megawatts in the last 3 years, which is the largest in the countries we operate, and a big achievement from last year is we raised, between debt and equity, $800 million, between the approvals that we've received and the drawdowns, $800 million just in 1 year, and Carlos will elaborate more in the capital section.
This is just some pictures of some of the plants that we completed last year. The Thailand plants were sold to Echo, which is the energy-generating company of Thailand, which is Thailand's largest IPP. We sold those projects to Echo. This is a project that many of you would have heard about. Here, the Gujarat government landed the precious commodity in India because it's an agrarian society, and Gujarat has 80,000 kilometers of canal system. So the chief minister had an idea that instead of using land for solar -- and Gujarat has been a very large market for solar in India, nearly 60% of the projects built in India are all in Gujarat. So the chief minister wanted to build a solar project on top of the canal, and we did that in record time and this has been, I would say, the most acclaimed solar project in all of India, most photographed and most acclaimed and gets talked about a lot, and it points to the innovation, which is our heritage.
We innovate and we try and make things that are impossible to happen. See, the other beauty of this plant is Gujarat is a very water-starved state, and the canal systems carry a lot of water. The idea is when you have a solar power plant sitting on top of the canals, you also save water by reducing evaporation. So this has received a lot of support from other states in India. And a lot of other places in Egypt and other parts of the world, as well as heard about this project and want us to do this canal-top solar. It's a new category, a new segment which I think SunEdison has created.
It was a proud moment for us last year when the Independent Power Producers Association of India, led by our a very eminent jury of energy secretaries and energy regulators working with Deloitte, selected us to be India's best solar power producer. India has been a tough market with 100-plus competitors, but I think I was very, very happy and thankful to the team and the support from SunEdison headquarters for having made this happen.
I think we've talked about the opportunities a lot. The challenges we see in the geographies that we operate are a very high cost of debt. India has 13%, 13.5% long-term cost of capital. Debt, South Africa can be as high 10% to 12%, so uniformly, you see higher cost of debt. Thailand, that is not the case. Thailand and Malaysia are far better. So what we have done is as a strategy we have worked, and I'm proud again here for having led these efforts, for having built strong relationships with multi-lateral institutions like OPEC and IFC and reduce the cost of debt.
The other issue is being first to solar. Many of these markets are new. You don't have employees that are trained in solar. You don't have contractors that are trained in solar. Interconnection is always a problem because the utilities don't know how to do it. So we are going through the pain of actually working in geographies where solar is being implemented for the first time. But we're happy because SunEdison has a lot of resources between Europe and U.S. that have been helping us in overcoming these barriers of being in a new country and a new market.
Government policies in solar has been, true in other markets, more so in the the countries we operate as well, have been in fits and start. In the start of solar policy, do a bunch of projects and also there's not a lot of visibility. The beauty of -- I think our thinking has been from day 1, and Steve alluded to this, is we've been very, very careful in geographically diversifying us. We don't -- as a region, we have already started operations in India, Thailand, Malaysia and South Africa, and we've been very careful to create operations in countries which will be sustainable and not be stuck with one geography, which can then you will be prone to the vagaries of policymaking.
In summary, our focus at the moment and our biggest strategy is to convert our business into a consistent flow business in the region. So we're focused heavily on distributed generation, and which includes commercial, industrial rooftops, as well as solar water pumps. And then when we go into a country like South Africa, we want to make sure it's a sustainable market. We're not there in and out. We want to make sure that we see visibility. So we've been very careful in evaluating and going into countries carefully, understanding the risks, as well as ensuring that these will turn into sustainable and consistent market for us. And with this, we've built a pipeline of over 400 megawatts on which we're working right now to grow our business.
With that, I will invite my friend, Charles [ph], who will talk to you about China. Thank you.
Good morning, everybody. I recall, right, I have over the weekend, I was traveling from my hotel to the airport on my way to Shanghai. The driver talked to me, "You're going to Shanghai, right? How many people in Shanghai? What's the population in Shanghai?" So I asked the driver, "What's the population in Singapore?" The driver told me about 5 million. So I asked him a second question, "What is the population in Malaysia?" He told me about 18 million. So I say, 18 plus 5, 23 million. I told him, in Shanghai, the population is larger than Malaysia and Singapore combined, about 25 million people. The driver's like, "Wow. 25 million people in a city." China is a big country, 1.3 billion, a lot of people, which mean money, big business. I'm going to show you the number in China. China -- the PV market in China is really new. The NDRC in China, they only set out a policy in 2011 about FIT when they announced in 2011 FIT of RMB 1.15 per kilowatt hour, and the PV market lost [ph] market. Last year, 2012, about 4 gigawatt of PV projects was installed, connected. It become, immediately become popular in the world, and this year, consolidately it is about 9 gigawatts, 2013. From the policy announced, this to become #1 in the world. It only take China 2 years, 2 years to achieve that. I think I don't need China to give away the position as the #1 in the world. I mean, it will only go up. I believe by 2015, we project the number to increase to about 35 gigawatts, 2015.
In the first 2 year, most of the focus is the utility scale, mostly in the western part of China. In the Guangzhou provinces, Qinghai provinces and Heilongjiang provinces also big utilities of scale projects. I think in China, recently, they announced a lot of 200-megawatt projects, 100-megawatt projects, all big projects, just only the utility scale. But one thing that is coming the DG markets. China needs clean energy. I don't know whether you guys follow. I think last month, this picture in Beijing, in Tiananmen Square, the poison was so bad. People can't even see anything. It became a big thing in China. So this is definitely going to fix the problem for pollution, and in the DG market, probably big in China for many reasons. One of the reasons is the pollution, and I think China has the most polluted area in the world. There are a lot of factories in the world. There's a lot, a lot massive rooftop. I think the DG market will be big in China, specifically in the eastern part area, in the Shanghai region area, the Shandong opportunity. They're going to be a lot of opportunity.
Accomplishments. I think we start the project in China after they announced the FIT program in 2011. So I assembled a localized team. I am so proud of my team. I think we do a project, you saw that on your way in, in the Greenfield CD for City of Guangzhou provinces. I think we did a project, some greenfield, some greenfield that we can make sure we did in 2 years. During this 2-year process, our local teams accomplished so much. It's not easy to do business in China specially for foreign company. I think we are so proud. We are one of the company -- foreign company successfully developed a project, a greenfield, to finally connect that. So the team assembled so much learning curve, have built out a good relationship with the city government, provincial government, the big company, sister-owned company. We've built so much relationship with the localized team, I'm really proud of my team. I think we are now -- we are in a very good position to revisit [ph] our debt of this growth.
Next, I will about the strategy. I should note the opportunity in China is great. I mean, I'm talking about the utility, the DG business, also the cost in China is very low. It only costs like anywhere from RMB 10 to RMB 50 to do a what? So I think China will be the first country to hit a great parity business, and also policy. As you know, there's a lot of company that's in trouble right now, specially in a merger company. Look at what happened to Suntech recently. I think the government has no choice, have to set a really, really favorable policy, to install to create the local demand. There's a really good policy to support that, but there's a lot of changes international because, China, most the connection is only controlled by poor, large, big company. I think the need to step-up there, the installation, the infrastructure, is very challenging for them. Also, financing. Today, China do not have a very, very good, what you call the lending cost financing in China. I think that this is very challenging for us, for all the company who want to do the thing in China, and also the FIT. I think the China, they might reduce the FIT. I think they start at 1.15 last year. This year is about RMB 1. I think it might go down to 0.85 pretty soon. So I think that is quickly hitting the grid parity.
And what is our strategy? Our strategy is [indiscernible] market [indiscernible] digital market. Secondly, we want to use third parties' capital to help out to run a project in China. Number three, we -- the good deal in China, especially for a foreign company, you shouldn't do alone. You need to do joint venture, even look at a lot of business in China in the automotive industry, they all have joint venture, like Volkswagen that do joint venture with the China government. A lot of industry in China, foreign company, you definitely do a joint venture. I think we are in the process of signing up with some local SOE to do the project together, and of course, when is very important. [indiscernible] I think we have the best and large and quality. Brand is our thing. We're going to do -- we want to make sure [indiscernible] brand. We've got to this or that. We've got leverage, our local team, our technology and also our quality to win the market. I have very high confidence that we will win the market. I'm with very high confidence that we'll win the market. We will do what ever in China. We will be a level one player in China. Thank you.
It's on, you guys hear me? I wanted to give Charles a round of applause. I have a nickname for him. I call him the Emperor, and now you know why. He's a fireball. If you ever go to China, I suggest you get his card, and you'll see China in a way that probably no one else will tell you. You probably get the free analyst to research out of that one because he knows everybody. He probably know every CEO out there.
It's a pleasure to be here with you here this morning. More importantly, it's really an honor to stand here in our headquarters and share with you our proposed new name, SunEdison. And I want to share with you a little bit of a personal story. My personal journey, as you guys sit here, taking notes and I hear what you hear, something is exciting, you just hear the clicking of your keyboards. I look at the stocks to see if there's any correlation. So see how I did. It's a measure to quantify it, yes, we do.
I spent 14 years working for GE. And when the opportunity came to -- to come to Solar, the first thing that came to mind was is this an asset class that could evolve. Is this a technology that has a future? And I spent a lot of time researching. I didn't know anything about Solar. In fact, I looked down on it being a big corporation. You tend to almost be not humbled about things. But after researching a lot, it -- a lightbulb went in my head and the thought was this had the potential to be the best asset class in the history of mankind, simply put, for returns and from -- and reliability point of view. Reliability point of view because 50 years of solving problems for technology. There's just not a lot of things like that. I want to talk to you about capital. And I'm going to tell you my personal journey as I go through this because I have many battle wounds, and I've met some of you guys on the road in prior capital markets a few years ago. So we've gone through the selling the projects and the market downturns and all of that. So I'm sure you guys have a lot of questions later on that probably I cannot answer to you, but maybe in the breakout. This diagram here is really important. It talks about our framework. It talks about the strength of our company. It talks about how we are a differentiated platform. And you've heard the passionate sharing of projects and insight from the team. I would argue that every single one of the share brands is on its own. No matter how good you are, it's not enough to really be a long-term player. Steve talked about most people have maybe up to 2. We think we have 4, and capital is just one of them. But I would argue, not even capital on its own is strong enough to stand on its own so you heard our view on technology.
Here comes another personal story. We had the dream to go public, and we had our S-1 and everything ready to go. This is before we had the fortune of MEMC acquiring SunEdison. It's set -- due out August 2008. Charles, 8 is a good Chinese number? It didn't work for us. 888, it didn't work in the short term, but it did work in the long-term. So we didn't go public obviously because the market's collapsed and that was just the beginning. Back then, when you saw the chart, we've grown 10x. But back then, we were an innovator, we had done the first PPA. We've done the first of many things. When I'm at a call looking to see if SunEdison will be an opportunity, we immediately coupled, not because of the time I would consider MEMC a leading player in the space because we had a downstream view that said you guys are going to get commoditized. You have 40%, 50%, 60% gross profit margin. That on the value changes is my launch, I'm going to lock in my customers. I'll see you later. That was kind of like our naïve view of the world. Then as my colleagues, and as I grew and as I learned within the technology business and as Ahmad helped me understand, it was really again another lightbulb went in my head. I'm not going to be able to underwrite as much backlog into the future and deliver for my customers unless I can have some level of certainty around that technology. So Ahmad shared with me the FBR technology and the time we have not done this legs acquisition, say, the company might have gone even better. But at that time, he and I fantasized about the 400 lot module right now. Vijay has made a personal commitment to deliver to all of you guys, so hopefully, next year, we'll tell you how we're getting there, but think about that. Look at the chart that Steve has put there on levelized cost of energy.
Actually, I'm happy. Where's Steve? That chart is like 3 years old, at least. So 3 years ago, we already had a view of where we would be today. And today, I can stand to you and say, "We're on track " now the question is how you're going to get there. So we talked about technology, and that's how we're going to get there, having the differentiated view and controlling your destiny. I think the Samsung JV for us is really critical because that's just -- it's proof of the pudding that we're going to get there and we just shared with you what that means from a cost perspective. And then, of course, the panel is just really a function of many elements, and polys is one of them.
The second one is development. You saw the GMs. They gave you their regional view. I remember, I used to get a lot of questions. Why aren't you in Germany? And Ahmad, back there, nodding his head. We looked at each other and we thought, why Germany? I mean, it's not very sunny over there, and the Russians, with Gazprom, provide gas to them, but other than, why should we be in Germany? Should we deploy our resources at the time on places that had a higher return and the answer was yes, absolutely. We'll get to Germany when the cost is there, but right now, it's not the place. Let's go to other places. So we -- Pashu talked about his business. I remember him doing business out of Starbucks back in the first entrepreneur. Back in the first week of operations, we decided to go into long-term market. So you've seen in every single geography where we're positioning ourselves. We're positioning ourselves for sustainable long-term growth in markets that don't require or what we see a path to grid parity.
