ABB’s New Solar Star

Over the weekend, ABB (NYSE: ABB) announced the $1 billion acquisition of Power-One (NASDAQ: PWER), which makes a wide spectrum of power conversion electronics equipment.

Notably, Power-One is a major player in the market for inverters, which convert DC power into AC power.  In turn, inverters are important for synchronizing DC-based technologies such as batteries, fuel cells and photovoltaics (PV) with the AC electricity grid.

While there may be other reasons underlying the acquisition, ABB singled out Power-One’s inverter lines for the PV market.  At first blush, this might seem surprising, because as most observers of the cleantech sector know too well, the PV sector has been brutalized in recent years.

Surely, the PV industry has been beset by intense competition among module suppliers, stemming from global excess manufacturing capacity that has accumulated over the past few years.  This is bad news for module manufacturers, who have struggled to attain or maintain profitability.  However, it’s very good news for customers, as PV system prices have plummeted in recent years.  In turn, this has dramatically expanded the market for which PV installations are now economically competitive to grid-based power, and PV market growth rates are on a hockey-stick upward trend.

Accordingly, the demand for ancillary equipment required for grid-connected PV systems — most prominently, inverters — has also grown dramatically.  As a result, the inverter manufacturers such as Power-One have been able to take advantage of the rising tide.  ABB clearly wants to jump on it.

So, ABB is playing the Levi Strauss strategy:  in the 1850’s, Strauss decided he wanted to participate in the California gold rush boom — but rather than becoming a miner himself, he decided to supply the miners with their required supplies.  In 1873, Strauss invented blue-jeans for the miners to wear as they flocked to the hills and — lo — Levi’s was born.  Thereafter, Levi Strauss made the fortune that the miners were actually seeking themselves, and for the most part never attained.

ABB thus seems to see that it can make good money from the booming PV market without buying into the challenge of being a supplier of PV modules.  It’s strong validation of the long-term fundamental appeal of PV as a major force in the energy sector for decades to come.

Simple Thoughts on Aggie Muster

Simple Thoughts on Aggie Muster

Written on Muster’s Eve April 20th 2013 the year of the birth of my daughter

Softly call the Muster, gently call the Roll.
Another year is passing, time will take her toll.
My family is remembered, as I’ll be remembered too.
Remember me my brethren; I am remembering you.

Softly call the Muster, gently call the Roll, a century of thoughts and prayers, lifted once a year.
I know them not, I’ve never met, we are connected still.
Each year on Aggie Muster, my mind with thoughts will fill.
I never go, they do not know, they never see I do.
But decades hence when I have passed, they shall remember too.
It leaves me feeling sad and bright, emotions flowing free.
Remembrance celebrated, tears and hope I see.
Softly Call the Muster, Gently Call the Roll, tomorrow comes the rising sun, and memories held dear.

Muster always chokes me up, to the very verge of tears. Reminds that time goes marching on and lessens mortal fears.

When asked by those who do not know what Muster is I’ve said, “it is the day that every year We Call the Roll of Absent Friends and Celebrate our Dead”.

That does not hardly even touch its awesome thrilling hold for me. Does not show the chills I feel. Or show the peace that makes it real. To know on us when once we die, on far flung future minds we’ll lie.

This much this year I know and when, tomorrow, as all years before, just whisper of these words alone will choke me up again:

“Softly call the Muster, gently call the Roll.
Another year is passing, time will take her toll.
My family is remembered, as I’ll be remembered too.
Remember me my brethren; I am remembering you.”

by
Neal M. Dikeman, Class of ‘98

for
Gwendolyn Piper Dikeman, Class of ‘2035
Dr. Rebecca Dikeman Turney, Class of ‘01
Dr. Matthew M. Dikeman, Jr. Class of ‘68
In remembrance of
Matthew M. Dikeman, Sr., Class of ’36 (Aggie Muster April 21st 1986)
All those I do not know who Muster this year, and those for 130 years before.

A Tale of Two EVs

Albert Einstein once said:  “Make everything as simple as possible, but no simpler.”  Pundits always pursue the former, but often fail to uphold the latter.

Such has been the case recently in regards to the prospects for electric vehicles.  Will electric vehicles be commercially successful or won’t they?  As often happens, there is superficial evidence supporting both sides of the argument.

On one hand, you have Tesla Motors (NASDAQ:  TSLA).  Tesla recently announced that it had achieved its first quarterly profit, on the back of better-than-forecasted sales of its new Model S sedan.

On the other hand, you have Fisker Automotive.  At the same time that Tesla was releasing good news, Fisker was making waves with its drastic downsizing, laying off 75% of its workforce.  Fisker’s main model, the Karma, is probably unfortunately named, as the company is certainly beset with misfortune these days.

Fisker’s bad news made more headlines than Tesla’s good news, in part because Fisker has received financial support from the U.S. government, and was thus being lambasted by some as the “next Solyndra”.  (In part, also, because bad news seems to get more attention than good news.)

So, why is Tesla doing fairly well while Fisker is definitely not?  This comparison between the two makes a strong case that Tesla simply has a better all-around product at a more attractive price than Fisker.

Moreover, it is said by many observers that Tesla has pursued a different fundamental approach to business than Fisker.  Fisker started by designing a wholly-new electric vehicle that looks cool — and the Karma is by all accounts beautiful — but only much later turned to considering how to actually manufacture it.  As a result, the costs and complexity of the car ballooned.  It’s a big challenge to source and manage thousands of parts from many vendors.  (It didn’t help Fisker when their main battery supplier, A123 Systems, had performance issues with their products and then went belly-up.)

