A Holy Moly Gutsy Week in Cleantech

Reading cleantech news and SEC filings this last couple of weeks makes for a holy moly OMG damn that takes guts set of moments. Well, the cleantech sector is nothing if not entertaining.  I’m obviously going to have to up my game and find more entertaining deals.


Total buys controlling stake in Sunpower. Sunpower was certainly a pioneer, and really kicked off vertical integration in photovoltaics with its acquisition of Powerlight in 2006. $2.3 Billion equity valuation? 46% share price acquisition premium? Wow. No guts, no glory. But at something like a little south of a PE of 30 on the 2011 earnings guidance as well as 2011 year over year revenue growth forecast of close to 30%, probably not too far out of line. And they didn’t even have to buy the whole thing!

Sunpower has had a hell of a run, but basically every solar analyst on the planet has been crowing that its core strategic advantages have seriously eroded. And maybe they have. We shall see. But growth is growth, and high performance panels are high performance panels. With another $1 billion in letter of credit from Total to backstop it, I think this is a gutsy, but strong move. If I’m Sunpower, I needed to do something. And with my stock price at not much over 10% of my high? This is a deal I’ll take. And if I’m Total, buy control of Sunpower for a 7th of it’s price peak and a PEG of around 1 to get a Tier 1 position in solar and stacks of growth potential I can pour cash into? Or build another offshore platform? Hmmmmmmh. I think I’d actually like the solar play this time. And take the margin risk.


KiOR files for IPO. Um, wow. Fascinating technology, though still a lot of scale-up to be done. We know for sure that Vinod Khosla has a cast iron stomach and more guts than me. I read the S-1 cover to cover last night. S-1s are notoriously messy reading and tricky to decipher how the venture rounds were done, but here’s what it looks like at first read:

July 07 Khosla invests $2.5 mm in a milestone deal of $1.4 and $1.1 for c. 50% of the stock excl option plan, a c. $2.5-3 mm pre money/ $5-6 mm post.  Great, nice cheap deal.
Mid 08 Artis (who was also heavy into Solyndra) and Alberta Investment pump in another c. $12 mm for c. 55% excl option plan, about a 1x uptick c. $10-12 mm pre-money.  CEO comes in here.  Price and capital in still within normalcy, but rolling almost as fast as we did our Zenergy deal in superconductors a few years back. But then it gets really gutsy.
Aug 09 Khosla $15 mm bridges a conv note, and gets paid handsomely when in
mid 2010 Khosla puts in another $80-90 mm in addition to the prior Convertible note for 35% of the Company, but all of the voting control.

Somewhere in there the state of Mississippi gives them $75 mm in no interest loans kicking in this last quarter (which sounds like it goes into default if KiOR doesn’t invest $500 mm into the state of Mississppi by 2015).

They then file for an IPO with Credit Suisse, UBS, and Goldman. All with like just a 15 barrel of oil equivalent per day pilot plant, planning to scale to a still miniscule 800 BOEPD with the couple of hundred million dollar investment from Mississippi and Khosla.

This isn’t just Khosla priming the pump and dumping on the rest of the venture world.  This is money where your mouth is.  This is make ’em pay to play style Texas Hold’em.  Pushing all in on a pair of queens with a straight flush showing on the flop.  Figuring pot odds be damned, the pair of queens is worth a shot if we can push half the table in with us, and we’ll just buy back in and do it again  if it doesn’t work out.  Damn. No guts no glory.


And of course, for BrightSource, one IPO filing and more “tortoise troubles”. Basically the regulators now think there are more endangered desert tortoises getting moved or killed than they had permitted Brightsource at Ivanpah.   The week after you file for an IPO and Google gives you money? 😉

And phase II and III are on ice or partial ice. I asked my wife how exactly it happens that they miss this badly on the number of tortoises (she’s been doing environmental risk assessments in the SoCal desert her whole career).  Her answer, usually means somebody on one side or the other doesn’t understand statistics.

This is already a very tight deal. And I was never sure exactly what a measely $250 mm in IPO money was going to do to help, when each project costs $2 billion, and takes fifty to a hundred million and years to develop. I’m thinking they need some real Total style money in this one to win.  But at this time in my reading, I’m beginning to think I have no guts.

Time to think about upping my game again.  My partners will be glad to hear that.  They think I’ve gotten a little risk averse.

China Plans 220,000 EV Charge Points and 2,351 Battery Switch Stations

China leads the world with over 100 million riding e-scooters, e-bikes, and light-electric vehicles. By December 2015, China plans to have 500,000 electric vehicles that can travel slow streets to fast highways. Those EV will be supported with 220,000 charge points and 2,351 battery swap stations in the nation’s latest plans. China’s 12th Five Year Plan is summarized in a new Deutsche Bank (DB) report.

China will move to a more efficient lower carbon economy not only with electric cars and electric scooters. China is expanding electric transit and rail. For example, electric high-speed rail is targeted to expand by 29,000 miles between now and 2015. China high-speed rail is already more extensive than the mid-speed U.S. Acela system that supports daily riders in New York, Boston, Philadelphia, Washington DC and other Eastern cities.

Over the next five years, China will reduce its percentage of transportation that requires foreign oil for gasoline and diesel. China will also reduce the percentage of electricity generated by coal. By 2015, China will add:

  • 70 GW wind
  • 120 GW hydro
  • 5 GW solar
  • 40 GW nuclear

China plans to lead the world in using renewable energy. Although the Japanese nuclear disaster occurred as the 12th Plan was being drafted, China appears to be moving ahead with Generation IV nuclear which it views as safer than the Japanese plants built over 30 years ago. For example, Huaneng, China, is proceeding with the construction of a 200MW high-temperature gas-cooled reactor according to the DB report. More cost-effective natural gas plants, however, may yet be substituted for half of the planned nuclear expansion.

China Wind 150x150 China Plans 220,000 EV Charge Points and 2,351 Battery Switch StationsChina is likely to easily meet its 70GW wind 5-year target. It installed 25GW of new wind power in 2010, in comparison to only 5GW in the U.S. China’s wind installations grew faster than grid connection, with 10 percent of new wind not being grid connected. China Wind Renewable Energy World Report

$76.7 billion will be invested in new ultra high-voltage grid transmission to support the added capacity of new power according to the 12th Plan.

These investments will directly benefit China and support Chinese ambitions for Chinese global leadership in technology of the future. The 12th Plan identifies 7 Strategic Emerging Industries:

  • Clean Energy Vehicles
  • Energy Conservation and Environmental Projection
  • New Energy
  • New Materials
  • Biotech
  • High-end manufacturing equipment
  • Next-gen IT

Free DB Report

Disclosure: author owns stock in Chinese wind, solar, and HSR companies Trina Solar (TSL), Goldwind (2208.HK), Ming Yang Power (MY), CSR Corp (1766.HK), China High Speed Transmission (CHSTY), and Zhuzhou CSR Times Electric (3898.HK).

On Innovation

Last Thursday, I was involved in not one but two interesting meetings on the topic of innovation.

First, I attended a morning session held at the Center for Innovation and Growth at Baldwin-Wallace College, where the discussion focused on how Procter & Gamble (NYSE:  PG) had launched its “Connect and Develop” open innovation program to improve its ability to collaborate with outside partners in technology research and product development.