So the next one is capital, which I have the pleasure to talk to you about. So you probably saw the announcement. We created a new division within SunEdison called SunEdison Capital. Hopefully, I'm going to -- by the end of my presentation, you're -- I might take a survey, and you guys will agree that makes a lot of sense. But before we go there, let's think about where SunEdison has been in the last few years. Would you be surprised to learn, maybe to realized that we raised more than $5 billion of capital, a little tiny company growing 10x? Not bad, $2.3 billion of that this past year. Obviously, that happens because you have a platform. It's interesting also to see that we've done -- people talk about tax equity all the time. And Chris, where's Chris? Chris Bailey, he's going to talk to you about tax equity. One of the questions that came up that Bryan did answer, I think, last call with you guys is your ASPs are pretty good. Well, some of that is driven also by the way we structure transactions. And today, I think we're probably the largest solar tax equity player in the country, and our cost, we believe, is a competitive advantage. We've also claimed to have done, if not the first, one of the first, solar PPAs. We also created a $1.5 billion structure with First Reserve, which was one of a kind. So in our heritage, in our DNA, it's not just raising capital. It's being an innovator, and this is no different than what we've done in our history. So we think that we've pioneered many structures and there's no reason why we shouldn't continue to do that.
I am going to walk you through every single one of these so you guys understand. This little -- there's almost a story in our book, which one day, I think, I'll write about each one of these. Everyone is like a snowflake. It has its own intricacies. They're all the same. You can group them into tax equity or financing, but each one of them, and each of the players came in at a certain time. When we started doing tax equity, for example, in the U.S., we started with Goldman Sachs and Wells Fargo. And then we saw our same structure and our same models being replicated someone else -- somewhere else. Now you might think, well, that kind of sucks, and we actually like that. We liked it because it was 24 months later, after we led that process. And we believe, and this is something that, again, is another insight moment for you, that in order for our market, our industry to scale globally, you have to set the bar high, just like we set the bar high in pipeline. We have to set the bar high on the credit quality of the assets that we underwrite. That's why in the 1,000 projects that we've done so far, we have not had a project that has combusted on our hands, and that's important that we continue to do that, and that we work with financial players that can follow and help us and partner with us.
No difference on project equity and no difference on the structure. Pashu talked to you about IFC. Why IFC? Another lightbulb moment. Well, we thought that, that would be a necessity to partner with perhaps one of the largest entities out there providing capital. I think IFC, well, correct me if I'm wrong, but is one of the last remaining AAA-rated companies in the world. Let me do a little test here to see if you guys are awake. Will you say that IFC has free cash flow to invest less than $5 billion -- more than $5 billion, raise your hand. All right, about 30% of the room. How about $10 billion? All right, quickly diminished to 5%. Well, it's $14 billion. How about having a partner that has $14 billion of free cash flow to deploy in the regions you want work on? So was it easy to get? Of course not, but you can see that the insight that goes into how we do things.
Let's talk about First Reserve. We did $1.5 billion infrastructure fund with them, and I'd like to point that -- Pancho, this was the first time they did a fund. They used Rovigo to create that fund. I believe it was about $1 billion of equity that was raised on equity -- pure equity for First Reserve out of that transaction. I believe they've done another 2 since then using this model, and I'm now going to tell you why that was important because in our journey, learning and scaling is really critical.
So you heard about the $1 trillion by 2020, easy to run numbers when they're that big. Are you surprised to hear the number, that's an aggregate number. Yes, no? Makes sense? Well, what's important is to understand where we are today, where we were last year and where we think we're going. So the PV business was $100 billion in 2012. Through the crises, the pains, all the drama, still $100 billion, which is just really staggering when you just pause and think about it. Think about where we're going to go, it's $180 billion. The important thing is understanding what takes you there. RPS requirements, if you believe half of what should happen in California, you just get excited. Quick parity markets, the chart says that Steve showed you, is not just that solar could get there. Solar is competitive already in many of those markets, net metering and other things, but more importantly costs, which again is about controlling our destiny. So we believe that the long-term this market will grow and when you look at it in aggregate, again, going from -- this is per year. Last year, 2012, $100 billion going into an aggregate so if you aggregate all the annual growth, $1 trillion. So the question remains there and if I were in your shoes, I'll be skeptical. How the hell are you guys going to get there? Well, I think I've paced that question ever since I joined the solar industry. I remember vividly KPMG asking me questions as to how we're going to grow from about 39 megawatt to our plan, which was 167 the following year? They declare it was impossible to do. And frankly, it's always been like that. How the hell are you going to grow? It's not impossible when you think about the industry that, like I told you, when I started, there's just not a lot of examples of capital needed to be aggregated like there are in the geographies that we participate so you've seen -- I think, today, there's even a bond that Citibank is pursuing. You've heard a lot about MLPs. You heard about REITs. You heard about a lot of -- it's almost like a floor out of structures that are developing. But how many of those -- and again, I'll go back to what Steve said, which is important, how many of those have done 300, 400, 500-megawatt. How many of those have now 1,000 projects, not a lot. There's probably only 3 companies in the world that with credibility tell you, they might have a chance to do the box in the middle. Hopefully by now, you see that we have done a lot of few things there, and maybe we think we have a shot. That's why I have a new job, right?
So the second question is do the returns make sense? I don't think returns of 5% in Germany IR makes sense personally, but people are funding those. So just an interesting piece of analysis, if you look at the capital required, $1 trillion, which could be aggregated at less than 8%, and you look at the market cap for the top, say, 10 players, and you look at the market cap of those companies and the cost of capital for those companies, hopefully, what you see here is something just doesn't quite reconcile, which to us is good news. It says that the IP piece and the utilities in aggregate, the top players, their cost of capital is pretty high. You can say that's also the case for us, but that's why we do nonrecourse finance, and that's what we are proposing to and doing SunEdison Capital because we want to top -- as Ahmad said, we want to top third-party capital in a structured way, in a way that is repeatable and scalable.
This is another interesting chart for you to look at. Is it possible? Is 8% possible? This chart says it is. It says, in aggregate, billions of dollars have been aggregated in a structure with returns that are less than 8%. Remember, when I told you that one of the reasons I love solar was because I felt it was the best assets class that I've ever seen. Well, I have another moment for you. I remember being in Coatesville and Jeff Immelt had a few executives and he was asking, I think at the time, was $12 billion. GE had invested everything, have funded every business and had $12 billion of cash flow left to invest. And the problem back then was are there projects out there to invest? I mean, think about it. It's almost like the opposite. Are there projects for us to invest? We have so much money? Where do we put our money? Where do we put our capital? This is another aha moment, hopefully, for you guys too, because it says, at some point, having the technology perspective, having the development engine, yet having the ability to structure capital in light of these returns, tells you that there's a tremendous opportunity here to aggregate capital and to deploy capital to the scale. By the way, the composite mean there is just 5.7% so we've got a nice, nice wiggle room there as inevitably, interest rates will go up at some point.
So just to bring it up a little bit together. We've done traditional project finance in SunEdison. We've done funds, partnerships structures. We haven't tapped into third-party or capital markets in the way that some companies you will see are. And what you see is obviously, we don't have a crystal ball but what we believe is many companies, the larger companies, will likely structure funds that are public funds that they control themselves. At this point for us, we think that we have plenty to do in the first 2 categories. However, we do think and recognize the depths of necessity for us to grow, tapping into every single third-party capital. And I'm happy to introduce EverStream, which is a joint venture -- P.J. Lee is Managing Partner there, so you can attack him on the break and ask some questions -- Energy Capital Management and what I'm going to tell you a little bit more about on EverStream, what it is and so on.
What we're hoping to do with EverStream is the ability to tap in a structural way -- and there's worse I cannot say I've been thought by P.J., but there -- the tapping into capital and also form capital but have it managed from a third-party point of view, which I'm going to take a moment here to -- just to share my perspective.
If you were to talk to maybe some of your capital markets desks, they will tell you an in-house-managed fund gets a discount of 100 bps. And I -- my perspective is yes but in order to -- show me their -- inside-managed funds that have grown at double digit over for the last 10 years. And the answer is you'll struggle to see that. So that's why we believe that to have an independently third-party-managed entity is a necessity to access not just low cost of capital but access global capital in scale. So you talk to somebody, you can ask them -- I'll ask questions. I have to get to talk and torture you a little bit, right? You can torture Ahmad and, well, Brian later on.
What's EverStream? So EverStream is an independently managed firm. It's a joint venture with SunEdison where we are minority. So it's, at some point, off our books. What EverStream has, as they're independent, that is critical for them is they have visibility to our pipeline and backlog. There isn't a requirement for SunEdison to sell nor for EverStream to buy. So it's an arm's length relationship, but one where there are, as you guys know, blind pools of capital. It's not something that is easy to fund. But, however, if they have the ability to show, look, there's a path. So when Pashu is looking to aggregate capital and -- in his region or Pancho or Tim, is easier for them to do if they have a party out there that they can start work 3 years down the road.
I'm going to -- there's many things I can't say there on that one, so I'm going to move on, on this one. It's my last slide. If there's anything you'll remember from what I just told you before I pass it on to Mark is on the left-hand side from your perspective, contracted cash flows is what's critical about our business. The quality of those contracted cash flows is really critical. That's why we have a service business that has over 1 gigawatt of contracted cash flows. And that's why we, in some cases, we decide to keep some other projects in our books. Obviously, we're trying to manage our cash flows because we believe that, that repeatability of cash flows is important. But also, as you form and aggregate capital, it's really critical. I would argue that with -- having the 4-blocker framework, you will struggle to do that and scale over time.
And then on the right-hand side, we believe there's a mutual relationship, a symbiotic relationship. It's almost impossible to aggregate and scale and, therefore, low cost to be effective and efficient capital unless you have visibility and engine to create and provide those cash flows. So I'll leave it -- I like to leave it to you with -- again, we believe that we have a differentiated platform in SunEdison, and we believe that, that is a platform that just as SunEdison grew 10x in difficult times, we believe that there is a -- we got something really interesting going on here. So I'm going to pass it on to Mark. He's going to talk to you about why the last piece of the puzzle is so critical not just for investors but also for our company. So thanks for your patience.
Thank you all for coming today. I hope you found the discussion so far interesting. For me, it is fascinating. We're on a track in this business to see 600 gigawatts of PV capacity installed by 2020. So we're at 100 today. We're going to put in 500 in the ground as an industry over the next 8 years. $1 trillion invested in capacity, in PV capacity. Now in the energy business, that's relatively small. You could consider that still a niche. But that's critical because it's a specialized business and SunEdison can address that business directly. And there's no industry, no infrastructure industry that doesn't have a professional and credible asset management group that accompanies that investment. So the capital that Carlos was talking about unlocking, one of the ways you unlock that is to also provide high-quality service that goes along with that investment. And that's what we're here to talk about today. It's a topic that doesn't get a lot of airtime so far because the industry is relatively young. But for SunEdison, we talk about it a lot. We have 1 gigawatt under management already we've talked about.
So what I'm going to do today is give you a little bit of insight into how we see the market opportunity, talk a little bit about our schematic for services, what we offer in services, why we're positioned uniquely in the industry and then tell you a little bit our strategy. And afterwards, once Brian finishes up, we will draw back the curtain and show you the Wizard of Oz back there who operates our ROC. And we do have 3 rocks around the world right now, but this is our big one, so we look forward to showing that to you after.
Okay. The market opportunity. So we talked about 600 gigawatts in the ground. Today, the service business generates around 15,000 to 30,000 per megawatt in revenue. It's roughly where the price points are. And that varies by geography, and it varies by scope of service as well. That translates into $10 billion to $20 billion per year of revenue in 2020. It's a little over $1 billion today, so it's growing very rapidly. And it's a must-have. It's going to be there -- regardless of the regulatory regime, it's going to be there as that capital is invested because the capital is going to require it. The owners are going to require it, the operators are going to require it. It's a really, really exciting market for us.
Now the need, as I've said already, is really safety and reliability. Those are the 2 of the top things that we think about when we're thinking about servicing the plant. Owners are looking for someone to manage the risk and anticipate issues as well. These are complex electrical systems, and they do have issues if you -- I hope many of you have been out to the site at this point. But you can stand at a module, and you can follow the electron all the way to the grid and you can see how many different pieces of equipment those electrons have to pass through in order to get to the grid. So it is complicated and requires careful oversight.
Owners are also looking for industry best practice. Again, the industry is relatively young here. SunEdison is on the forefront of establishing those best practices and putting standards in place so that we can get a uniform approach to how we manage our fleet.
And lastly, as I mentioned before, as the capital structure moves into a more securitized, lower-cost capital, that will come along with the requirement for credible asset management, professional asset management. And that's a big part of our growth strategy.
Okay, this is a blueprint, effectively, of how we see our own business in the service group and really maybe how the industry breaks down as well. There's 5 boxes here. The first box is the array. It's a graphic of the array. And that's where we get our data. That's the first stop. So we have a data acquisition system that we call SeeDS, and that plugs into all the devices on the array and brings the data up to us.
We collect anywhere from 250 to 300 parameters on a given site. Obviously, all the weather information, the generation. Weather and generation, those are the critical ones. But beyond that, there's an all kinds of interesting information that we can get from the module, from the inverter, the combiner box. We pull all that together for our analysis.