In contrast, Tesla focused solely on developing an electric vehicle drivetrain, including the battery packs, and then outsourcing design as much as possible to other companies expert in the car business, and then focusing on making the integration/assembly of all the relevant systems as low-cost as possible.  (However, it’s an been documented to be an oversimplification to say, as some have, that Tesla’s initial model, the Roadster, is simply a Lotus Elise with an electric drivetrain.)

Time will tell if Tesla will be a long-term survivor.  No question:  succeeding as a start-up car company is very difficult.  However, Tesla may have turned the corner.

Clearly, though, there’s a long way to go and plenty of opportunities for critics to pile on.  In the wake of some bad press in February, when a New York Times reporter wrote a famously negative review of the Model S, Tesla still must fight the headwinds of skepticism about electric vehicles as a major automotive force.

Fisker’s woes don’t help.  For the too-populous segment of oversimplifiers out there, it’s easy to extrapolate Fisker’s plight to other electric vehicle companies, particularly if they have a reason to want to make the sector look bad.  To illustrate, Sarah Palin piled on by lumping Tesla with Fisker and calling them both as “losers”.

Tesla will do well to distance itself from Fisker as much and as quickly as possible, as they really do have a different tale to tell.

Who’s Got Nest?

Like most other tech sectors, the cleantech world is subject to fads that are overhyped — meteoric rises, sometimes followed by spectacular flameouts. It seems like we humans like to create heroes and then tear them down.

There’s a particular tendency to sing the praises of the latest “hot company”:  the one that has the best investors, is on the fastest growth path, offers the coolest product.

In cleantech, that company today may well be Nest.  The investor roster represents the top-drawer of venture capitalists, including Google (NASDAQ: GOOG), Kleiner Perkins, Venrock, and Lightspeed.

What are they betting on?  In the words of Technology Review, who recently profiled the company, Nest “injected new technology into the humble thermostat”. Imagine a thermostat developed and marketed by Apple (NASDAQ:  AAPL).

The Apple link is not coincidental:  the co-founders are Tony Fadell (who created the iPod) and Matt Rogers (who led the development of the iPhone).  One look at the Nest and the Apple lineage becomes crystal clear.  Surely, Nest would have called their product the iStat if they could get away with it.

As with Apple, arguably the key advancement offered by Nest is the human interface.  Programmable thermostats have been around for years, but most users have found them bothersome.  Nest aims to make the functionality as intuitive as Apple has with their devices, therein revolutionizing the way that households manage their heating and cooling requirements — and, by extension, their energy consumption.

Early reviews, such as this one by Katherine Boehret of the Wall Street Journal, are gushing.  I haven’t played around with one yet, but am looking forward to doing so.  I’d welcome any feedback from those who have.

 

Failing The Course: Energy Economics and Subsidies

When I was a young lad in college, at the Massachusetts Institute of Technology (MIT) in the early 1980s, I took a course in energy economics taught by Prof. Morris Adelman.  I was an anomaly:  there were probably no more than a handful of courses then being taught in energy economics in the colleges and universities around the world, and Adelman was one of the very few people around who could have plausibly been called an “energy economist”.

Thirty years on, and the relative dearth of economic understanding in the energy sector persists.

Certainly, there is much more attention now being paid to the intersection of energy and economics at centers of higher education, but these professors are teaching students who will be leaders 20-40 years from now.

Most of today’s leaders involved in energy policy, who went to school decades ago (as I did), do not seem to have been exposed to (or if so, to have grasped) the importance of economic principles when setting energy policies.

Perhaps this economic ignorance in the energy policy realm is most apparent by the prevalence of energy subsidies.

As I’ve posted before, energy subsidies are powerful and dangerous things:  powerful because they are effective, dangerous because their effects can be bad.

And how prevalent are they?  The International Monetary Fund just issued a new study, entitled “Energy Policy Reform: Lessons and Implications”, that brings a fresh analysis of this difficult-to-measure topic.

By IMF’s estimates, on a worldwide basis, energy subsidies of all types summed to nearly $2.5 trillion in 2011, equating to over 3% of global economic output (GDP).

Certainly, some of the less-developed kleptocratic oil producing countries of the world are among the worst performers.  For instance, under the despotic rule of Hugo Chavez, Venezuela directed nearly 17% of its economic output into energy subsidies.

However, the U.S. performed no better than the world average, with fully 2.4% of its GDP subsidizing American petroleum markets.

This is not a good thing at all.  As the IMF notes right at the top of the executive summary of the report:

“Energy subsidies have wide-ranging economic consequences.  While aimed at protecting consumers, subsidies aggravate fiscal imbalances, crowd-out priority public spending, and depress private investment, including in the energy sector.  Subsidies also distort resource allocation by encouraging excessive energy consumption, artificially promoting capital-intensive industries, reducing incentives for investment in renewable energy, and accelerating the depletion of natural resources.  Most subsidy benefits are captured by higher-income households, reinforcing inequality.”

In all, it’s a long litany of ails that are amplified by energy subsidies.  And yet, they persist.  Why?

Do I really need to answer that question?

Whether future leaders have the strength to prevail over political forces that aim to preserve and enhance energy subsidies remains to be seen.  However, it is cause for some hope that a greater number of future leaders are being better taught about energy economics and better informed by estimates such as those produced by the IMF.

Let’s hope these future leaders pass their energy economics courses — not only when they attend school, but more importantly, when they’re out in the real world and make decisions and recommendations and actions that have consequence to us all.