Of particular interest were the comments of Chris Thoen, P&G’s Managing Director of External Innovation and Knowledge Management.  Noting that P&G headquarters had long been considered “the Kremlin on the Ohio River” by outsiders seeking to partner with P&G, the former CEO A.J. Lafley had made it a priority for the company to reinvent itself by becoming the type of partner to others that the company itself wanted from its partners.  Breaking down the “Not Invented Here” syndrome was a major if predictable challenge, and Thoen expressed the phrase “Proudly Found Elsewhere and Applied With Pride” as the counterpoint the company sought to embody.  With 9,000 researchers, Thoen said that P&G probably could do anything it wanted internally — but not as fast, cheaply, or well as it could by reaching outside.  And, in the disciplines of interest to P&G, there were 2 million experts worldwide:  almost three orders of magnitude greater of resources than were available in-house.  Thoen also pointed out what he felt was the Moore’s Law of innovation — that a second deal with the same partner takes half the time and creates twice the value of the first — which revealed the accelerating returns resulting from productive partnering.

Perhaps Thoen’s presentation about P&G’s experience is more sizzle than steak, but assuming that P&G has in fact been successful in pulling off this transformation to a considerable extent, it would be nice to say that I’ve seen this degree of open innovation by players in the energy industry.  My experiences with large electric utilities, oil companies, equipment vendors, and engineering/construction firms — of a comparable magnitude and global reach as P&G — have not been so encouraging in figuring out how to play nicely with outsiders.

The notion of how innovation plays out in the energy sphere brings me to the topic of my second meeting of the day, hosted at The Cleveland Foundation.  Spurred in large part by the leadership of Peter Teague at the Nathan Cummings Foundation, a gathering of about 40 people convened to discuss how to increase the impact of philanthopy’s role in energy debates.  As reflected in this article co-authored by Teague, philanthropic involvement in energy debates has largely focused heretofore on the need for climate change policy to address environmental considerations, and now is seemingly at a dead-end in the face of the collapse of prospects for cap-and-trade legislation, but a different and hopefully more fruitful path may be able to muster bipartisan support if the story is centered on the economic benefits associated with energy innovation.  

Jesse Jenkins of The Breakthrough Institute presented some of the key findings of his report “Where Good Technologies Come From”, which makes the compelling case that the Federal government has always — dating back to George Washington in 1792, and through Presidents of both parties to the present day — played a hugely important catalytic role in commercial innovation, even in technologies (e.g., the iPhone) that seem on the surface to have been developed solely by “the free market”.  Teryn Norris of Americans for Energy Leadership discussed the recent issuance of “Post-Partisan Power”, which was co-written by contributors from both The American Enterprise Institute and The Brookings Institution (“Dogs and cats living together!  Mass hysteria!”), and illustrates the potential for a consensus around a national energy policy — if the agenda is framed around the economy rather than the environment.

In my view, which I shared with the group, the biggest need in energy innovation is not new ideas but capital.  What philanthropy can do with its balance sheet its allocate some of their endowments towards investing in new energy innovation.  From a grantmaking perspective, it can support regional economic development efforts rooted in energy innovation — such as here in Northeast Ohio with NorTech Energy Enterprise, the Lake Erie Energy Development Corporation and the Great Lakes Energy Institute — and it can support advocacy in the public sector to encourage policies (such as tax credits on energy R&D) or other initiatives (such as ARPA-E) that facilitate the flow of more private sector capital to energy innovation.

P&G seems to demonstrate that big companies can dramatically improve via accelerated and amplified innovation.  P&G serves an intensely-competitive market, where customers can select or not select their products every day, so the company has come to recognize, with Thoen invoking Darwin in his commentary, that survival goes not to the strongest or the swiftest but to those that can best adapt.  To date, many aspects of the energy sector (particularly in the electricity industry) have largely been shielded from the imperative to innovate.  It is my belief that, if we can get the financial incentives right and can expose companies in the energy sector to the perils of undue comfort in the status quo, we can unleash immense innovation in energy — with large side-benefits to our economy and our environment.

Seven cleantech companies Silicon Valley just learned about

As a reporter and analyst, I wrote about hundreds of cleantech companies. As a managing director of the Cleantech Group, I spent years listening to hundreds of pitches, coached companies on presenting to institutional investors and helped facilitate cleantech deals around the world. Just last month, I served on a committee at the request of the Canadian consulate in San Francisco to evaluate companies to present at a cleantech investor event.

So I’ve seen a lot of cleantech companies pitch well, and some not so well.

Last week, I had the privilege to help present seven strong cleantech companies actively seeking capital to investors in Palo Alto. And the two-dozen institutional cleantech investment firms in the room liked what they saw.

Read more

Earth Day is coming: How do you rate on the Societal Responsibility Scale?

Dutch Environmental Policy expert, Hans van Zigst, recently spoke on Societal Responsibility, specifically that society has an obligation to change behavior, the way we produce and the way we consume goods. This theme appears timely as we approach Earth Day on April 22, a date designated to demonstrate our commitment to environmental protection and sustainability.

If you are reading this blog, the assumption is that you are a follower of the cleantech space. By definition, while you expect to benefit from market opportunities and financial upside derived from clean technologies, you are also intent to provide ecological solutions primarily attributed to human impact on the earth.

The question is: as we build and/or invest in the next solar, EV or biofuels technology invention, are we acting as role models for the industry we represent? We’re betting on or promoting energy savings and efficiency, reduction of gas emissions and less reliance on foreign oil, but is our everyday behavior reflective of our professional pursuits? Driving a hybrid or swimming in a solar-powered pool is a beginning but not an end.

So with Earth Day approaching, we could start by asking ourselves:

o Am I actively supporting regulatory policy efforts that will help encourage socially responsible behavior? Can I play a role in helping craft policies that make sense to the general population?

o Does my household diligently recycle and compost? If my area doesn’t have composting facilities, have I pursued solutions?

o Is minimizing gas consumption and emissions a top priority in the selection of my vehicles? Is walking, cycling or public transportation available?

o Do I buy compostable consumables and organic food and textiles when options are available?

o Do I consider the environmental consequences before printing reams of paper, purchasing plastic water bottles, or accepting plastic bags at the checkout?

o Am I setting a good example for my children to protect and promote a healthier environment?

Signs that entrepreneurs and investors are starting to materially benefit from cleantech opportunities are evidence that the industry is sustainable. Earth Day is a reminder that preserving healthy ecosystems and environments are an integral part of sustainability. We should show our support for cleantech by making behavioral decisions for all the right reasons and not just some of them.

Let’s celebrate Earth Day!

Gas Pains

The natural gas market has always been a roller-coaster.  It’s a very seasonal fuel, typically experiencing price spikes during the winter heating months.  So, it’s important to begin any discussion about natural gas with a statement of the obvious:  natural gas prices are very volatile.

A few years ago, natural gas prices exceeded $12/mmBtu (as measured at the market’s reference point, Henry Hub).  Since then, of course, the national economy has collapsed, with sharp declines demand from many major gas-consuming industries, so that gas prices even during peak months have fallen below $6/mmBtu — less than half their recent peaks.

One of the reasons for prices falling so low has been the opening of shale gas reserves across the country that had heretofore been beyond economic reach.  With the development of horizontal drilling techniques and hydraulic fracturing (a.k.a. “fracking”), a series of geologic basins — starting with the Barnett in Texas, and now the Marcellus in Pennsylvania — are being tapped to extract large quantities of natural gas that were known to exist but previously uncompetitive absent technological advancement.

The opening of these resources has led many observers, with only one example being the American Clean Skies Foundation, to make the case that natural gas should be the central platform for American energy policy and main leg of the American energy industry stool for the foreseeable future. 

The basic premise is that natural gas is much more plentiful under our own lands than formerly thought possible, while also being much cleaner than coal or even petroleum, so we should be using natural gas not only for power generation, but also for increased deployment of natural gas vehicles to displace the need for so much imported oil.  Since gas is so plentiful, it will be cheap to use natural gas as the primary fuel of choice in our economy.

I’m not against natural gas in any way.  It is plainly a much cleaner-burning fuel than oil or coal.  It is not subject to mountaintop mining practices that are devastating coal producing regions in Appalachia, as profiled in this recent story in the New York Times.  It does not produce the wastes or the worries that nuclear energy does, as evidenced so clearly of late at Fukushima in Japan.