The data will come through either a SCADA or directly to our SeeDS system into a ROC. And a ROC is a -- to me, it's one of the most critical parts of our business and over time is where intellectual property will really accrue in our business. So we're going to drive value through the contracts that we get with our customers and with the intellectual property that we build the software that drives the ROC The ROC team is a group of technicians, highly skilled technicians that are watching the fleet and monitoring the operations. We're doing data collection, monitoring, as I mentioned. We're doing analysis reporting. We're also doing remote -- we're starting to do remote control. That's going to be a bigger part of the business as well. Resetting inverters, closing switches, that sort of thing.
And then lastly, the team is also responsible for dispatching the service team. That's our third box here, the field operations and maintenance. We have a network of SunEdison-trained contractors and full-time SunEdison electricians that manage our fleet. And anywhere we are in the world, we will balance that, but we always have SunEdison employees that are working on our site. And these folks are engaged in preventative care. And for those of you in the energy business already, you know that preventative care is super critical to long-term operation and reliability. So preventative care is a very important part of what we do. That includes cutting grass and includes washing the modules. Those are not very sexy parts of our business, but they're expensive and they generate a lot of income for us, so it's important.
Corrective maintenance as well is obviously relating to outages. So if there's an outage or a problem at the site, we create a ticket, send a field tech out there and we fix the problem and get the system back up and running.
Commissioning or recommissioning, as the case may be. So we're taking over systems that are already operating, and we're commissioning a new system.
So SunEdison is actually one of the few companies in the industry that can commission a full system. And we have EPC contractors in other companies coming to us to help make sure that, that process runs smoothly, if they meet all their tests and their system comes online and that, most importantly, the data that we're collecting is coming up to the enterprise so that the communication is working and we're getting all the data. And the data is critical. It's not unlike the information industry in that sense. We are sending electrons to the grid, but we're looking at information and that's what's driving our decisions every day.
Asset management, as I talked about, is a newer part of what we're doing. It's the financial management of the project companies that own these assets. So the ROC is not only supporting the field team, but it's also giving critical information to the asset managers who are using that to help improve the financial performance of the project company itself. So our asset managers are collecting revenue, they're paying bills, they're very importantly managing contract compliance.
So 600 gigawatts of projects is trillions of pages of contracts, I'm guessing, which is scary. I can't get my head around that. But, I mean, as you probably know, contract compliance is a bit of a difficult task. That's certainly part of asset management and a very important part. We are operating in a very complex environment right here in California, for example, one of the most complex electrical operating environments in the world and highly regulated. So we need to be real professionals in how we conduct the business of the project company itself.
Client service, lastly, is a critical part of how we will grow our platform, and that is because investors require and want high touch. They want to know what's going on with their assets, they want reports, they want a returned phone call. And this is a really important part. We're a technical organization. We're focused on technology implementation and execution. Client service, though, is a softer side of that business, also very important for us to grow.
Lastly, energy management and grid integration. This means a lot to this company in a lot of different areas. But for the purposes of this discussion, I'll tell you that it's a way for us to differentiate our service offering to our clients, okay? So for example, utilities may need batteries to help with grid stabilization, and so we have teams here working on battery technology and how that's going to get integrated to solar. We also have teams that work with our DG team to help differentiate their product offering. So DG systems going rooftops, there's a load on that building and they can move that load around depending on the tariff, the time of day. There's different things that can be done within that 4 walls that will help to optimize the solar production. And we have proprietary software to help our customers, like Kohl's and Staples and Costco, do exactly that. So we're not only going to benefit from the solar, but they're also going to benefit from tariff optimization, load shifting and other things that we can help do over time. And this would be a real value creator for our DG business. And as you know, the DG business is one of the company's top priorities worldwide. Okay.
All right, so SunEdison has found itself at an interesting juncture. We've been at this now for 8 or 9 years. We have over 1 gigawatt. And actually, since we announced the -- since we hit the 1 gigawatt mark, we've actually added over 200 megawatts of projects just in the last couple of weeks. So almost every day, we're signing new contracts right now. It's really -- it's an exciting time. It's a very busy time for us.
We have -- as a company, we have teams and assets deployed globally already. So we're in every major solar market, and we know the players up and down the value chain. So that puts us in a unique position to get new business.
We have 3 operations centers. I mentioned the first one is here behind the curtain. We'll show you that after. We have an operations center with the team in Madrid, also in Chennai. And over time, we're going to grow that operation in India. We're running 24/7 monitoring there. But over time, because the team is very competent there, and we feel that we can grow that operation as well.
I mentioned access to customers through existing relationships. Deals come to us from our banking partners. They come to us from our EPC partners. They come from us -- come to us from our suppliers like converter suppliers, module suppliers. Many of our suppliers have a motivation to understand how their technology works. Solar is a little different than some other industries. When they sell their products through the value chain, they often lose touch with how those projects or how those products perform, inverter products or module products. So we're sitting on a treasure trove of information as well. And over time, we will be able to report on that, analyze that and help share that with our customers.
We have a very diverse technology expertise. I, for one, would like to see the technology start to consolidate over time. That's part of the standardization that I talked about. But today, we have a very diverse fleet. We're one of the few operators that can toggle between technologies. If you look at some of the other providers, they tend to be more one dimensional in terms of the types of systems they operate, but we're operating large-scale utility, we're operating fixed systems, tracking systems, rooftop, ground mount, off grid, you name it. It's a very diverse set of requirements that we have to fulfill.
And lastly, within our existing fleet, we've actually been beating our investor pro forma. So our investor performance ratio, IPR, is running at about 103% to 104% across the fleet. So we've actually been delivering already for our investors. And that's certainly critical to continue doing that, and we certainly intend to do that going forward.
Now a few more slides. I wanted to share with you a little bit more about our strategy. How are we going to go about doing this?
First of all, in the business development area, we call it takeover projects. So most solar systems have been built by EPC companies, and those EPC companies have been dragged into O&M. It's not something that's natural to them. They're construction companies, and they want to build stuff and move on. They've been faced with multiyear warranties, and many of the projects around the world, in particular in the developed markets like Italy and Spain and Germany, those warranties are starting to expire, so there's going to be turnover in the O&M provider. You need experienced players to come in and take that position, and that's exactly what we're doing. So we're particularly active in Europe right now because that's a developed market. We're active in the U.S., Canada and India, and then we're also active, on the second point, in new markets where there's new construction as a subcontractor to the EPC companies. So we're sliding in to provide that expertise in the O&M realm for the EPC companies. It's a great way for us to act within the construct of how the industry works today.
We're also building our portfolio for high service density, what we call high service density. I'll give you an example of that. If you look at our fleet down in Phoenix, in Central Arizona and New Mexico, we have many, many systems. So we can pool our field techs and our trucks and our equipment in that area and deploy them very efficiently. And we have the same types of service density in Gujarat; we have it in the Las Vegas area; we have it in the Northeast, in Ontario. And as we pile on more systems in those areas, we get more and more efficient. So that's part of the scale that we talk about in the efficiencies of driving down the costs of delivering the service.
I talked about safety and being a safety and process-driven culture. That's really, really important for us to scale as well. So procedure. It's -- again, it's not sexy stuff. It's procedures and documentation around safety and process that will help us grow in scale. Really, really critical.
And then lastly is -- and I've been a big advocate for figuring out how to add revenue without adding megawatt, back to that energy management slide where we can add services on top of clients what we already have. So part of what we're trying to do here is add new revenue categories, monetizing data that we have, selling asset management services. As the portfolio starts to change hands, as they move into a more secure types of vehicles, we'll see an opportunity for transaction services as well. We're really well positioned to provide project oversight and consultation for owners that are trying to buy or sell assets. So we have really many different areas to focus on as a company as we grow this part of our business.
End-to-end solution. You saw the blueprint, and that blueprint, as we fill that in, that's going to provide a comprehensive service. So basically, what we're finding is that owners, they want to hand the keys to us and make the headache go away. They want us to do everything. So this is an end-to-end strategy that we're pursuing. It's data acquisition and quality control. So data comes into the enterprise, it needs to be quality checked. You might have a bad weather data. You might have a bad meter. These things need to be checked. So there's data quality control, very important. Active monitoring and response. So our teams are looking at the systems, watching what's going on. Preventative and corrective maintenance, in-depth analysis and reporting, trend analysis -- how are my systems doing, how are certain geographies doing, what types of technologies are working. There's many different ways that we can get into cutting the data.
Another area is warranty claims and spares management. This is going to become more important in a industry that's consolidating. We -- you're all familiar with Satcon. That's a company that went bankrupt. So that creates an opportunity for us to support our customers that owns Satcon equipment provide them with our technicians that own Satcon equipment to provide them with -- our technicians are trained to service Satcon equipment. We know the people in the industry that are trained that we can bring in as well to support that effort. We have a strategy for maintaining the spares that are necessary to service that equipment. And so as the industry grows, as the gigawatts grow, that's going to be a really important part of what we do.
Lastly, I mentioned financial asset management and oversight, critical part of our growth strategy.
Okay, this is the fun part. This is the IP development that I talked about. We have a strategy of build and buy. So much of what we do is built in-house, and I'm a big advocate for that because it's -- as an operator, we have -- I would say we have some of the best business requirements in the industry. And translating those into proprietary software is great. It makes us more efficient, it makes us more powerful and it creates value on our balance sheet, IP.
We are doing things like rapid diagnosis and resolution of issues, remote control functionality, statistical decision support. So when do I clean a module? When am I getting bad data? When am I replacing my pyranometer? So we have to do -- we have a team of Ph.Ds. that are helping to map that data and help us make decisions, exception-based decisions, to improve the quality of the operation and increase availability of our system.
We also -- as I mentioned before, we are using both build and by. So Maximo is an example. That's an IBM product. We integrate that into our platform that helps us with scheduling and inventory management. It's a very well-known tool. It's something that utilities use, something that EPC contractors use. So we're trying to map together the best of what's available to us and create a really powerful software team so that we can manage the fleet with minimal human intervention and really continue to add value, whether it's in visual monitoring, camera technologies, security. Many different ways that we can move. We just need to be flexible and have the people in-house to help us really develop one as opportunities emerge.
To summarize, we are on the cusp of a gigantic service industry. It's going from over $1 billion today to $10 billion to $20 billion in a very short period of time. We have a good head start. We have 1 gigawatt, over 1 gigawatt now under management. And we have diverse technology experience. We really understand every part of the value chain. So we're really well positioned to take advantage of this opportunity.
And we have a winning strategy. We have ready access to the customers, the owners and the builders. We have a strategy for a comprehensive solution. And we're really hot on the technology. We're pushing the technology and really trying to understand how to optimize fleet performance on behalf of our investors.
Thanks for your time, and I will hand it over to Brian to wrap it up. Best for last.
All right, can you guys hear me?
Okay. Long morning, huh? So, well, I want everybody to stand up. Come on, stand up. Sorry to those -- everybody on the phone. Come on, stand up. You have to get that blood flowing, right? Okay. Come on. All right, now you guys can sit down because I got to get going.
But seriously, hopefully everybody really enjoyed the morning. I think the teams have spent a lot of time really trying to craft the message that's a lot of easier to understand. My commitment to each and everyone of you in each one of my calls is to continue to be more and more transparent, to be more and more clearer as to how this business works. And I think the team this morning has done a great job. And I hope that you see and get a little bit of the insight of the individual conversations that we've been having about why we're excited about the positioning of this business.
So let me put a bow around this thing and kind of share with you why I am excited about the financial future of this business. We're going to break it into several pieces. The first one is going to be for me to look at what you heard today, right?
So we started off the morning with talking about a purpose-driven company, right? Ahmad starting off talking about the name change to SunEdison, being the glue bringing the company together. Pashu showed where we're taking this purpose-driven culture and turning it into an economic model, right? This is about seeking out things that are in alignment with your culture and driving value to our shareholders. That's what those opportunities in India are about, bringing power and bringing economics to people that don't have it today.
Another big priority in the last year has been really financially de-risking the business, right? Since I take -- since I've been here, that's been a constant message that we keep pounding home, right? You heard Carlos talking about capital, right? It's just another avenue by which we are going to de-risk this business, right? I am not going to put all this capital on my book, right? We've talked about this already, right? Third-party capital, third-party access to this capital, advancing the capital structures that Carlos talked about, that's what's going to de-risk this business. That's how we're going to move to the next level and allow the business to grow and take advantage of the pipeline that we have.
On the Semiconductor Materials side, hopefully you heard from Shaker, Dave and Doug about the real foundation of this company, 54 years of technology and the improvements that we've made in this business and the commitment to this business.
One of the things Ahmad mentioned is us changing the name is not changing the strategy. We love the Semiconductor business. We think it has a lot of value in the future, and I'll show you why I believe that's the case. And you've seen systematically how that business has improved and how it's gone from being a business that through the bottoms of the cycle was using cash and a negative EBITDA to one that's positive and gaining share at the same time. On the Solar Energy side, what you heard from Vijay is about exactly what we did in the last 12 months to 24 months, to minimize our exposure to the upstream business, right?
I'll just take everybody back to the movie, in 2007 and 2008, this business made over $1 billion of profit, selling something that everybody doesn't like today. So it was a great business, and it was a great decision at the time. However, you have to adapt. And I hope what you saw out of Vijay's presentation today is how we're adapting the business towards being more flexible, how we're going to be asset light and how it's all about IP and really driving that efficiency curve. That's the key. On the -- and then it's all about positioning us for the downstream. 4 vectors. We keep pounding these messages home. The first one is about technology. 400 watts, $0.40 a watt will be a game changer for the key growth markets that we want to be in, which is DG and residential as well as the utility-scale projects. We talked about the pipeline. This is all about forward cash flows, right? We have 2.6 gigawatts of backlog, our pipeline, and I'll show you that our backlog has increased, much like I told you it was going to at the last call. It's now up to 925 megawatts mostly due to the Chile project. So now, you have contracted megawatts that's grown 100 megawatts in last 2 months. And you'll continue to see a trajectory of growth in this business.
Capital innovation. It's all about lowering the cost of capital. It's all about innovating. Innovating the structures. How do you get the most out of it? And we've talked about this before. ASP for our business is not just about the mix of projects but also about the mix of structures and where we participate.
And last but not least, Mark showed you about what a recurring revenue stream looks like that. And I'm going to show you some economics of the back end of what we think this business can be, but this is about true recurring revenue. This isn't "I got to go do something tomorrow." This is -- we sign contracts for 2- to 5-year periods, and every day I'm earning revenue, right? And I'm executing against that at a pretty high gross margin. So we like that business. We like to grow that business significantly. And hopefully, you saw the road map of how Mark and his team are going to help us do that. So that's what you've heard today.
So what does it mean? I'm going to take you a little bit through history first because I think we've got to get ourselves grounded. And hopefully, you're going to see a few more pieces of information that you may not have seen us disclose in the past so you can fill in some of the blanks.
Where we come from. So as you know, we're made up of 2 segments, Semiconductor Materials as well as the Solar Energy segment. And we've been operating under these 2 segments for 2 years now. Prior to that, we were 3 segments. The Semiconductor business, even through the downturn that Shaker talked about for the last 6 to 7 quarters, has maintained its revenue position. So we haven't shrunk. And the reason we haven't shrunk is because we've gained share. We've gone from less than 10% at the bottom in 2010 to over 12% at the end of this year, all while improving the cost position in the business and improving the EBITDA.
What you see at the bottom here is from 2010 to 2012, the business has gone from an 18% EBITDA to a 30%. What happened in that time frame is significant price compression. You guys have seen the mark, right? Two years ago, wafers were selling for $1 or more per square inch. And now, it's in the $0.80-some range, right? So a dramatic -- whenever you go through a cyclical downturn in the semi market, that's where you see pressure.
So the fact of the business is it's been able to offset a significant portion of that. It's all due to the restructuring that, that business has done and the work that Dave and Doug and Shaker have done to position that business.
On the solar side, it's really been a big transition. And I want to call to your attention the revenue split, because I think it's really important that everybody understands what we are and what we are not. What we are, is a fully integrated solar energy business that has exposures through technology, all the way through the ability to take advantage of the downstream. What we are not is a pure play materials player. We're not a module company. We're not a polysilicon company. We're
and that mix of revenue is what you see has changed. We've gone from being a highly significant materials business of 40% of our total company revenue, to something less than 20% now. And really, that revenue that's left is about really taking advantage of opportunities and the themes in the market, which I've talked to you all about in the last 2 quarters. Things like selling, excess capacity in Canada where we have local content module capacity that most other people don't. Is looking for seams like that. Other than that, it's really a technology play to support the downstream business. The business is going to continue to grow. And I'm going to show you that. And I'll show you and share with you a little bit of color in the guidance later, and how we're going to look at the business, not just on megawatts sold, because we have to derive ongoing value in the business, and you heard about that today. Several seeds of thought, hopefully being planted in your head about recurring revenue stream. Flow business, recurring revenue, flow business, recurring revenues, flow business, right? That's a message that you're going to hear over and over through my section, as well as you what you heard this morning. Because that's where you derive sustained value in the company.
So a little bit more detail on the semiconductor business. So I've showed you the quarterly splits, a lot of this you can piece together, and probably every one of your models, from the historical data, but I thought it was important to show that we've really restructured the business and gotten to a point now where even at the bottom of the cycle, which where we've been at earlier this year, or end of last year, we're still generating positive EBITDA in this business. And it's all about maintaining disciplined capital deployment in the semiconductor business. You'll see it later on when I show the summary of what our capital expenditure has been in this business over the last 2 years, so we're still growing share, we're reducing cost, we're improving the OE of our equipment, we're reducing our plant disruptions, we're improving our quality, all while spending less CapEx. That's the business model here. That's the model that Shaker and his steam have put in place. And we're still -- and we're gaining share.
So my view of this business is, the team has done a great job building a base, and as the market now recovers or is expected to recover, we should be able to see that leverage that we saw in the business continue to grow. And continue to see positive cash flows as the market recovers in this business. And ideally, pricing firms up, and we can start seeing the margin expansion closer to the perspectives that we saw talked about before, which is that double-digit EBIT margin target that we talked about. So that's our semiconductor business.
On the solar side, again, a bit of a history lesson. On this business, I broke out the project revenue, which is the orange bars, from the other revenue. Other revenue is, the things that you'll see in the appendix, I've actually broken it all out so you don't have to go figure out what's in that yellow bar and what's in it. I gave it to you in the appendix. It's O&M and Energy revenues. It's selling things like opportunistic modules or wafers. And that's -- I mean, you'll see it in the appendix. That's pieces of the pie. What's really important in this businesses is the massive restructuring that we went through. We really have taken this business and taken the exposure away. Vijay showed it to you, right? We had 10 plus thousand metric tons of poly capacity and growing. And now we're 4,000, and almost all of that is focused on semiconductor, with a little bit going to solar. The other thing that we did was we rightsized the wafering capacity. And we're playing for the technology play. And what you've seen happening is because of that, starting in -- end of 2011, and beginning of 2012, where this business -- because of that burden on that Materials business before the restructuring, was generating negative EBIT margins. And now, as you see for the last 3 quarters, we're on an improving trajectory. And I broke out separately the project gross margins, and you see that we've been, in history, averaging north of this 20% watermark that I told you about. Earlier this year, I've walked you through each of the quarters, kind of a situation of why, and we've disclosed in the fourth quarter that our margins were close to 25% in that business. So on an improving trajectory as well. And as I've stated earlier, expectation for us going forward is this is a 20% gross margin project business. We think that's very sustainable into the future, and we've said that before. The key in this business though, is to solve for the lumpiness in the megawatts. And that's going to happen through 2 main vectors, and I'm going to talk to you about them in detail later. The first one is the growth of the services business, which will layer in revenue and profit streams on a quarterly basis that aren't dependent upon the vagaries of closing out a 50 or 75-megawatt project. The second one is going to be the continued focus and enhancement on our positioning in DG and RC, residential, small commercial. Again, this business acts like more like a flow business. Smaller project size, higher volumes, less capital, working capital incentive, higher returns. That's the business model we're going to drive for, and I'll show you what that means in the business in the next couple of slides.
All right? So I know that Carlos
And this even happened last year, raising $2.3 billion of capital, and what most people probably in this room and on the call, thought was a horrible position that we were in as a company. And yet, this is the position of strength that we're in. This is what we're able to deliver through that market, and we think it's going to continue. And I know it is going to continue. We have 2.6 gigawatts of pipeline, 926 megawatts of backlog and we believe we can do between 470 megawatts and 590 megawatts next year, up where the gray bar is, you'll see it later, it's in the -- it's in our guidance. We're also going to disclose something on a go forward basis, and I think will help you understand further those megawatts. When we started talking about it in the Q4, and that is being a lot clearer about what megawatts I'm going to direct sale, what megawatts I'm going to sale-leaseback, and which ones I'm going to retain on my balance sheet. And we're going to talk a little bit about why each of those models matters. The direct sale is a good model to generate immediate cash returns, but if you look at those returns that Carlos said on a lot of those pages, you're giving up economic. Somebody's making a much bigger return on it. Now for us, to retain all of our projects, that model doesn't seem to make sense either. But we're going to talk to you a little about how we're going to be very specific, how we're going to be selective. If I've got a project that's 2x my cost to capital, and I can build the right financial structure around it from a cash flow point of view, why would I not retain that asset? Why wouldn't I harvest that revenue and energy stream over the next few years? You're going to see a few of these, and we're going to talk about it. Last year, 47 megawatts in 2012 we kept on our balance sheet. We did 387 megawatts, and I did 430 megawatts for the year, and we disclosed that in our fourth quarter call, we're going to show it again. We think that number, it can grow a little bit in 2013 and we're going to show you that. And the reason that's important, is because the quarterly volatility that you see on the bottom of the page, that I've talked about in the last call, is going to continue into 2013. The reason it's going to continue is because of the seeds that we laid in the past. So I've told you in the fourth quarter call that we didn't spend a lot of development capital on our projects in 2012, and that's going to come to roost in 2013. And this is why our Q1 and our Q2 are a little softer than I want them to be. It's not that we don't have the projects in our pipeline or our backlog, it's just the projects aren't ready to term out, because you didn't spend the development capital in 2012 to start them. If you don't start them, you can't finish them, therefore you can't sell them. And that's the situation that we're in at the beginning of the year, but we have -- So I'm going to show you how we're going to get out of this situation, and how we're going to build this -- something more sustainable. First leg of it is, transitioning to a higher value flow business. And that's what I'm going to show you on the next page. How do you layer in revenue and profit streams, since you don't get this lumpiness in the years? And then secondly, how are we going to spend that development capital to get these projects moving, to accelerate this pipeline that I have into completions, so that you and every one of my shareholders can see that cash flow accrue to the company. And we're going to show you how we're going to do that.
These are the returning revenue stream models for the business. So let's start with the first one, and I'll take a few minutes to go through each one of these so that it makes sense to everyone. The first one is the services business. So as Mark mentioned, we ended the year just under a gigawatt at the end of 2012 under management. And historically, that's been pretty much mostly my own project, right? So projects that SunEdison has developed and built, that we continue to operate and maintain our service, after we sold the project or after we built the project. Big transition that Mark told -- talked to you about is, how do we get density? How do we get scale? And to do that, we have to grow beyond even our own pipeline of backlog. Even though we're very confident about our growth trajectory, this business needs to have a much higher and steeper growth trajectory. And to do that, we're going to start managing third-party assets. And we believe, that by the end of this year, we can have between a gigawatt and a half, maybe 2 gigawatts by the end of the year. Mark already told you we're in March of the year, and we're at a little over 1.2 gigawatts already. And we're going to show you what the economics of this business looks like. But what this does is layers in quarterly revenue streams, year after year, month after month, into the business.
The second part of the equation is distributed generation. This is the core of SunEdison. This is the business when we acquired them in 2009, that's our DNA was. It's all about rooftop commercial, it's all about smaller systems, even on utility scale projects, ground mounts, it's about smaller ground mount. We don't go after the mega projects, because I believe everybody in this room discounts them. You love them, until you don't have them, and then you don't love them anymore. And to get real value lasting, you need to show that every quarter, not 1 quarter a year, or once every 2 years, that I deliver a large cash flow, but every quarter I deliver cash flow. And that's what the DG business does for us. And we really believe that the foundation that we have, whether it's the services model, whether it's the technology, whether it's the 400-watt module, all of those feed into the wheelhouse of our DG business. And we think that business can go from -- it's been pretty stable at about the 50-megawatt to 60-megawatt range in the last couple of years. We see no reason why that business can't 3, 4X growth in the next 2 years. We have the business already. There's a lot of things in our pipeline and our backlog that you already saw, that with a much lower cost module, and a much higher efficiency, you can unleash every one of those. The significantly higher value equation in the utility project. Because again, remember, you're not competing against wholesale utility prices. I'm not competing against those low-single digit kilowatt power prices that you're hearing announced from some of the megaprojects. You don't have to compete at those levels. Because the value equation for the customer --
of what they mean. And we're going to talk about these each and every time I stand up on a go forward basis, and we're going to tell you how we're doing on each one of these. Because you should see it start accruing to the business through the better half of this year, and into 2014.