But, I do worry that the forecasts of long-lasting natural gas abundance — and low gas prices — in the U.S. are wildly over-optimistic.  For instance, the most recent edition of the Powers Energy Investor analyzed production from the Fayetteville shale in Arkansas and concluded that its production levels had peaked and “natural gas demand will soon substantially outstrip supply and prices will skyrocket.  All the pieces are in place for substantially higher natural gas prices, however Mr. Market will recognize the incredibly strong fundamentals of the natural gas market only when he is ready and not a second earlier.”

In short, the concern is that shale gas resources may be subject to much steeper decline curves in production than is the case for gas from conventional wells.  Many industry cheerleaders are touting decades or hundreds of years of domestic natural gas supply, but may be doing so by extrapolating a few years of production from the seeemingly-abundant shale gas reserves and applying conventional decline curves that are not nearly so severe as real-world experience from the Barnett and Fayetteville shale resources have indicated.

Also, some of the environmental concerns about production of gas from shale formations via the use of fracking are likely to have some justification.  Last week, the New York Times reported that House Democrats have discovered substantial risk of carcinogens being dumped into water as a result of the use of fracking chemicals — very closely-held industry secrets by such oilfield service companies as Halliburton (NYSE: HAL) and Schlumberger (NYSE: SLB).

Defenders of the natural gas industry have claimed that the New York Times has performed a hatchet job on the shale gas industry in their reporting on environmental issues associated with water contamination from fracking.  Perhaps. 

However, I have recently talked with someone with direct business involvement in the fracking activity in the Marcellus — a self-avowed Republican — who was unequivocally damning in noting that environmental standards regarding water quality associated with fracking are essentially non-existent in Pennsylvania.  “They take the wastewater, put it in tanker trucks, and on rainy or snowy nights, they roll the trucks and dump the water on the road.”  The annual volume of wastewater — however clean or contaminated — that’s disposed of in this manner or otherwise without any control or oversight?  According to my contact, about three-quarters the volume of Lake Erie.

Between dealing with the environmental challenges seemingly associated with fracking, the probably overblown estimates of ultimately-recoverable shale gas reserves, and the push for more natural gas adoption in the transportation and power generation markets, it’s far from obvious to me that natural gas prices will remain at these levels for very long.

In the end, we must remember that natural gas markets have long been subject to booms-and-busts.  Note that, before natural gas prices broke the $10/mmBtu level in the mid-2000s, they had lingered below $2/mmBtu for much of the 1990s, and the natural gas industry was in a state of deep and enduring pessimism.  Then, in just the space of a few years, gas surpluses evaporated as demand steadily grew, and prices quadrupled.  What makes us think that another increase of $5-10/mmBtu couldn’t happen again?

I remember a cartoon from the late 1980s depicting a homeless man at a stoplight holding a cardboard sign that stated “Will Predict Natural Gas Prices For Food”.  Forecasting the future of the gas market is clearly a perilous game, and far be it from me to suggest I know what will happen.  But, as the history of the natural gas market has shown again and again, the future need not look anything like the present, and blindly assuming a continuation of current pricing levels and supply adequacy in the natural gas markets is by no means certain.  In fact, over the long-run, I’d bet against it.

A Tale of Venture Capital Wanted

by H Lee Rust

Not long ago I had a visit from my friend Al B. Rich. I had seen Al a year ago just after he completed the concept design for an Internet B2B portal for buyers of eye glass hinges and screws. I had explained then that the Internet bubble had already burst costing most investors I know a good portion of their funds. Now Al was back to relate his experiences in The Money Search.

His first stop had been the bookstore which cheerfully supplied 16 volumes on how to write a business plan, attract venture capital, and live a life of idle wealth. I glanced out the window and noticed that Al had traded his Porsche Boxster for a ‘97 GEO with a little rust under the door. As we talked, I turned to the marketing section of his two hundred page “Private Placement Offering Memorandum and Disclaimer”, the disclaimers added at great expense by his lawyer. As usual, “Marketing” started with the astounding statistic that there are 250 million people in the U.S. Once this population had been distilled down to the eye glass wearers, companies that supply them, and the 10% market share Al’s B2B exchange would attract, his projected third year sales were a conservative $78.6 million with a 16% after tax margin. I could easily see how everyone was going to get rich; instead I think most of them got Rich.

He had sent the Plan to 36 venture capital firms and 12 SBIC’s listed in the free state development office directory of money sources. That was the only item Al got for free. Nine of the VC’s responded that they were putting his Plan in their files pending further market developments. Four SBIC’s passed it on to people they knew in the industry for evaluation. Fifty follow-up calls later, Al found that these experts passed the Plan on to more specialized experts until they found one who knew enough to kill the idea.

But one venture capitalist wanted to talk. Never mind that he was not on the list or that his address was the South Bronx, Al gladly spent $1,789 for a first class (he might sit next to an investor) ticket to New York. Maybe he should have wondered when the meeting was at O’Mally’s Italian Diner and Al picked up the check, but this guy controlled millions. Most of the conversation, however, concerned the New Yorker’s search for distressed Florida hotels that could be bought for no money down with 100% financing. Al couldn’t help him, and he couldn’t help Al.

However, it wasn’t a wasted trip; Al stopped in to see Monnie Dodge, an old friend who had done tax shelters in the ‘80’s. Dodge still couldn’t believe the game was over. He could package Al’s deal as an intellectual property partnership. Al would still own 100% of his company and just pay royalties to the partners. Converting the Business Plan into the Partnership Offering only cost $5,000 up front to Dodge plus twenty grand to the lawyers and a minor $7,500 for new financial projections. Oh, Al also remembered the $5,634 tax opinion and the $678 for FedEx delivery, the only mailing service those lawyers knew existed. If Dodge didn’t know the tax shelter partnership game was over, he found out on Al’s deal. He joined his brother-in-law’s Roto-Rooter franchise.

A friend of Al’s knew a guy in Miami who controlled South American money. Forget that Gonzales Sneed had blond hair and an office in a three floor walk-up, the deal sounded enticing. His client would lend Al $50 million; Al would deposit $43 million in a Cayman Island bank and pay for the balance at 4-3/4% over prime, repayable in six months with roll-over privileges and convertibility if his company succeed. That exercise only cost Al $5,000 to Sneed, a bargain when you compare it to the partnership deal.

There was, however, a new venture incubation center opening right near Al’s home office. Everything a budding company could need was provided including a state development officer for consultant. For only $4,000 a month Al got an office, copy machine, secretarial service, phone, and free coffee between ten and two. He virtually lived there before he discovered that the new venture incubation center had everything except a source of development capital, the one item a new venture needs before all others.

The development officer did, however, introduce Al to four venture capital clubs and got his Plan accepted for a high-tech enterprise forum where capitalists and entrepreneurs meet to exchange money for stock. Al made presentations to the clubs in front of accountants, deal packagers, other hopefuls, and office supply salesmen but no investors. The only difference at the enterprise forum was it took four days instead of four hours, and Al didn’t win the beauty contest.

At this point, he was getting desperate so he finally visited the High-Tech Pawnbroker and Financing Authority in Coral Gables. “Welcome”, said the man behind the counter, “so you want to start a high-tech company; I’ve got the money, but it ain’t cheap.”

“Right,” responded Al, “for just a million I’ll give you 10% and a seat on the board.”

“Just a minute, I’m the guy with the money; I’ll set the terms. I’ll give you $50,000 now for 40% and two board seats. If it works and I approve your business plan, you get another $100,000; I get another 30%, two more seats, and meanwhile I drive your Porsche. That’s a generous deal.”