So before anybody has a heart attack in the room, this is a good spot. This is not CapEx, this is development spend. So let me spend a few minutes describing exactly what this slide is. I gave you a definition because I think it's fundamentally important. This is a concept that I started to talk about last quarter, but we've never talked about in the past. It's sort of in the hidden cash flow items in the cash flow statement that doesn't get talked about. But it's fundamental to our business, specifically in the U.S. And what this is, is development spend in the investments that we have to make in a project that are capitalized, so we capitalize them under our balance sheet, and then we release them into our cost of goods sold when the project is eventually closed out. So all of these costs are in by 20 plus percent gross margin. And in the IR. This is not incremental, this is not something that is, "Oh my gosh, this is something new," this is just giving you visibility to how the engine works. And one of the slides that I put in the appendix shows you how the development of our projects work and how this fits in. And I hopefully -- it helps you illustrate that you have to spend this money upfront to be able to get out of the pipeline. Because if you don't develop the pipeline, and what I mean by develop, things like land options, doing the design and engineering of the system. Interconnection, right? All these things are monies that have to get ahead of, starting with actual construction of the project to make it happen. On the interconnection side, these are all monies that you either will get back in the project or in some cases, the utility will eventually rate base these upgrades into the system, but in a lot of cases, they want us to pay for these things up front. So what we were able to do in 2012, given our position and when the numbers that are on this page are growth. I think it's important, we will talk to you in the future about concepts called gross development spend and net development spend. Gross means the monies that are actually go out the door, to pay for the things that I have to go do. Net is actually the money coming out of my pocket. Because in a lot of this instances, through the innovative financial structures that Carlos talked about, and the GM talked about in the regions, or our brand recognition, which we talk at the bottom. I don't have to spend all this money, because I bring the projects, because I get value, because I have investors who are interested in participating in different pieces in the value equation, my net cash outflow for these things is only going to be about $25 million to $75 million this year. But the gross is much bigger, and the reason I wanted you guys to see the gross, is because I wanted you to see the acceleration that's going to happen in the business. The question I constantly get is, "When are you going to build out the 2.6-s gigawatts of pipeline?" If I take 400 megawatts, divide it by 2.6, it's going to take you guys like 6 years, that's not the case. If we're able to spend this development capital, that timeline can get pulled in. Because the projects are ready, they just need to be developed, and be accelerated through our pipeline.
And we've told you what the yields are in that pipeline already. That's why this stage is fundamentally important. Because this tells you that by raising -- and I told you, everyone, this that the big question out there, right, why do you guys go raise the $200 million of debt last year? Two reasons, I told everybody. Number one, the onetime cash item, which we're going to talk about a little bit later. And #2, was to accelerate this business. I can accelerate this business and I'll show you on an upcoming slide, that backlog is worth somewhere between $0.75 in $0.80 a watt of gross margin. And we'll talk about this. So me spending this capital upfront, that's already baked into that $0.75 to $0.80 a watt return. That make sense? So you got to spend the money up front, and the cool thing about this is, not like CapEx, where I spend the money and then, 10 years down the line, I eventually, through units, I get my volume back. This spend is -- can get returned to me through the sale of the project, anywhere between 0 and 24 months. Like, so it's a very short-term capital spend, right? It's again, it gets to be much like working capital, but with our brand recognition and our positioning in the market, we're able to leverage third-parties to help me fund all of this capital. But I'm not net out of $160 million in the next year, I'm out net, maybe $25 million to $75 million. So I'm going to tell you why this matters, because we're going to show you how we think the pipeline can accelerate, and what it means to everyone in this room in the coming slide. And here it is. So today, or actually at the end of the year, I told you that our pipeline was 2.6 gigawatts, and our backlog was 800 megawatts. Of course, the 2.6 gigawatts includes the 800 megawatts, right? So they're not -- it's not additive, they are portions of the same. As of today, our pipeline is pretty much the same, so our backlog is up to 900-plus megawatts. And that really has to do with the Chile projects that we talked about, that we've now contracted and assigned that agreement, and that will get built out in the next 12 to 15 months. The -- where we think this thing can be at the end of the year, is we think that there's a significant opportunity that can be there to grow the pipeline. Each of the GMs shows you where we think the growth opportunities are in the individual businesses. And we -- each of the guys showed you where we think this number can eventually be. We -- we think that's absolutely possible to be over 3 gigawatts by the end of the year pipeline, and to have over a gigawatt in backlog. Second, and another data point that I don't think we shared in the past, but typically, something sits in the pipeline for, it can be anywhere from 0 to 2.5 half years. And the reason it can be 0, is Chile's a perfect example. Remember our definition of pipeline. I think it's fundamental. For us to collude a project as pipeline, you have to have 3 things. Number 1, you have to have the land. You have to have the land locked up. Number 2, you either have to have a high probability of a PPA or feed-in tariff to exist, to become pipeline. And you have to have the interconnection, either agreements signed, or defined and priced to know what the economics are going to be with it. Chile's a great example, right? Because it was a PPA directly with a third-party, you went from -- you guys never saw it, to being in my pipeline, to being in my backlog within minutes. It's just how the structure works in some of the things. And so that's why we feel confident that there's a lot of other opportunities that are behind the pipeline, that the guys are working on, that are going to help keep feeding this funnel. And we'll keep sharing more and more details about this as we go on.
The gross margins, I think, are critical because a lot of questions that I've been asked many, many times is, "Well, what's the pipeline is worth? And how do you value it?" So my pipeline is made up of, as I mentioned to you before, our average project size is less than 10 megawatts. In fact, probably less than 5 megawatts. Because that 2.6 gigawatt is made up of over 1,000 projects. I think it's just over 1,000 projects. For each one of those 1,00 projects, we know exactly what we expect the cost to be, for that project, and what we expect the ASP based on the -- on expected PPA or feed-in tariff rate in those project. To do that, I can look at the gross margin that I have implicit in it. So that's the level of detail we get out with these projects. They're not dreams. They are detailed, we know what expected module wattage is going to be, so it's going to be a fixed till, or whether it's going to be a tracker, it's going to be rooftop, blah, blah, blah, or it's going to be a string inventer, or it's going to be a central inverter. All these details make up these numbers. That's why I feel credible to stand up here and tell you guys, that I think there is $0.75 to $0.80 a watt in the backlog, and $0.65 to $0.70 in the pipeline. And of course, you have to apply, as we've talked about before, the way our pipeline behaves, and as we're not dependent on 5 or 6 projects. So there is some churn. And that's what you should expect out of it.
So as I mentioned before, we expect that continued growth in the pipeline to continue to accelerate our growth in megawatts. The guidance I give you this morning shows that this fold megawatts are going to be -- and I'll show you a little bit, a proportion of that and we're going to retain some projects in our balance sheet. But the growth year-over-year is going to be more than 20% in this business. And not bad, considering an industry that's expected to be flat, year-over-year. I think that's the key that everybody has to take away, is that this business is continuing to grow. We're not slowing the growth in this business. We're not stumbling. We have to deal with a one, a -- what I would call a one or 2 quarter nonlinearity problem that we solved into this, but we know how to solve it. And we're -- and we showed you earlier how we're going to solve it. So let me spend a little bit of time on this page because, once you go through it, I think you'll get a better understanding of where -- how you can model a few of these aspects that I talked about today. The first one is their Semiconductor business. As Shaker mentioned earlier, the Semiconductor Materials business, over time, has grown about 2x GDP. Yes, it hasn't been much in the last year and a half because of the, in the market situation, but there's no reason to believe that this industry isn't going to continue to grow. The proliferation of electronics is going to continue. And so is the youth consumption of silicon. In 2012, our focus was really about lowering that breakeven point. At $228 million's worth of revenue, below that, we generated positive EBITDA. That's a good $30 million, $40 million lowering of the breakeven point than it was in the past, and it's all due to the restructurings that we did. And we believe on a go forward basis, that $40 million to $80 million worth of EBITDA through the cycles, on the lows and the highs, should be expected out of this business. On the project side, we've given you this target 20%. It will be higher in some cases, in other cases it will be a little lower, depending on the project mix and regional mix, but we think at 20% gross margins, given what we see in the visibility of our pipelines, is absolutely doable. And we expect to maintain OpEx in this business, or at least, it is as of today, in that $40 million quarter rate. And it's really about how do you manage that, and how do you manage the growth. Each of the GM's told you about how they're going after new market. It's not about setting up a massive shop in a new area. It's about being very lean, being very aggressive and moving into new spaces, like Pancho mentioned to you, in South America, and attacking those unique opportunities. We didn't go hire 100 people in South America to go take advantage of those opportunities. It's being very lean and focused. So we think managing this OpEx number on a go forward basis, it will grow. It has to grow. But it will grow at a very prudent pace, as megawatts continue to accelerate. So we should get nice leverage out of that number. In 2012, we did 430 megawatts, so we did 109, 110, 112 megawatts per quarter on average, right, but it was lumpy. To get this business to really turn, businesses to, and where we really will exceed the margin expansions is when we get the business to be consistently producing 150 to 200 megawatts. As you saw from the graph that I showed you earlier on the expectations for the quarter, as we exit this year, that's the run rate that we should be on, right? That's what I showed, so those graphs depict to you. So the question is now, how do we make sure that through the recurring revenue stream, we ensure that going into 2014, that we have that same situation, and that we don't have a, as low as Q1 as we had this year.
On the pipeline and backlog, it's the same numbers that I showed. Now, I just want to point out, before somebody goes, "Brian's a moron and he doesn't know how to copy the same number on the 2 different pages," the pipeline on this page is truly just pipeline. That's the value of that. So as I explained to you earlier, when I say 2.6 gigawatts, and 900 megawatts of backlog, that means it's 900 megawatts of backlog and 1.7 gigawatts of pipeline, right? True pipeline. The valuation that you see on these pages, values, those 2 pieces separately. The value you see on the other page for pipeline is a blended average of pipeline and the backlog. That make sense? So I just want to be really clear, so as you all go home tonight, and you look at this thing and say, "I don't know which number to use." If you're just valuing the pipeline, which is excluding backlog, you use this pipeline number on here, okay? So the IPP projects is the projects that we still have on our balance sheet. As I mentioned, to date, I have 76 megawatts of these projects on my balance sheet. So 47 of them I added last year, and have had some from the previous years. These projects today are generating $6 million of net cash, positive cash for my business on an annual basis. And we expect to continue to grow that, and we'll talk about that. Again, were going to be very judicious about this. And I'm going to show you the cash flow buildup and how we're going to get there, and now we're going to afford these and still generate cash and have a positive cash story for the company, while retaining a 100-megawatts project in 2013, and continuing to build this ongoing cash streak. Sale-leasebacks. So we have as Carlos mentioned, we have $1.4 billion worth of nonrecourse set on our balance sheet, it has to do with these sale-leasebacks.
First, I'm going to show you these structures, why we structure them this way. My view is, for the sale-leaseback contracts that we do, any money we leave on the table is at a lower present value than the money I get today. So I structure these things to be optimal cash upfront, so they look like a direct sale, but as Mark said, if I'm able to deliver over 100% IPR, then I do get excess revenue, and that's the cash flow you see here. So the only cash flow you should see out of my sale-leaseback projects is to the extent that I can deliver above 100% of my IPR. Because everything else, I've scraped all the value to day 1, to drive the highest ASP and the highest return for that project day 1. That's our business model, that's why we do it.
On the Services side. Today, we have about 1 gigawatt other projects, and the ASPs for these projects is in the $0.015 to $0.03 per watt range, and we've picked 2 here as a pretty good number to use for every watt that we have under management for the target gross margin of above 40%. So that's the business model. So as we grow these megawatts or these gigawatts, you'll see how that value will continue to accrue into our company.
And last but not least, for us, corporate OpEx is something that we're going to continue to maintain flat as we go forward. So it's not an area where we intend to grow, and I thought I'd put it on here so that you can get a perspective of the whole picture of what the company looks like.
All right. If there's any questions later on, I'll be happy to talk about any one of these.
So outlook. So what does this all mean? So let me take you through each one of these. So the Semiconductor business, we think we can grow between to $940 million to $990 million this year, predominantly driven by second half recovery. As we mentioned earlier, we've been gaining share in this business and we expect to either continue to maintain that share or continue to grow it. It's really going to be dependent upon the market -- end markets recovering in the back half of the year. So for Q1, we're showing it sort of a nominal growth, with growth accelerating in the back half of the year. And I think that's how you should look at the Semiconductor business.
On the Projects side, I've broken these up into 2 things, because I think it's important that we draw the distinction for the year. I do intend to preserve some of these megawatts for my balance sheet. And I'll show you why, from a cash point of view, it still makes sense. As I mentioned earlier, with the megawatts that I already have under -- on my balance sheet, you saw the cash flows that they generate, so just imagine keep adding up those cash flow and they just happen every year into the business.
We're going to do 420 to 490 megawatts this year of -- and in this definition, these are either going to be direct sales or sale leaseback, okay. Then we're going to do another 50 to 100 megawatts that we're going to retain on our balance sheet. And we mentioned here the one that we likely will retain, which is the Chile project, right. We talked about that before, that's a BPA that's set up directly with the customer, very interesting economics and a project that we think makes tons of sense.
On the first quarter basis, you see a pretty low number. And again, this is no excuses. This is driven by what I think were prudent decisions in 2012 to do what we had to do. It was vital for us to reserve the liquidity position in the company, and we knew the value of the pipeline was there, and so I wasn't going to lose the value of the pipeline. It's just going to be out of -- it pushed out because I didn't spend the development data. So we think it was the right business decision, given the economics and the environment in 2012. We're paying for a little bit here in Q1. But in my mind, that's a very small price to pay to have a business that has almost 3 gigawatts of pipeline and a cash flow generation that we talked about previously.
We still think we're going to get favorable pricing on these projects, so we show $3.10 to $3.40 this year, you're going to see some reduction. We ended up at $3.80 last year. Clearly, as we showed by the end of the year, we estimated that we'd be at about $3.50 last year, and so we had a good project mix at the end of last year. We still believe the way we restructure our project that we can maintain these solid ASPs, and how we mix our projects, as well as how we structure our projects.
And last but not least is CapEx. CapEx, you guys have seen these numbers historically, we're going to continue to be prudent here. Most of this capital is going to get spent on the Semiconductor business. And in the next stage, I actually break out for you maintenance capital and growth capital. So you've got another level of transparency on what do we need to do to just keep the semiconductor and the poly plant running versus what are we really spending to grow the Semiconductor business? And I think when you see the amount of capital that we're spending to grow, it is pretty efficient on what the team has been able to accomplish.
So this is a new look that I want everybody to -- we're going to start getting comfortable with and how I want to talk about our cash flows. And I'm going to start at the bottom. So we believe in the next year that our cash flow -- we ended the year at $576-ish million, $573 million of cash, and I've told everybody I think $500 million is a good number, and I think that's something, by the end of the year, that we want to maintain. I think, being in a position where we end up with somewhere in the neighborhood of small used to a small gain of cash, is going to be very positive. When you look at the things that we're going to go do, going to have to address with that. As I've mentioned to you before, in that number is $30 million to $35 million of net cash outflow for Samsung in that range. $60 million of Evonik payments for the settlement, that we have talked about, that's almost $100 million.
We also are assuming in here that we're going to do a $25 million stock buyback in this number. So that's $125 million. And we're going to spend 90 -- $70 million to $90 million on growth capital, and that $25 million to $75 million of net cash to develop the project. So the concept that I'm going to start talking about with you guys, more and more, is this conversation of the free cash flow before investment. So I think it's fundamental that people see that. In the past, we've been able to generate cash in this business, and we think that there's $200 million to $300 million worth of cash before growth investment engined in this company, and that's the numbers that we endeavor for. And again, the bold numbers, the free cash flow ties exactly to our K and Q reported numbers, so there's no monkey business in here. And excluding something and taking something out, we footed it exactly, but I'm going to start talking about these categories now to make them more specific. So you see maintenance CapEx. You start seeing the construction capital, because one thing everybody has to remember, cash flow from operations, as historically determined, doesn't make sense for our projects business, right. Because we use construction capital and we close our projects, and so looking at that number before growth investments is much better proxy for cash flow from operations from our project business, and you can see exactly what numbers I'm including in that.
And then we felt it would be important to back out contingency considerations, right. We talked about these. These are some of the earn-offs that we had in the past. We broke out the Evonik, we broke out the Samsung investment, so we're not trying to hide behind these numbers, I just want you to see them. I want everybody to see a lot more transparency behind what's in our casual state. So this is something that we will continue to talk about and look at on a go-forward basis, all right.
And with that, I've included several things in the appendix that I think is important for you guys to be one as we included some metrics of the Semiconductor business, so the Solar Energy business. We've also included a couple of things that I think are very interesting on the business model, on how the Solar Projects business work.
So with that, I want to thank everybody for attending, and thanks for those in the call. And now, Ahmad and I will open it up to any Q&A.
Go ahead. Yes -- here, sorry.
I just wanted to understand your development spending. I think you said $40 million last year, you did 400 megawatts. And on a forward basis, should we assume the $0.10 number? And if you are talking about a big ramp this year on a gross basis, I know your back half is growing nicely, should we assume 2014 will be a big year for megawatts sold, something along the 800 megawatts to a gigawatt range?
So the assumption on a per-megawatt basis, it gets a little crazy. I mean, look, you have to understand is U.S. utility projects have development spend. DG projects have less development spend, right. When you're doing a rooftop, you don't have interconnection, you don't have these costs. So it is to -- so if you look at -- we gave you a lot of detail on the utility breakup of our business. It's primarily focused on the Utility business. Yes, we think you should -- I mean, look, we didn't give any 2014 guidance, and I'm not going to in the room here. But we've said over and over during this call that we expect the growth to continue in this business. And to be able to mine this 2.6 gigawatts pipeline that we have, the growth must accelerate. And the -- to accelerate the growth, you have to spend the developed capital. So hopefully that helps.
That's helpful. Ahmad, just one other question on India. I know you guys have done a lot of things and a lot presentation today focused on that market. But if I look at the backlog and pipeline in that region, it's only 5 megawatts. So can you just talk about what's going on then? And what are you guys doing to increase your presence in that market?
Ahmad R. Chatila
Thank you. Just like Brian said, in certain markets, we move from absolutely not on the radar screen from your perspective to -- in the backlog or already within construction just because of the way the market is, and India is one of those. Actually, we're very excited about India. As you know, India has to increase the electricity generation by 700 gigawatts over the next 18 years just to have enough electricity generation to keep the economic momentum going, and we think Solar is a fantastic opportunity. Actually, Pashu has a lot of deals and progress at this time, way beyond the number that you see here. Unfortunately, it's going to move from -- he's working on it to start in construction without you guys see it, that's the unfortunate part. Same thing in Chile, same thing in Europe, same thing in many places. The -- our concept of a pipeline on the definition works incredibly well for North America where most of our market is, doesn't work very well for international. That's why, actually, you see big development spending, too, and you see us excited, incredibly excited about the business is because of that. Because we see all these deals going on, clear? We're going to go through everyone. We're way ahead of time. We're going to get every one to ask a question.
We have a mic over there.
Can you just take, I guess, what -- in less than a minute, how would you describe the economic value of SunEdison? And by that, I mean, that there's lots of numbers, there's GAAP, there's non-GAAP, some people value around PE, EBIT, EBITDA, some people -- but at the end of the day, the economic value, which will be a function of the cash flows and the cost of capital, how would you describe that? And the reason I bring that up is, your pipeline, I would argue, for almost any solar company trades at a massive, I would argue, a discount. But how would you describe that? And it could be part of what Carlo's is trying to do in terms of a lower cost of capital. But how do you describe the economic value what you're creating? Because that business takes a huge amount of capital, and I think a lot of people either don't buy or find it confusing, the economic value forget GAAP, Non-GAAP, et cetera.
Ahmad R. Chatila
Let me try and then -- we agreed, Brian and I, that I'll talk about adjectives, then he'll talk about numbers. Many actually taught me this from Cyprus a long time ago, he and Dan McLaney [ph], The head of Silver Marketing, that is how you look at it. What you should not value our business is looking at our pipeline and things -- that fixed thing, because we've done a lot of work and that's it. You should look at us as a running business that is growing nicely over time, that's one metric. Second thing you need to understand is, we're extensively using other people's money going forward, and actually, over the last 1 year to run our business. If you look at our Samsung JV, we have used other people's money to build that capacity, and we're doing the same thing on development spend, and we're doing it in terms of getting the pipeline, too. Just by having the experience of doing 1,100 projects with no negative cash flow on per project, many people want to work with us and be on our side. So we have a lot of developers that were aggregating in terms of using our experience at this time. So then, the way you should look at our economic value, this is a business that went from 38 megawatts to 110 to 270 to 436 and continue to climb over the next few years. I don't want to give you guidance for '14 or '15, but I'm very excited about the business. And each one of those watt is going to give us around $0.75 -- $0.70, $0.75. And because of that, all of a sudden, the overhead of the corporation, which is his salary, my salary, Carlos', is going to be overcome. So we're going to go from -- we look like breaking even, making a little bit of money to absolutely overcoming that kind of base that we have today in the company. That's how you have to look at it; a running business that is growing, that is moving up, that is really the best friend in the industry, really uniquely positioned, uniquely positioned.
Yes. I think to -- one, I 100% agree with the concept Ahmad just said. From a numbers point of view, it is about -- we don't like to look at the projects business and we say, "Well, it's not a widget business." But if you get to the full model in this business, it is a widget business. If you can get the business model down right, it doesn't have to be a big multi-project business, right. It doesn't have to be, I only do 75 or 150 or 300-megawatt utility projects that take 9 months to build, take $1 billion of capital, and once the thing's done, well, I'm done. That's not the business model that we endeavor for. We've lived in this volatility, given that we were trying to grow this business. As we move forward in this business, getting that -- the business to that 150 to 200-megawatt per quarter range or even a 125-megawatt, the OpEx that you need to continue to invest in the thing does not grow at those megawatt rates. That's where you should start seeing the leverage in the business and how you should start modeling it. As that linearity starts addressing itself as we exit this year, till some of these other services, DG and other things, you can start more closely modeling this thing to like a widget-type business. It doesn't have to be viewed as a onetime event like the projects, which when you have very large projects and they happen every once in a while, that's what you get to.
Ahmad R. Chatila
In 2012, I was very careful not to spend development money in the beginning of the year. I was very careful. And I knew then that it's going to give us a whole for 1 quarter or 2 in that regard. But my view today is we're going to go through a tough function change very soon, that's why you can see it in the eyes of a lot of the executives here. The excitement that you see, and you can chat with them afterwards, we're going to go through a tough function change, and I'm very excited about that, very much excited about that.
Yes. Where's the mic?
Ahmad R. Chatila
Where's the mic?
I'm curious with the Samsung JV. Is there an opportunity to sell some of the poly into the Chinese market, especially in light of the import tariffs that you're starting to see a lot of the international suppliers won't be competitive? Is there an opportunity to utilize some of that market?
Ahmad R. Chatila
Well, look, I do not know how to trade that value is going to be between Korea and China in the future. I just know one thing, the output of that JV, I can handle, because there's so much sell capacity and wafering capacity outside of China. And I have very strong relationship, because I buy a lot of modules, significant amount. We are one of the -- if you step back, actually, if you look at all the development companies, 2 of them have their own capacity with their own proprietary technology. We are actually a very flexible company. We're one of the most powerful procurement organizations on earth. Because of that, we're able to sell wafers, poly, whatever we want. So we're protected in that regard. Not going to count on China. We'd love to sell out in China, but not going to count on it.
I think the last question at the South. Is there something else, the results of the reversal auctions by year end? I'm just approaching what 500 to 700 megawatts with 2 gigs being added year-over-year fall in it? How active are you in those reversals?
Ahmad R. Chatila
I'm looking at the Middle East. As you know, I'm from the Middle East, so I've been traveling a little bit and checking it out. It's actually, for me, very interesting. But you know, the world is a lot larger than any other -- any country. One of the lessons that we learned in 2011, we estimated, but we learned it firsthand, is our most profitable region was Italy. We're going to make $100 million, $150 million gross margin that year, disappeared in 3 nanoseconds. We learned to be very global in nature, but we're not dependent on any channel or any country. But we're active in the Middle East, yes. Where's the microphone? I guess there's a monopoly.
I've got a couple of questions. You're talking about a lot of different things there, like increasing development spend, retailing projects here, participating globally, you're ranging in every markets from replacing diesel pumps to utility scale. Is there a risk that you're spreading as of 2010, especially if there are stresses that come up, where in projects, don't compete on time, you don't collect on cash flows? How much cushion do you have do not get in situations which might have been a year ago? And then I guess the question, maybe for Carlos, or you -- how does the cash flows work for the retained projects, the 50 to 100 megawatts? Are you going to hold the equity piece of it, but still would do the financing of it? Is that what -- is it how it's going to look like?
Ahmad R. Chatila
I'll get Brian to answer the second question, I'll answer the first. In business, it's very simple. You focus, you execute very well, okay. The problem with this business, in Solar, is if you execute on one place in the value chain, you get crushed. So a lot of the guys that everybody was celebrating just 2 years ago, today, they have negative gross margin. So then, how do you go in and do a fully vertically-integrated approach and a comprehensive approach, while still ensuring that the OpEx is low, right, and the CapEx is low, and at the same time, you're able to execute? And there's only one answer, having the best team on earth working for you. Really, you do. That's why, well, the culture comes in handy. Now I just want to give you a perspective on this industry. This industry, when it's all said and done, as much as massive as it's going to become, it's very simple industry. If you go where I come from in chip industry, any chip we design had a lot of more complexity on all the things that we just talked to you about today, okay. So we can handle, and we're able to handle all these things, that's why you can see tremendous progress on FDR, the lowest-cost in the world, TCZ equal to mono cost. We're able to do services business and we're #1 in the world, very sophisticated corporation. And when you look at services, just think the best of 50 gigawatts worth of management. Of course, that takes a decade or more to build. That's why we're able to get all that done because the team is incredibly powerful, very motivated team, very motivated team, while the OpEx is still under control, okay.
Yes. So the -- just to add a point on that one, it's about risk management as well. We -- sort of policy in place that we're not going to start construction of projects till we have financing lined up. We've gone through a lot more construction financing-type models, right? So the cash flow of any given project is very well known and understood before we embark upon a project. So you don't get yourself in a position where I'm building this whole thing up on my balance sheet, and all the net cash is out, and then I'm just waiting for return. That's not our business model anymore. It's why we've been able, in the back half of the last year, to navigate more megawatts in the back half of the year last year than we did, while still maintaining good cash flow. And then that's -- so that's number one, it's all about risk management. The other one is OpEx. I agree with Ahmad. If you don't get yourself levered, then you're less at risk when something doesn't come through, right? You will feel a little pain, but if you are spending $120 million or $130 million of OpEx and you don't have 150 megawatts of projects, that hurts a lot more than if you're spending $70 million or $80 million, right? So lowering that breakeven, by coming up with a more sophisticated model of how we're going and attacking these regions is how we also are minimizing some of that risk.