“But that’s not enough,” said Al quietly. “How about my house; it’s gotta be worth $250,000.”

The man, who happened to be a real estate broker on the side, was quick to answer, “Hundred grand, my best offer, and how about your watch. I pay top dollar for Rolexes.”

Is there a better way? I tried to tell Al about market research and management teams, structuring the financing for the target investor, and using an expert’s knowledge of the capital markets. “But wait,” said Al, “I’ve scrapped the Internet portal idea and developed a new video game that plays automatically everytime your cell phone rings…”


H. Lee Rust has been a corporate finance consultant for the past 27 years helping small companies accelerate their growth with acquisitions and mergers and developing strategic plans to target and control that growth. He is the author of Let’s Buy a Company – How to Accelerate Growth Through Acquisition. Mr. Rust directs his entire corporate finance practice to those small companies who aren’t usually of interest to large investment banks, but uses big bank acquisition techniques tailored to his client base and their individual situations. He lives with his wife in Apopka, an Orlando, Florida suburb.


14 Ways that Solar Power Costs will Decrease Sharply

Solar power continues to grow by over 30 percent annually. Solar panels cost 100 times less than in the 1970s. Solar is clean, often generated at or near where electricity is needed, and not at the mercy of fluctuating coal or uranium prices.

The timing for solar energy growth is excellent. Voters have lost their appetite for spending billions to try to make coal clean while carrying the burdens of health damage. Similarly, most voters do not want to pour billions into loan guarantees for expensive nuclear power in the wake of the disaster in Japan.

In this decade, installed solar will drop to half its current cost. Such cost reductions will take more than lower costs of silicon panels and thin-film. Process and policy are now key areas for cost reduction. I recently attended the 3rd Annual Solar Leadership Summit hosted by SolarTech. With progress in these areas, solar costs will drop in half:

  1. Manufacturing scale
  2. Efficiency
  3. Balance of System
  4. Installation
  5. Right Size
  6. Right Place
  7. Improve Interconnect
  8. Markets not Monopolies
  9. Policy
  10. Process
  11. Financing
  12. Concentrate
  13. Hybrid Systems
  14. Storage

Manufacturing scale

Ten solar manufacturers in China produce over one gigawatt of solar panels. High manufacturing volumes, lower labor costs, and favorable government policy have helped lower costs. Morningstar estimates that China has a 20 to 30 percent manufacturing cost advantage and that Trina is producing crystalline silicon cells for 78 cents per watt.


China may be winning the c-Si cost battle, but First Solar uses thin-film innovation to lower cost. First Solar is increasing manufacturing capacity from 1.5 to 2.3GW per year, including manufacturing in low cost countries such as Vietnam. Last year it improved its CdTe module efficiency from 11.1 to 11.6 percent to deliver 75 cents per watt cost. GE announced 12.8 percent efficiency with its CdTe panels. In 2013 it will have a new 400 MW plant online. Honda is betting on CIGS thin film. Venture capitalists are betting on exciting emerging companies as the efficiency and cost battle intensifies.

Balance of System

Dr. Alex Levran, President of the RE Division of Power-One, asked the industry to measure system efficiency in harvesting energy, rather than just evaluate inverters efficiency with specific solar modules. He identified areas for cost savings including eliminating the grounding of inverters. This is not done in Europe and it lowers inverter efficiency. Europe uses 1,500-volt systems. In the U.S., 600 volts is common. Modular inverters are need for quick repair. He feels that a 10-cent/watt goal is feasible in 2 to 3 years with the right component costs.


Experienced conference participants agreed that a major variability in annual electricity generated from a solar project is how well it is installed. Square feet can be used optimally or poorly. The slope of panels needs to be ideal. The quality of wire and installation affect longevity and output. SolarTech is working with industry groups and community colleges to insure a growing pool of skilled labor.

Right Size

The highest U.S. growth will be in the middle market of 100 kW to 20 MW at locations near load centers. Urban commercial roofs, industrial yards, and parking structures are good examples. The price per watt benefits from economy of scale, flabor costs, shared balance of system. Installed solar is cheaper by the megawatt than kilowatt. These segments appeal to electric utilities that face RPS requirements in 30 states. Commercial distributed solar is often well matched with the location of electricity demand, minimizing transmission and distribution investment. For example, transit operators including LA Metro, New Jersey Transit, and MARTA are among the dozens of agencies heavily investing in solar in the 100kW to MW category. Public Transportation Renewable Energy Report

Right Place

My wife and I recently rode our bicycles to a 5 MW solar installation in the middle of San Francisco. The panels are mounted at ground level on the cement cover of a local water reservoir. Labor and construction costs are lower on the ground than on old roofs that may need to be upgraded to support the weight and maintenance of solar. Near ground, such as erecting steel grids to cover parking structures, can also be more cost effective than roof-mounted systems.

Improve Interconnect

A public utility can make it easy, difficult, or impossible to connect to their system. Follow the money. Some solar makes them money; some costs them. Some projects provide RPS credit; some do not.

Markets not Monopolies

I once shared lunch with a public transit manager who wanted to cover a transit line with megawatts of solar power and a water wholesaler who wanted to buy the power. It was a win-win and the numbers worked, except that they were legally required to put the local public utility in the middle. The utility wanted to build a new natural gas power plant. Somehow, the solar numbers no longer worked. Laws need to be changed, so that micro grids and markets can work without utility monopoly power.


Installation of solar power is complicated by having 21,500 local codes to deal with beyond the National Electric Code. Permitting can take weeks. Inspection outcomes and reworks are variable costs due to lack of one national code. Promising is DOE’s Solar America Board of Codes and Standards (Solar ABCs).


“The solar industry is at a critical turning point, where the technology is here, yet the overhead process costs keep prices high and force customers to navigate through a complicated process,” said Doug Payne, executive director of SolarTech.  “There is no reason that it should take three months for a customer to adopt solar, when it takes half that time to remodel your kitchen and only a few days to get a new water heater.  The Solar Challenge aims to make solar adoption easier and faster for customers, while simultaneously creating the local jobs and economic growth that follow. “


Solar financing needs to be as easy as getting a mortgage loan. Instead, many solar projects fail to get financed. Lenders need more certainty in the annual output expected from projects for 20 years. Standard spreadsheets and models would help. More certainty about government policy or an established carbon market would greatly help. Major players that could aggregate many projects would add diversity, certainty and simplify rating and securitizing large portfolios. In Europe, feed-in tarrifs have greatly simplified financing.


Concentrated photovoltaics, in the lab, have demonstrated 41 percent efficiency; roughly double the c-Si being installed. Now what is needed is low cost manufacturing of CPV, 20-plus year reliability, and effectiveness over a range of light-source angles. Also, in the pipeline are gigawatts of concentrating solar-thermal utility scale plants. The big challenge for these plants is years of site approval and high-voltage lines to load centers.

Hybrid Systems

Mark Platshon, Vantage Point Venture Partners is optimistic that installed solar will reach $2 per watt. The magic dollar per watt would require PV to be reduced to 30 cents per watt. Hybrid systems could lower the total cost taking advantage of common infrastructure and interconnect with hybrid systems such as solar and natural gas, roof PV and BIPV, and solar on existing light and power poles. Victor Abate, GE’s VP of Renewable Energy Business, stated the GE has sold 60 megawatts of its thin-film solar to NextEra, an existing GE wind customer. Abate said, “We are an energy company and expect to supply full solutions.” He suggested that if ten percent of GE’s wind farms added hybrid solar, the new 400MW GE factory would be sold out for six years.


Solar power often delivers when electricity is most needed, such as hot summer days when air conditioning is blasting. Storage of off-peak solar for peak use would add to solar energy’s value. One approach is concentrating solar thermal with molten salt storage. For PV, utilities are piloting a variety of promising grid storage, some as large as 150MW using compressed air, advanced batteries, and even flywheels. In the next decade, major storage could come from electric vehicle to grid.