Ahmad R. Chatila
A lot of times, actually, we integrate other people's solutions. So whatever you see here, don't think that we do everything inside. Like services, we don't clean the glass ourselves. We don't cut the grass ourselves. A lot of actually -- the 400 watts, $0.40, which now -- actually, when I came to the company, I said, "We need to be at $0.50," and the team told me, "We're going to give you $0.55 by 2014." I think we're going to get there, okay, and now we're putting $0.40. But a lot of the stuff there, we don't do. Electronics does a lot of the work for us. Why is that? Electronics has 200,000 employees, okay. 200,000. They have more employees than whole solar industry combined. They run in circles around the top module player in the world, yet they give me the cost that I need. And actually, just to share with you some of the cost, just so that you can see how we get other people to this work for us, modules, actually are very simple. A bomb, if you're doing a quality job, costs you $50. If you're buying shady materials, it will cost you $42, okay? Overhead, if you have it inside your factory, it will cost you $12, $13, $14. If you select Tronix, you give them maybe a little bit more than that, so that they can get their return on investing capital and other fees. So we use a lot of people to do all this work, yet get the lowest cost. And we mix and match for cash-to-cash cycle and all these things. So we don't do all that work, but we are the integrator. We are the contact window between all this complexity and the investor. That's what we are. And the investor, they don't want to work for it with a sales guy or the technology player or a module company, they want to work with a solution. And if you don't give them a solution, they're not going to give you the money and the volumes we're talking about, he's just not going to do it. So that's why our strategy what it is, it's comprehensive and it's based on how the investors see the world, not how I want to design myself to be effective. It's how the investors see the world, which is, I want a very controlled risk environment and high returns. That's how they see it. That's why we do all what we could.
Second part of your question was? Okay, good.
Ahmad R. Chatila
Who has the other mic?
Ana Goshko - BofA Merrill Lynch, Research Division
Just a quick follow-up. On the retained projects, you're already in March. I mean, do you know which projects you're focusing on? And are they like minority stakes or fully-owned? And are they recourse or nonrecourse, really?
Ahmad R. Chatila
Okay. Great question. So the answer is, on -- so I'll just go down the list. Do we know which projects? Yes, because the only reason I would think of retaining a project on my project -- on my balance sheet is if the economic equation, either from a return point of view and a cash point of view, makes sense. So when we go through deciding if I'm going to retain a project or I'm going to sell it, that's one of the screens that we look at. It's not like a random thing. It's not like, "Oh, I couldn't sell it, so I'm going to retain it." No. Not at all. And the GMs, you can ask them the meat grinder that they all get put through when they come to me and say, "I'd like to retain this project." The default answer is, "No, prove to me why this is fundamentally a great idea for us to go do this." So that's the bar, the very high bar. They will all be non-recourse, yes, because they'll be in construction projects, LLCs, just like our projects are today, and they will all be financed. So my equity check, if there is one, net out, will be significantly less than you think it would be. I'm not putting 20% capital in these projects. I may not even be putting 10%. And the reason for that is it's all about the structure of the deal. Remember, if I was just a developer and I'm buying things and I'm paying an EPC guy to go do this and I'm paying that, I'm paying this, my margin that I make on a project is very slim. But I don't. I make good margins on these projects. Why do I make good margins? Because I have technology, because I play and I have places where I make money in different pieces of the value chain. When you add up all that value and you look at what leverage I can put on a project, you get some interesting answers that tell you, "Wow, the economics make sense, and the cash flow this thing make sense. Let's go do it." So that's how we're going to structure them. It's not going to be "Student body left. Oh, we're going to do all this." No, no. It's a very high bar, very specific. There -- must have the right cash flow profile, must have a significantly advantaged -- either strategic interest and economic interest for us to go do it. That makes sense? Yes, sir.
Yes. We had some conversations last summer when the FBR, the continuous CZ and the new wafering technologies were seen more as options for being inputs to the systems business as T goes to infinity. What I'm hearing today seems to indicate that they've -- that the visibility of that optionality seems like it has improved. When are we going to get some idea as to when those things are going to be a go, if you will, whether that might be an indication that the materials business may be a source of some potential gross margin? Because I'm assuming that 20% assumes an arm's-length transfer pricing in terms of what the systems business actually sees.
That's right. Yes.
So could you just refine that one?
Ahmad R. Chatila
I'll take the first one. So let's start with the FBR. So the answer in short is yes. I think as time progresses, our view of how these things are performing is absolutely improving. And I think we will continue to talk about it. So the way you're going to see it is were going to demonstrate it. You're going to see it -- us talk to the performance, and you should see it accrue through my P&L and through my cash flow. So that's the ultimate answer. When? You're going to -- Samsung is scheduled to produce first silicon late this year, probably November, December, first silicon. And then we've told you before, it'll ramp through middle of next year. The proof will be in that pudding. For the CCZ and the diamond wire, the diamond wire today, we are at those cost. In fact, we have people coming to us outside of China who are wanting us to pull for them because we can get to that cost, especially on mono. So we are seeing that interest today. On the CCZ side, we've seen the productivity of the machines, from when we acquired the company 2 years ago to today, almost triple. And we are probably 25% away from where we need to be to hit that target that we showed you on the CCZ graph. So is that 12 months? Is that 24 months? It is in -- we believe, by the time we get to 2016, to hit that 440. Those things must be there.
Ahmad R. Chatila
And like -- on CCZ, just to add -- thank you, Brian. That was good. Chinese CZ machine, aside from having high variability of resistivity because of the low print profile, both so produce around 10 metric tons per puller per year. When we bought Solaicx, it was just 12, but with high aspirations. And today, it runs around 35 metric tons per puller per year. So it's 3.5x more productive and is a bit more expensive than a Chinese CZ machine. We think we'll be getting to 45 metric tons per puller per year within 12 to 18 months, hopefully sooner. And with a -- probably a limit of 50 or for more at some point. So because of that -- just think about it this way. Look how we see it. The poly industry today is 250,000 tons. 250,000 tons, okay? 30,000 goes to electronic grade, or 29,000, and the rest goes Solaicx. Today, the fully loaded cost of poly is around $25 a kilo, and that includes manufacturing cost plus SG&A, plus interest expense for some people. Okay? Then you do an $18 to $30 CZ conversion cost, and you lose around 10% in the process. The best-known method for crystal kilo in manufacturing only is around $45 to $50 a kilo. Our solution is around $26. That's a fantastic number. I mean, it's out of this world. And let me tell you why. What happens when you go and do this, you already eliminated the disadvantage of mono. So because of that, the reason why we're able to get 330 watts a module, because we're doing almost square mono. Because it's so cheap to pull, we don't care. And when you go to mono, not only you get more watts per wafer, but also you can make them thinner because they are more robust than multi. So all of a sudden, you have a $20 multiplied by 250,000 kilos, it's a $5 billion value that we're dealing with. Yes, please.
Okay, go ahead.
What goes through that. I think in the CZ, isn't a fish or cut bait, and once you decide to commit the amount of capital that's going to be necessary to turn that technology into actual production? And isn't that the acid test, if you will, that you guys already believe in this?
Ahmad R. Chatila
Oh, totally. And today, what happened is we are very opportunistic. We actually are so cash focused that we have -- we are not investing. We need to invest probably around $20 million to make the machines, all of them highly productive because there's some equipment tweaks. But we have like 60 machines, and we are producing on 12 of them all the time. And we can produce on 60, just like that, a 35 metric tons per puller per year and be as competitive to China in U.S. on a small factory. But for me, I actually would like to take it global. I don't want to spend the money, but I know the value. And some people are willing to pay for it. And that's how we're thinking about it. That's how we're thinking about it.
Thank you for the question. Yes, sir?
So 2 questions, I guess. First, probably related to the market. I think there was -- on the presentation about China, you guys talked about the great opportunity there. But I noticed that you guys have -- didn't have any kind of targets that you laid out for that market. Can you put a little more color on that? I understand you guys made some progress, but anything around it will be helpful. That's my first question. Second question on the retained project. Do you think on them in terms of IRR versus cost of capital? And do you think -- anyway you can kind of quantify that? And any way you can quantify and -- maybe an NPD per watt kind of cash flow you expect to general in those?
Ahmad R. Chatila
I'd say only adjectives. You have to say numbers.
I was going to give you the second one. I'll answer the second one first. The -- it is all about IRR. So it is about looking at what do we think that return could be on a project, vis-à-vis, our cost of capital. Let's not kid each other, right? My cost of capital is not 5%. Right? My cost of capital is much higher. And my bar to be able to retain something like this has got to be significant, like a multiple of my cost of capital. Right? So it's not like it's got to be like cost of capital is 15%, it's got to be like 16%. It's got to be like 30%. Right? 25%, 30%. It's got to be a big bar because the reason is, is for me to invest that cash to somewhere else to keep growing is the trade off. Right? So I want to balance this retaining some of this thing, but I don't want to get in a situation where I have to be like some others where I'm going to burn cash for the next 10 years hoping that you believe me, that at some point in time, I'll have enough of these things that I'll generate cash. So our model is a little bit different. Our model is, let's come over the hybrid. Let's come up with retaining critical ones that have high value propositions and high strategic importance and economics. And then let's continue to focus on the DG business, which acts more like a flow business, like I retain them, without having to have all this capital be piled on my balance sheet. That's our thinking. Our thinking is to kind of get the best of both worlds and manage them. First question was...
Ahmad R. Chatila
China. We do have targets for China. I think Charles did a phenomenal job describing the Chinese market. It's not without its challenges. We are very proud of what the team has done to build it. There are gigawatts and gigawatts being built every day in China in solar. What we're trying to go figure out is what's the right model that makes sense for us in China? What does that business model look like? Right? And Charles and I are very aligned on -- we're just not going to go run down a path in this market. He showed you the cost are very low, but so are the selling prices. Right? So your margins -- while you can have good margins, you've got to execute extremely well. And if you remember earlier, one of his bars that he put on there, which is a very important point, it's all about quality. For us, I'm going to put the SunEdison name on the system, and I'm going to stand behind it and manage this thing. So I'm not going to go use second-tier, third-tier, fourth-tier module inverters and everything else and then have to go stand behind it from an -- either an name [ph] or anything else. We're just not going to go do that. So Charles is trying to figure out where that seam is in the market. But we're not going to play in the low end, where they're just using third-tier stuff to just build projects, but where is that opportunity working with the right parties? Maybe in the right province with the right offtakers to be able to build the right model. That's why we didn't show you numbers. Numbers could be big. But for us, the picture you saw there, that's our China team. That's not like -- it's not 100 people. It's a very focused group of people, trying to go figure out where the seam is in the market. That's why we're excited about it. But we're not going to stand up here and say we're going to go do some big number in the short term. When we figure out where that seam is, like some of the other markets, then we'll go execute on it. And then you're going to hear a lot more...
Ahmad R. Chatila
I want to add a statement. When you see an MOU from us, know one fact: we were forced to say it because the other party really wanted to say it. So if we want to announce MOUs and real work, believe me, we will run up really high on the pipeline scale. We want to be very disciplined, to show you the things that really are close to contract or contract that's done, we have control. And you, as investors, can feel like, "Yes, when they put a number, it's just going to happen." But MOUs, when you see an MOU from us, know that someone else told us they have to have it, and we had no choice but to announce it. And China is one of those places where we have a lot of activity going on because we have very strong relationships. Because we are a technology powerhouse, we have great reputation, they know about us because we buy a lot of modules, but we can't show you numbers yet.
That's right. Yes sir?
So in an incentive-free or regulation-free world, how do you get the utility part of the projects to grow? I mean, that -- I would think that the solar cuts will enable catch up to that, so that market should saturate eventually. Do you have some thoughts on that?
Ahmad R. Chatila
Give me more. Tell me more.
Well, I mean, your natural gas, the cost is $0.05, and we don't have the roadmap in the next 5 years to get to that. So why would we have more utility projects if we don't have incentives?
Ahmad R. Chatila
Oh, got it. Yes. Well, in some places, the gas price is a lot higher than that. For example, in some places, the wind cost is much higher because once you add a transmission line, even if there's a great wind resource in the country -- but once you add a 60-kilometer power line, transmission line, it doesn't work. That's one. Second, I want to share with you one data point. In the U.S., a rule -- a good rule of thumb: the cost structure is -- 33% is generation, 33% is transmission, 33% is distribution cost. That's when -- people talk about $0.12, that's how it is. $0.04, $0.04, $0.04. Even if you give gas for 0, solar is still competitive. In many countries, actually, in many countries, that number is $0.22, $0.18, $0.17. So even if you give -- put generation at 0, we still can penetrate. That's why we think the numbers are really up and to the right in solar. Really, they are. So we -- we're starting to see it. We're signing contracts. You see, I'm not speculating about the future. I'm starting to sign contracts around the world with 0 government support.