Small Hydro Emerging as Viable Sector for Renewable Energy Development

by David Niebauer

With many states adopting renewables portfolio standards (RPS) and the prospect of a federal RPS somewhere on the horizon, more attention is being given to hydroelectric power generation.  Renewable resources such as sun, wind and water, are those that can be harvested in a sustainable manner to provide the electric power that our society depends on. Water (or gravity moving water) has received less attention from project developers than wind and solar.  But that may be changing.

Approximately 18% of the total world energy supply is hydroelectric. But of course, all hydro is not created equal.  The bulk is large hydro, which employs dams and weirs that disrupt the environment in unalterable ways.  Most hydroelectric facilities are not considered “renewable” – at least not by environmentalists.  Large man-made reservoirs change habitats forever and are often blights on the natural settings in which they are built.

Small hydro – facilities that generate up to 30 MW – can be developed without harming the environment.  So called run-of-river facilities are designed to take advantage of flowing water in rivers and streams in such a way as to have minimal impact on fish habitats and natural settings.  Also, many of the dams in the US are not powered. These facilities, where the environmental impact of the dams cannot be undone, are ripe for small hydro development.  In September 2009, U.S. Energy Secretary Steven Chu said the hydro industry could add 70,000 MW of capacity by installing more efficient turbines at existing dams, increasing the use of pumped-storage projects and encouraging the use of run-of-river turbines. That capacity is equivalent to 70 nuclear plants or 100 coal-fired plants.

Until recently, the major impediment to the development of small hydro has been regulatory.  There are two major federal agencies responsible for hydroelectric power development – Federal Energy Regulatory Commission (FERC) and the US Army Corp of Engineers – neither of which are known for their nimble, user-friendly ways.  While wind and solar projects can often avoid federal regulation, relying instead on individual state authority, FERC is responsible for licensing all non-federal government hydroelectric projects that touch navigable waterways or affect interstate commerce (i.e., if the system is to be connected to a regional electric transmission grid).  Horror stories abound of FERC applying the same licensing and fee structure to a 500kW run-of-river system as it would to a 500MW hydroelectric dam project.  This appears to be changing.

FERC has been investigating ways to simplify the process of obtaining small hydropower licenses and exemptions and, on August 31, 2010, unveiled its Small/Low Impact Hydropower Program Internet site, explaining how developers can quickly and efficiently win FERC approval to build and operate small hydro projects.  The website is part of a FERC plan to expedite small hydro projects.  Another important component is an initiative to enter into memoranda of understanding with state governments to advance FERC exemptions for small hydro projects in those states.  In August 2010, FERC announced a pilot program with the State of Colorado, and has entered into similar MOUs with the states of Washington, Oregon, California and Maine.

Developers appear to be rising to the challenge.  FERC issued 50 preliminary permits to study small sites in 2009, compared to 15 in 2007.  There is money available at both the state and federal level, mostly untapped, in the form of low interest loans, and investors appear to be warming to the sector. An Internet search uncovered at least one developer engaged in a strategy of rolling-up small hydro assets, and undoubtedly more will follow.  A logical approach for a developer would be to acquire a portfolio of revenue-generating assets as a way to demonstrate satisfactory investor returns.  From this base, a developer should be able to build profitable projects at existing unpowered dam sites, and to pursue run-of-river and pumped storage opportunities.

Much attention has been paid to wind turbines and solar PV as ways to harness nature’s abundant energy resources.  Hydroelectric power has often been overlooked due primarily to its scale and the high regulatory hurdles facing developers.  That may be changing in regard to small hydro.  The country has countless unpowered dams that are ripe for development.  This, combined with the prospect of streamlined permitting and exemption processes at FERC for run-of-river and pumped storage facilities, has developers exploring ways to advance small hydro in the service of the nation’s renewable energy goals.

David Niebauer is a corporate and transaction attorney, located in San Francisco, whose practice is focused on financing transactions, M&A and cleantech.  www.davidniebauer.com



Funny Papers

Life is too difficult, and cleantech is too challenging, for one not to maintain a sense of humor as a necessary survival or coping mechanism.  And so I really need to start spending more time reading posts by Eric Wesoff on Greentech Media, a web portal for cleantech news.

Consider this gem summarizing the state of the fuel cell sector, with the classic passage:

“Here’s an updated list of the top three profitable publicly-held fuel cell firms:




“The non-profitable list is a bit longer and includes…” …just about every company involved in the fuel cell business.

Or, Wesoff’s most recent contribution about the massive energy use associated with the growing of marijuana, which contains among other most excellent passages the following knee-slapper:

“One percent of national electricity consumption, or the output of seven large power plants, is devoted to make Pink Floyd sound interesting and keep the Denny’s graveyard shift in business.”

Maybe it’s because I like to crack jokes, even in tough situations, but I find that those who can make you laugh also make you think.  So, I heartily recommend the works of Wesoff, as we need more people thinking better in the cleantech realm.

Begun, the Cleantech Patent War Has

by Eric Lane
Intellectual property is playing a crucial role in the current clean tech boom by encouraging innovation and facilitating deployment of clean technologies.Green patents in particular are very important.  Whether it be the guarantee of exclusivity in an increasingly crowded clean tech industry or the revenue streams generated by licensing proprietary technology to others, patents provide a powerful tool that clean tech companies can use in a variety of ways to create value. And as one would expect, with this means patent litigation activity from both cleantech players and non-practicing patentees targeting them.  Begun, the Cleantech Patent War Has.


Clean Tech Non-practicing Patentees in Court:  The (First and) Second Wave

Often derided as “patent trolls,” non-practicing patentees (NPPs) – individuals, patent-holding companies and other non-practicing patent holders – do not commercialize their patented technology but instead generate revenue through licensing. They approach firms they believe to be manufacturing or selling embodiments of their patented technology and typically use the threat of infringement suits as a stick in negotiations.

An initial round of major NPP patent litigation hit the clean tech industry in the mid-2000s.  There were two significant instances of this activity.  The first was a series of lawsuits brought by a hybrid power train startup called Paice against Toyota, accusing the automaker of infringing some early patents on gas-electric hybrid vehicle technology.  After a five-year battle, Toyota ultimately licensed all of Paice’s 23 patents.

The second was Columbia University Professor Gertrude Neumark Rothschild’s enforcement of a pair of patents relating to pioneering LED production techniques against many major targets, including Toshiba, Panasonic, Sony Ericsson, LG Electronics, Motorola, Samsung, Sanyo, Sharp, Philips Electronics According to her attorney, Rothschild has reached settlements or licensing agreements with more than forty companies generating more than $27 million.

Clean tech is now in the midst of a second wave of NPP litigation.  Leading the charge is Sipco LLC (Sipco), an Atlanta, Georgia-based developer of wireless mesh technology. In August 2009 Sipco sued Florida Power & Light Co. and FPL Group Inc. in federal court in Miami, alleging that the wireless network technology in the utility’s smart grid system infringes three Sipco patents relating to smart grid technology.  Sipco struck again in November 2010 suing such smart grid companies as Energate, Ecobee, Rainforest Automation, SmartSynch, AMX Corporation, SimpleHomeNet and CentraLite Systems.

Earlier this year, Sipco expanded the scope of its patent enforcement activity to target players in the electric vehicle charging station space including Coulomb Technologies and ECOtality, as well as additional energy management, control system, and wireless companies such as EnergyHub, Jetlun, SmartLabs, ABB, and Ingersoll-Rand.

 In solar, a small patentee called Solannex recently began targeting major thin-film photovoltaics players with a patent directed to interconnect structures for PV cells.  In the last few months Solannex has sued Miasolé and Nanosolar for patent infringement.  If you’re operating in smart grid or thin-film, or developing technology to enter the space it would be prudent to be aware of the Sipco and Solannex patents.


Big Oil Proxies – Enforcing Green Patents

With just about every major oil company involved in renewables on some level, particularly biofuels, one recent patent infringement suit may mark the start of a trend.  In February Butamax Advanced Biofuels, a Delaware-based biofuel joint venture between BP and DuPont sued Gevo, an Englewood, Colorado, advanced biofuels company, for infringement of a patent directed to Butamax’s biobutanol production technology and recombinant microbial host cells that produce the biofuel.

As far as I know, this is the first instance of biofuel patent litigation involving a major oil company.  With the oil majors increasingly involved in biofuels startups via research funding, buyouts, and JVs like Butamax, it won’t be the last.  Energy companies are no stranger historically to patent litigation in technology, as evidenced in the 1990s by Unocal’s lawsuits over its MTBE patents and the long running patent fight by Energy Conversion Devices, backed by Texaco, over nickel metal hydride battery technology.

So while many of these cleantech companies are still maturing, the cleantech patent wars have definitely begun.

Where Be the Debt in Cleantech?

A large portion of the energy and ag sectors cleantech targets are strongly backed by liquid and well developed debt markets and lending practices.  But in cleantech, basic nuts and bolts debt has been scarce or weird.

  • We have cleantech companies, venture capitalists and pundits babbling self servingly about a “gap in the capital markets” that we need project finance to fill.  (Why because since it’s a bad deal for you it’s a great one for a lender?)
  • We have government loan guarantees in the US crowding out venture capital.
  • We have cheap loans in China creating accusations of “venture capital dumping” in cleantech causing analysts to ask how a US firm can compete.
  • We have project financing, which began with tax equity crowding out project debt in US.
  • We have debt structures behind FITs in Europe.

But where is the basic stuff?  Term debt, mezzanine debt, credit facilities?  For example I know of no significant mezzanine lenders with a focus in cleantech.

Is it scarce because it’s been crowded out?  Have the capital markets failed, despite being awash in cash and yield hungry?  Are lenders just too wary still post GTC – an argument I just don’t buy?  Do the companies and their venture capital sponsors not understand it? 

Perhaps the good lending deals aren’t so good.  Perhaps cashflows are too weak, and projects too early and risky.  Perhaps the policy risks are higher than we believe.

It’s not a simple question, but one worth exploring without jumping to the knee jerk reaction that the lending markets don’t get it and have failed.  They generally get risk very well.  And the fact that venture markets have such a high percentage of capital allocated to such capital intensive industries, yet the debt markets have yet to follow – suggests that risk is getting mispriced on at least one side of the equation.  And that spells danger and opportunity.

The Two Names in Cleantech You Have to Know

Cleantech has a very short history, and an even shorter memory.  I’ve written over and over again about how it’s all about policy, and that there is no disruptive technology in cleantech.  Now I’m telling you that’s not quite true, the exception proves the rule.

I’d like to ask you to do some reading on two men from very different worlds.  One recently passed away, the second in his 90s.  Both passionate about the earth and people in it.  Both lightening rods for criticism.  And for the record, one taught at Texas A&M, the other graduated from there.

Both drove the development of technology that changed the world in profound ways.  Doing so in part with deep connections to both technology and policy.  They are household names in the worlds they lived in.  They are largely unknown in the cleantech world.

If we are to survive and thrive in a world with a lot more population and a lot more demand on our natural resources that it had when Norman Borlaug and George Mitchell started, we’re going to need to mint more of these guys like water.  It’s good to know it can be done.

Norman Borlaug

Father of the green revolution.  Nobel peace prize winner, credited with saving 1 billion people through better food production.  American agscientist, working all over the world from Latin America to Asia, responsible for the development and proliferation of high yield, resistant wheat.

“More than any other single person of this age, he has helped provide bread for a hungry world,” the Nobel committee said in presenting him with the Peace Prize.

His obituaries tell it all.  He taught and researched at Texas A&M from 1984 on.

The green revolution has often been slammed for causing severe environmental damage.  But tell that to the masses of people around world who are alive today because of it.

“Gary H. Toenniessen, director of agricultural programs for the Rockefeller Foundation, said in an interview that Dr. Borlaug’s great achievement was to prove that intensive, modern agriculture could be made to work in the fast-growing developing countries where it was needed most, even on the small farms predominating there.

By Mr. Toenniessen’s calculation, about half the world’s population goes to bed every night after consuming grain descended from one of the high-yield varieties developed by Dr. Borlaug and his colleagues of the Green Revolution.” – Italics from the NYT obituary.

George P Mitchell

Texas oil man and sustainability?  George Mitchell can lay claim to doing both, in a big way.

He developed the fabulously successful Texas community The Woodlands, the only successful development of the original HUD funded communities of the 1970s.  Now The Woodlands is a thriving energy, biotech and technology economy founded on sustainable and environmental best practices, showing the world what can be done.  

But his big contribution to cleantech was way beyond one town. It was in pioneering the shale gas revolution through combining horizontal drillling and fracking at Mitchell Energy.  But don’t believe me.  Ask the Times Online and Forbes who the father of shale gas is.

And for those of you who missed the shale gas buzz, try this Wall Street Journal Article called Shale Gas Will Rock the World.

Like Dr. Borlaug and the Green Revoluation, shale gas and fracking have been ripped apart in the press for their environmental impact.  And like in the Green Revolution, I’d suggest you ask those whose houses are heated, and whose bills manageable because of shale gas.  Or ask just where you think we’d be without gas post nuclear accidents in Japan and food strikes in the Middle East forcing us to rethink our fuel supply chain?  Gas:  that compromise fuel of the future that everyone loves to hate, but makes up a critical part of every low carbon energy plan.

And then remember who these innovations helped the most, and who will benefit the greatest from cheap abundant food and fuel?  Not the rich in Manhattan or London.  The poorest of the poor in every corner of the world.

As I said before, if we are going to continue growing our economy and not destroying the world while we do it, we’re going to need to mint a lot of guys like these, and realize that every decision big enough to matter in food and energy involves real trade-offs taht we’ll have to face.

PS One final note:  notice that neither of these guys ever took a lick of venture capital 😉

National Clean Fleets Partnership Saves 7 Million Gallons Fuel

Hybrid and Electric Trucks and Vans

The United States is the world’s most dependent nation on oil. Soaring prices hurt our ability to recover from the recession. Mideast conflicts demonstrate our lack of energy security.  The recent BP gulf spill is estimated to have caused over $40 billion in damage. Strip mining Canada for tar sands causes environmental damage, as does the energy-intensive conversion of tar sands into oil.

President Obama announced a goal of cutting U.S. oil import by one-third by 2025. Controversial to the plan is more offshore oil drilling.  Welcome are the initiatives of the National Clean Fleets Partnership. This public-private partnership will help large companies reduce diesel and gasoline use in their fleets by incorporating electric vehicles, alternative fuels, and fuel-saving measures into their daily operations. The partnership is part of the DOE Vehicle Technology Program’s “Clean Cities” initiative.

AT&T, FedEx, PepsiCo, UPS and Verizon – Partnership Charter Members – announced plans to save 7 million gallons of diesel and gasoline fuel by deploying 20,000 advanced technology vehicles including hybrid and electric trucks. These charter members represent five of the nation’s 10 largest national fleets and collectively own and operate more than 275,000 vehicles.

Large commercial fleets are heavily dependent on petroleum-based fuels (gasoline and diesel) to deliver their goods and services every day.  In 2009, there were more than 3 million large commercial fleet vehicles on the road, consuming nearly 4 billion gallons of fuel. Fleets, which are typically centrally managed and comprised of a large number of vehicles, offer significant opportunities to reduce fuel use and carbon pollution.