Sunesh [ph], one clarification point. I think you heard something very specific in Ahmad. That's a -- if you're going to compete against central generation, solar -- central generation somewhere else in large scale? No, of course not.
You and I have had this personal conversation. Right? That's a dinosaur.
Ahmad R. Chatila
It's a dead end.
It's a dinosaur. It's going to live for a while and dominate, and then it's going to just -- we're going to wake up one day, and they're not going to be here anymore. Because you're right. They don't solve the utilities problem. What Ahmad said was very fundamental, and I think that's the key. If generation is 0 and you still have distribution and transmission, you haven't solved the problem. But what if you could solve the transmission and distribution by putting it on rooftops, by doing distributed generation, even 1 megawatt near -- outside of towns by substations, I mean, there's a lot of business models that are out there that minimize the transmission problem.
Ahmad R. Chatila
Even 100 megawatts directly tied to a customer.
Can solve the problem.
Ahmad R. Chatila
Can solve the problem.
You're right. Big utility central distribution has a life expectancy, and it's short.
And one more question on India. I mean, if you compare to the diesel cost, it was -- it made sense 2 years ago and 3 years ago to have a pretty big growth in India, and that hasn't happened. So what will create the inflection? What will be needed to get that going?
Ahmad R. Chatila
I wish Pashu was here to answer the question. Pashu, why don't you help us with this one? Just specifics?
Pashupathy Shankar Gopalan
So India, India is not one market, because electricity is a subject that is concurrent in India. There's a lot of policy and rule-making that happens at the central government level. There's a lot of policy and rule-making that happens in the state government. So I'm just going to give you a few examples of what the point of inflection is. If I take the example of Tamil Nadu, which got a new Chief Minister about 2 years back, and power has become energy and lack of electricity has become the #1 issue for that leader and solar just fits right into their problems. The leader comes and they announced a solar policy last October that they wanted do 3,000 megawatts of solar. They don't -- because there's no other form of generation which can come up in the state, and I'm sure that Chief Minister will go through a reelection in about 3 years, so they're all -- I mean, politicians are worried about how do they get reelected, and so solar will solve real problems, and they wanted the 3,000 megawatts of solar. The neighboring state, Andhra Pradesh, just went 2,000 megawatts. Today, Punjab -- so we're seeing all of these states that are popping up and trying to solve their real power generation -- literal deficit in power generation, and the problem is because there are close to 100 gigawatts of coal power plants in India, which have been developed, but they're not getting constructed because the Indonesian and Australian government have changed the transfer pricing rules from mines, which may be captive to many of these mines. So a lot of these generation projects are just not getting done, and the 5-year plans that India go through on power generation. So I'm just giving you a couple of examples. So I think India needs so much power that solar is going to fit right in, in solving the power deficit. It doesn't have to be -- and also, the commercial cost of electricity is quite high. In India, in Tamil Nadu, the customers pay between INR 7 and INR 8, which is about $0.15 to $0.16 per kilowatt hour. In states like Maharashtra, it is close to $0.18, $0.19 a kilowatt hour. So we can deliver electricity today at competitive prices, and it just happened right now. It was not the case 2 years back. The steep production in LCOE in the last 18 months to 12 months is phenomenal, and it opens up a new...
Ahmad R. Chatila
And the depreciation credit and how it moved from wind to solar.
Pashupathy Shankar Gopalan
The Indian government -- I mean, if you look at wind in India, there is close to 17 or 18 gigawatts and maybe off by a couple of gigawatts. 18 gigawatts of wind in India, nearly 3/4 of that capacity has been built because of one policy initiative, which is 100% capital depreciation, accelerated depreciation for wind. The Indian government changed that, last year's budget, and they made wind's depreciation go away, and solar got 100% capital depreciation. They've renewed it this year as well in the recent budget. So you're going to see there's a lot of profit-making companies that want to -- they want power, and they get this, and with the capital -- with the accelerated depreciation, levelized cost of solar energy is cheaper than any other energy they buy. So I think the growth drivers are being created, which is why you'll see the growth.
On the solar materials business, you guys said you hit EBITDA positive. So on that, 2 things. When you were able to get sales from opportunistic sales externally, and then also, there's some element, I assume, of transfer pricing into the downstream, so I'm wondering, is that market transfer pricing? And then as we look forward, if you could just talk about how much vertical integration really exists right now between materials business. I mean, is it 90, 50? Like how much are you sourcing internally for the projects this year?
Great questions. So first one, we don't -- when you look at the financials here, and I show you the project margin, those modules are coming internally, a call. So just like they would from a third party, right? So if I buy a Trinox module at $0.70 or $0.65, the projects are buying our modules at that cost, too. So they don't -- we don't mark them up, let's put it that way, for management purposes. Whenever I show you margins, it means they got it and what it cost them. On the other side, the page that we tried to show kind of shows the deficit for this year, right? It shows you that I have about 100-and-some-odd megawatts of modules that I'm going to be selling on the outside opportunistically based on an extension of the contracts that we had last year. So I'm going to be buying probably 30%, 40% of my module this year. And we'd like to see that number be, and we've said it before, kind of 50/50, right? We'd like to -- and be flexible, right? So where it makes sense, we can increase that percentage where it doesn't, like in local content markets. It doesn't make sense. So that's how we think about it. And that page, I forget what the exact page number was, but there was like a map behind it that showed modules, sales. On the right-hand side, you can see the exact deficit for this year.
Ahmad R. Chatila
Let me -- I want to just add a few things. One, it is EBITDA positive in Q2 actually, the last 3 quarters, based on market dynamics. It's often team efforts between the downstream organization and the upstream because they basically tackle together like how to be opportunistic and how to reduce cost very quickly and be nimble. That's one. Second, we do not want to use our money and our capital to build capacity, okay? We have some things. We're going to use it. But going forward, you can see us owning something. We're not using our money. I would love to have infinite flexibility to buy everything from the outside opportunistically. At some point, in India, modules were being sold for $0.53. Since then, God gave them a lot of support. They're selling it for $0.50, which is kind of a little bit crazy. I would love to buy everything from the outside, but that comes with danger end because at some point, if something snaps back, I cannot keep my commitments to the customers. So I don't want to overcommit that I have infinite flexibility at the lowest cost in the world, but I'm trying to balance both worlds. But one thing for a fact, I do not want to use my money to build factories anymore. I've done it in Kuching. I've done it, in my view, for a very good reason. It turns out to be not very good after the fact. I don't want to go there. But I do want to use my advanced technology so that other people could pay for it, okay? I will have flexibility but not infinite. So from time to time, I might pay a little more because I do use other people, like for example, Southern Taiwan. Maybe the sell price goes up by $0.03, $0.04. That's all right. I don't want to build the pipeline. I'll pay for it, okay?
On 2 specific facilities, in Merano, it's mothballed. I'm wondering if you're thinking of taking a further step in just dismantling and cutting the cord there. And secondly, if can you just give us an update on where you are in Kuching, because I know it's been disappointing in terms of the cost you're able to achieve relative to the initial plan.
Ahmad R. Chatila
Yes. So I'll answer Merano. Merano is mothballed on the polysilicon end, but we have also a crystal facility that continues to be operating. And because of that, I am happy that I don't have to do a lot of dismantling and spend a lot of money on it. So that's Merano. On Kuching, there's a difference between downstream business and an upstream business. In downstream business, you know the price before you launch the project, before you start spending money on it. You know kind of the cost and you know the volume of it, like it's 10 megawatts, 5 megawatts. Because of that, we've done 1,088 projects with no losses. Even Totana -- even Totana in Spain, when the government changed its rule, and we have significant challenges here and there, it took us a while the set up and no one wants to invest, we were able to return our cash. We didn't make gross margins, but we returned our cash. Awesome. In an upstream business, unfortunately, there's 3 variables. Will the volume come in? Will the price come in? Will the cost come in? Initially, our cost didn't materialize, but now it's way below our projection. What I actually tried -- I had Vijay provide you exactly what the numbers are. Our own projections, initially, is LDK at $0.50 a watt. We want to be at $0.30, okay? That's how we thought the world is. Today -- and today, our slicing comp is lower than anybody in China. You can see it. It's around $0.23, $0.24, $0.25 a wafer. Go check. Do the benchmark. So on a cost perspective, we're very successful, but the business was a bad mistaken idea. Because there was so much capacity, we should have spent only maybe $50 million in our product line instead of spending $250 million, $300 million on a factory and really destroyed a lot of shareholder value. It was a big mistake. But from a cost perspective, I think Vijay and his team has really outperformed. And because of that, actually, some -- one of the leading equipment companies in the world and others want to license the technology from us on diamond wire, for example, because of our cost structure and how we have implemented it, okay?
Okay, we'll probably do about 2 or 3 more questions, and then we'll conclude the webcast.
A quick question on the solar -- or the semi-wafer business. February, March, have you seen demand pick up, anecdotal hearing people seeing orders, just from the general semiconductor companies better? What have you heard there? That's question one. The services business sounds like a great business. Is that roughly like $20-ish million? I mean, it's small today. Okay, and then on your projects that you talked about retaining, but projects that you sell, where along in the process do you sell those, meaning, do you sell them before you even start construction on them? That's the third question. And one last question is IRRs. You mentioned the stock buyback and I think you also said you're probably going to be free cash flow breakeven this year. So just comments on why that makes sense, especially after burning a lot of cash last few year.
Ahmad R. Chatila
Well, look. I have to tell you, I'm actually a huge believer in the long-range value of the business. It's very exciting. We have all the elements. You have a business where there's a $1 trillion that's going to be invested in 7, 8 years. And you are one of the leaders, and you have all the elements. And what we gave you today is a lot of data. You can go benchmark it. You can see how other people do it, go look in China what the cost is, how much volume people are servicing a given business. And you see, if you're going to be a leader in a market that someone is going to invest a $1 trillion, it's a good buyback, in my idea. It's a no-brainer. I wish I can spend more, actually. I just wish. I wish. All the other stuff, I really have to mention...
Yes. So the semi-volume, right? So we did show -- historically, Q1 is generally softer revenue than Q4, right? That's the history. We do see growth in Q1. So I wouldn't stand up here -- we don't give monthly projections, but we do show growth in Q1. I think that should give you some indications here to your question. Second question was...
What percent of your projects do you presale before you even...
Yes. So it -- from a financing point of view, some of our projects in the last year, we did presale, right? I mean, we did a couple of the direct sales that we did, like a couple of big ones that we announced with the Southern [ph] company. These were presold projects, right? We sold the project. Then we -- in other cases, we're going to build it now, and it'll be -- it'll happen like that. A majority of our projects, the financing is lined up ahead of time, in the equity, but the final sale doesn't happen until the project's built, right, and it passes all its test and everything else. So we generally get our own construction financing for that period. That then gets taken out by the back-end equity and debt. On the project that I mentioned previously, that's actually a project where the eventual off-taker will give you milestone payment, and that should pay you along way instead of getting construction payment. That's a smaller percentage. Most of our projects will have the financing lined up ahead of time because that's our policy. So then we'll get go get our own construction financing. Whether these are revolver or one-off financing deals. But very, very few projects -- and that's a really small -- get started without any of that being influenced. It has to go to the board, and we have to get their approval for us to start that kind of project. So that's the way to think about it. In a lot of cases, we'll have programs that are already preestablished, right? I mean, we have agreements with certain financial institutions that they want so much volume this next year. So we'll take the projects to them. They'll say, "Yes, I like it. We like the economics, and we'll go with that." So it's not like you got time for every contract. Does that make sense to you?
So the only time you get in trouble is if the economics change kind of after the fact, like the projects in Europe or something.
That's right. And even the ones where I would retain it on my balance sheet, which is, I think, the other question that you had. Those are not ones where I'm going to you build out all the CapEx using my own balance sheet and cash. Those are going to get themed like we do everything else, right? It's all about getting financed upfront. So I put in my small equity portion, if any, but that's it, just like I would do with the Seoul project. But at the end, I just finance through nonrecourse, and then I get the energy revenue. No difference. Risk management, we think about it in the exact same way. Did I get them all?
The IRRs that you guys quoted for the project that you've maintained that you keep in your balance sheet, is that an IRR to the company for making the decision to invest? Or is that the same IRR like a third party would get if they had the equity? In other words, does it reflect the fact that you guys get some gross margin from the project?
Correct, and it does. I mean, obviously, if I -- the equity expectations are lower than that, right, from the market, but then I get to make some of the gross margin, right? So in this case, for me, it's my internal perspective of the IRR for that investment. That's why they're higher. It's not what I'm paying people for equity today. It's much lower than that, given that I get the gross margin. So they get a little, I get some. If I keep it, I get it all. That's a very -- much higher number. Does that help? Perfect. I think that's it. Well, look, thank you very much. Thanks, everyone.
Okay. Thank you, everybody. With that, we'll conclude our webcast. We'll take a 5-minute break, and we will then take a rock tour in about 5 minutes. So we'll pull the curtains back. We'll do a quick tour. Thank you very much.
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