FedEx Electric and Hybrid Fleet

FedEx has 19 all-electric vans and trucks and 330-hybrid diesel and hybrid gasoline vans and trucks. Those 348 have driven over 7.7 million miles to reducing fuel use by almost 300,000 gallons and carbon dioxide emissions by approximately 3,000 metric tons. The Environmental Protection Agency (EPA), the DOE, and CALSTART have recognized the FedEx hybrid vehicle project for its role in spurring hybrid truck advancements.

FedEx fleet includes Navistar and Modec electric delivery vans. E700 Eaton hybrids are heavily used in New York. Fiat’s Iveco diesel hybrid delivery vans are used in Milan and other cities. Azure gasoline parallel hybrids (Ford E450 chassis and Utilimaster body) make deliveries in California cities such as LA and Sacramento. Azure is now building thousands of Ford Transit Connect Electric Vans.

Also being hybridized are the traditional FedEx 16,000 pound vans with a cargo capacity of approximately 670 cubic feet. Eaton’s hybrid electric system has been placed in the standard white FedEx Express W700 delivery truck, which utilizes a Freightliner chassis and an Utilimaster body, and designated E700. FedEx Ground is working with Parker Hannifin Corporation to test a hybrid hydraulic technology with on a heavier class vehicle (Class 6). FedEx Fleet Details

FedEx is thinking outside the truck. Couriers in New York City and in London’s West End deliver many of their packages on foot, reducing vehicle emissions and traffic congestion. In Paris, electric tricycle delivery drivers zip packages to awaiting customers.

UPS Hybrid Fleet

UPS has over 50 hybrid diesel delivery trucks. Delivery trucks make lots of stops and capture lots of braking energy. The trucks have 60 percent to 70 percent higher fuel efficiency and emit 40 percent less carbon dioxide than normal UPS delivery trucks. UPS invests an added $7,000 per truck for these fuel-efficient hybrids, and saves over $7,000 in fuel in less than three years.

UPS also demonstrated its hydraulic hybrid delivery vehicle at the South Coast Air Quality Management District in Diamond Bar, California. The unique UPS delivery vehicle uses hydraulic pumps and hydraulic storage tanks to store energy, similar to what is done with electric motors and batteries in hybrid electric vehicles. Fuel economy is increased in three ways: vehicle-braking energy is recovered that normally is wasted; the engine is operated more efficiently; and the engine can be shut off when stopped or decelerating. The vehicle was designed with the support of the UPS, Eaton Corporation – Fluid Power, International Truck and Engine Corporation, U.S. Army – National Automotive Center, and Morgan-Olson. UPS has experimented with two hydrogen fuel cell vehicles, a Sprinter fuel cell van in Ontario, California and one in Ann Arbor, Michigan. UPS Fleet Details

UPS is going green to make more green – money. Fuel costs UPS over 2 billion dollars every year. Their approach to saving fuel is not based on one big technology breakthrough. Rather, it is based upon hundreds of smart decisions. For example, USP designed delivery routes to minimize left turns because turning across traffic is not only more dangerous, it requires longer idling time, wastes fuel and creates more congestion. The right-turn only approach saved UPS 3,000,000 gallons of fuel.

National Clean Fleets Partnership and the U.S. DOE

Through the National Clean Fleets Partnership, the Department of Energy will help companies:

  • Reduce fuel use through the use of more efficient vehicles and technologies, including hybrids
  • Replace gasoline and diesel vehicles with alternative fuels, such as electricity, natural gas, biodiesel, ethanol, hydrogen, or propane

Partners will benefit from:

  • Opportunities for technical assistance and collaboration, including: opportunities for peer-to-peer information exchange; collaboration with DOE and national laboratories surrounding research and development initiatives; and assistance in pursuing group purchasing—so that smaller companies work with their larger peers to get the benefits of purchasing advanced vehicles in bulk.
  • DOE technical tools and resources: DOE has developed a wide range of technical tools to help partner companies navigate the world of alternative fuels and advanced vehicles. A diverse collection of cost calculators, interactive maps, customizable database searches, and mobile applications puts vital information and analysis at fleets’ fingertips.

This Department of Energy initiative will compliment the Environmental Protection Agency’s Smart way Transport partnership program with the freight industry by furthering efforts to improve efficiency in goods movement and reducing our dependency on foreign oil.

Brightsource, Fisker and Solyndra – Soul Crushingly Bad Numbers Make up 17% of Near Record 1Q11 Venture Investment

GreentechMedia and Cleantech Group this quarter reported near record levels of cleantech venture capital investment. Nearly $2.6 Billion in deals.  No, quantitative easing hasn’t made the dollar slide that much yet, the numbers are real – mainly as the solar and transport  deals vintage 2004-07 are getting deep into their capital intensive cycles.  But a near record $2.6 billion, so everybody’s happy, right?

Personally, a quick scan of Greentech Media’s summary of the top deals sent cold shivers up my spine. The deals may be getting done, but are we sure investors are making money?  Let’s take three of the big ones and the only ones where Greentech Media quoted valuation numbers:  BrightSource, Fisker, and Solyndra.  Between the three of them that’s 17% of the announced Q1 deal total by dollars.

BrightSource Energy (Oakland, Calif.) raised a $201 million Round E for its concentrated solar power (CSP) technology and deployment, bringing its total funding to more than $530 million in private equity. That funding is in addition to a federal loan guarantee of $1.3 billion. The investors include Alstom, a French power plant player, as well as the usual suspects — Vantage Point Venture Partners, Alstom, CalSTRS, DFJ, DBL Investors, Chevron Technology Ventures, and BP Technology Ventures, together with new investors with assistance from Advanced Equities.  VentureWire reports that the latest round values the company in excess of $700 million.

Brightsource has been a darling for a long, long time.  It is easily the farthest along, most experienced and most ambitious of the solar thermal developers.  So what about the numbers?   Well it’s announced 2.6 GigaWatts of PPAs with SoCal Edison and PG&E.  And they’ve started construction on the first phases of the 392 MW Ivanpah development in the Mojave desert.  That’s the good news.

Here’s the bad news: $700 mm pre-money valuation + $201 mm in round 5 means only a 1.7x TOTAL valuation for investors on the $530 mm that has gone in.  Or the previous round investors are now in aggregate up 2.1x on their money for a 7 year old company after the 5th equity round is in.  Not sure who, but a few of those rounds got rocked, and not in a good way, or else we just did four wonderfully exciting 15% uptick rounds in a row.  But it gets worse.

This first plant, the one they’re headed IPO on, still hasn’t come on line let alone finished phase I.  DOE has committed $1.37 Billion in debt to it, and NRG $300 mm in equity, with more equity capital needed.  So once completed, the venture investors after their meager 2.1x uptick in the first 7 years, are between 3-8 years in on their venture investments and now own part of a heavily leveraged state of the art $2 Bil+ highest cost in the market power plant throwing off revenues of say $125 mm/year.  Perhaps $140-$150 mm at the high end (estimates have varied on capacity factor and price).  Right sounds almost passable.  But now let’s build the cashflow statement.  Add in Brightsource’s estimated direct labor at $10-$15 mm/year ($400 mm over 30 years from their website), plus maintenance/repairs at 0.5% of assets per year of another $10 mm (and hope to God it can stay that low – that would be a tremendous success in and of itself), then add on debt service on $1.37 billion assuming an only available by government guarantee 30 year amortization at 5%, and we eat another $80-$90 mm per year.  So we’re at $100 to $120 mm in annual costs, and $125 to $140 mm in annual revenues.  And we haven’t included gas, water, or any contribution to overhead, which are all non trivial. And don’t forget we’re building this out in 3 phases over several years.

So after all that, if it works, and if it works well, those investors MAY see a net of $20 mm-$40 mm /year in cashflow from that plant by 2014/2015 or so that they can use to cover plant overhead, fuel bills, the remainder which is then split between them and NRG to cover corporate overhead and then pay taxes on; or they may be losing money every month.  But we’ll make it up in volume, right?


But there is hope:

#1  pray for lots and lots of ITC (30% on the $600 mm in non subsidized capital would shave almost a whole 10% off the total cost!)

#2 pray for an IPO (and think VeraSun, sell fast).

#3 pray for a utility who overpays for the development pipeline

Two good articles with some more history from Greentech Media here and here.


Fisker Automotive (Irvine, California), an electric vehicle maker, raised $150 million at a $600 million pre-money valuation (according to VentureWire), from New Enterprise Associates and Kleiner Perkins Caufield & Byers. The firm previously raised $350 million in VC, as well as a $528 million loan from the DOE.

Terrific, another high flyer.  Same analysis, this one’s younger, only 4 years old, and only on investment round 4, which is good, since they’ve now apparently got a total valuation of only 1.5x investors money, or 1.7x total uptick for the prior 3 rounds of  investors.  But since they’re only in so far for 1-4 years not 3-8 like in Brightsource, they’re ahead of the game ;).  But once they take down their $528 mm in DOE debt (which this last tranche was supposed to be the matching funds for), they’ll be at a soul crushing 110% Debt/Equity.  Oh, and did I mention that the real way to calculate Debt/Equity assumes equity is net book value?  And since with these startups we’re using contributed capital, once should think of our debt to equity ratios as very very very very artificially low – but I didn’t want to scare you too much.

But look on the bright side:

#1 If they really hit their 15,000 car per year at $95K/car and typical 5%-10% automotive operating margins, they could be at solidly into junk bond land at 4-7x debt to EBIT!  (Assuming of course you believe they build a $1.5 billion/year automotive company with no more cash).  Of course, they apparently have a whole 3,000 orders placed for the c. $95K car, and are currently planning closer to 1,000 shipments for year 1.  Compare that to the Nissan Leaf and Chevy Volt, which cost closer to $30K each.  Chevy has been planning on shipping 10,000 Volts in 2011, and 45,000 in 2012.  Nissan has targeted first year Leaf production at c. 20,000, and apparently had more than that many orders before they started shipping.

#2 pray for an IPO

#3 Buy Nissan stock


Solyndra (Fremont, California), a manufacturer of cylindrical solar PV systems for industrial and commercial rooftops, closed $75 million of a secured credit facility underwritten by existing investors. Solyndra had annual revenues exceeding $140 million in 2010 and has shipped almost 100 megawatts of panels for more than 1,000 installations in 20 countries, according to the CEO.

I’m certainly not the first or only one to cry over Solyndra.  And I’m pretty certain I won’t be the last.

Founded in 2005, with a cool billion in equity venture capital into it now, I believe they were on F series before the IPO was canceled last year? With this $75 mm Q1 deal (in secured debt, of course, their investors are learning) they’ve announced another $250 mm in shareholder loans since the IPO cancellation, and the early round investors have been already been pounded into crumbly little bits.  But it’s worse.

If I followed correctly, the original IPO was to have raised $300 mm, plus pulling down the $535 mm in DOE debt.  Here less than 9 months after that process canceled (could that be right?), they’ve now raised 80% of the cash the IPO was planning, except all in debt, and grown revenues nearly double since starting that process.  My only response to this was OMG.  So they’re at a 26% Debt/Equity Ratio for a money losing company, where debt exceeds revenues by a factor.  Pro Forma for the DOE loan fully drawn they’re at 44%, and something like 6x debt to revenue.  These are crushing numbers for healthy profitable companies.  It gets worse.

Go read their IPO prospectus.  Teasing out who invested how much in each round from each fund, and the size of those investors’ announced funds, plus the number of funds that “crossed-over” and did their follow-ons from a newer fund, and you quickly realize there are several venture funds that literally tapped out on Solyndra, likely either hitting house or contractual maximum commitments to a single deal.  The concentration risk in Solyndra is possibly enough to severely pound multiple fund managers, not just Solyndra.


Please somebody please tell me I’ve got the numbers all wrong.


Obama’s Blueprint for a Secure Energy Future

Last week, President Obama unveiled his Administration’s “Blueprint for a Secure Energy Future”.

Like most big-picture strategic summaries of complex subjects, a whole lot of content gets reduced to a few simple phrases that have become almost devoid of meaning.  In this case, the Obama Energy Blueprint distills into three priorities:

  1. Develop and secure America’s energy supplies
  2. Provide customers with choices to reduce costs and save energy
  3. Innovate our way to a clean energy future

How can anyone object to these motherhood and apple-pie themes?

At the next level of detail, the Obama Energy Blueprint  proposes a long list of individual recommendations, such as incentives for more domestic oil/gas development, programs to facilitate the transition of the vehicle fleet away from petroleum fuels, tighter energy efficiency requirements, and a national clean energy standard.

One by one, most of the listed initiatives have merit.  Unfortunately, some are probably pretty ineffectual, each has its own set of unintended consequences, and there is considerable potential for interference among programs in such a voluminous mixed bag of policy items.

Alas, this is what happens when government is forced to accept suboptimal solutions because the optimal approach is foreclosed due to political realities. 

At a fundamental level, with this Blueprint, the Obama Administration is seeking to simultaneously (1) end American reliance on foreign oil for transportation, (2) reduce U.S. greenhouse gas emissions caused by burning fossil fuels, (3) ensure that the U.S. profits from development and adoption of next-generation energy technologies, and (4) accomplish (1)-(3) without costing U.S. citizens more money on energy expenditures.

The challenge is that all four of these objectives cannot be achieved simultaneously, especially in the near-term. 

Actually, objectives (1), (2) and (3) can be achieved pretty quickly, say within a decade or so, if you’re willing to ignore the fourth objective about reducing energy costs to citizens.  But, alas, the fourth objective is really the only one that most Americans care about with any intensity, and if the U.S. is going to focus on the fourth objective, the first three are hard to tackle in any meaningful way.

To achieve the first three objectives, all that’s required is some fairly simple — if broad-reaching — policies:  namely, higher taxes on oil imports and a carbon tax.  With higher energy prices facing consumers, the millions of economic actors across the U.S. will make investment and consumption decisions that will spur the development and deployment of alternative energy approaches to displace oil and reduce emissions while fostering U.S. leadership in the clean energy industries of the future. 

But, of course, such taxes — for that mattter, any taxes — are anethema in Washington these days.  Having spent all of his political capital (and then some) over the past two years on health care reform and economic stimulus, Obama does not have the strength to propose a straightforward energy policy to achieve the goals that implicitly underlie his Blueprint. 

Frankly, I think the energy policy imperative is a great opportunity for a politically bold leader to take on the issue of restructuring U.S. taxes so as to boost economic output.  Maybe I’m naive, but I don’t see why increased taxes on energy cannot be enacted as part of a quid pro quo for reduced taxes on income and capital gains — which would be unquestionably a tonic for the economy. 

I know that a common rationale for opposing such a change is that a shift in taxation of this kind would be regressive (i.e., fall disproportionately highly on lower-income citizens), but it shouldn’t be all that difficult to come up with some mechanism for providing rebates on increased energy tax burdens borne by the poor.  In other words, there should be an answer that reconciles higher energy taxes among the populists on both the left and the right of the political spectrum.

Actually, I think the real reason that higher energy taxes don’t get any traction in D.C. is that the major incumbent energy companies would be unambiguous losers, and they simply won’t allow that to happen.

As a result, President Obama must resort to issuing documents like the one released last week:  a blueprint that looks like a building designed by a hundred architects each working on a different room.