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Stunning Cleantech 2012

It’s been a busy, ummm interesting year.  We’ve tracked profits to founders and investors of $14 Billion in major global IPOs on US  exchanges and $9 Billion in major global M&A exits from venture backed cleantech companies in the last 7-10 years.  Money is being made.  A lot of money.  But wow, not where you’d imagine it.

5 Stunners:

  • Recurrent Energy, bought by Sharp Solar for $305 mm, now on the block by Sharp Solar for $321 mm.  Can we say, what we have here gentlemen, is a failure to integrate?  This was one of the best exits in the sector.
  • Solyndra Sues Chinese solar companies for anti-trust, blaming in part their subsidized loans????????  Did the lawyers miss the whole Solyndra DOE Loan Guarantee part?  It kind of made the papers.
  • A123, announced bought / bailed out by Chinese manufacturer a month ago, now going chapter bankruptcy and debtor in possession from virtually the only US lithium ion battery competitor Johnson Controls?
  • MiaSole, one of the original thin film companies, 9 figure valuation and a $55 mm raise not too long ago (measure in months), cumulative c $400 million in the deal, sold for $30 mm to Chinese Hanergy just a few months later.  (Not that this wasn’t called over and over again by industry analysts.)
  • Solar City files for IPO, finally!

 

My call for the 5 highest risk mega stunners yet to come:

  • Better Place – Ummmmmmmmmm.  Sorry it makes me cringe to even discuss.  Just think through a breakeven analysis on this one.
  • Solar City – a terrifically neat company, and one that has never had a challenge driving revenues, margin, on the other hand . . .
  • BrightSource – see our earlier blog
  • Kior – again, see our prior comments.  Refining is hard.
  •  Tesla – Currently carrying the day in cleantech exit returns, I’m just really really really struggling to see the combination or sales growth, ontime deliveries, and margins here needed to justify valuation.

I’m not denigrating the investors or teams who made these bets.  Our thesis has been in cleantech, the business is there, but risk is getting mispriced on a grand scale, and the ante up to play the game is huge.

 

Danger: Silly Season Ahead

Here’s a musical experiment for you:  play a song such as “Penny Lane” from The Beatles (or, if you prefer classic rock, “Whole Lotta Love” by Led Zeppelin will do nicely) on your sound system…but with the balance set all the way to one side or the other.  There will be enough recognizable content for you to still recognize the song, but you will not be able to hear the whole song, and will miss many important elements.

This is like getting your information on topics of the day from Fox News or MSNBC:  significant portions of the story being reported upon will simply not be heard.

If you play “Penny Lane” (or “Whole Lotta Love”) through an old monophonic transistor radio, you will hear both “sides” (as it were) of the song.  But, the fidelity will be very poor, and you won’t hear the nuances and richness of the song.

This is like getting your information from the USA Today, or most local newspapers:  any deep appreciation of the underlying issues will remain out of reach, because it is inherently lacking from the reporting.

As we move into the so-called “Silly Season” of election politics, in an era of “sound-bites”, incumbents and aspirants — and perhaps more importantly, thanks to the Citizens United decision, the flotsam of PACs and SuperPACs that wallow around the political discourse — are flinging about half-truths about all sorts of important issues. 

Most of these issues — health care, fiscal policy, immigration, “values” — are ones in which I claim no sort of expertise, and accordingly I will not render any public assessments on them. 

However, a large number of polemical skirmishes on the 2012 political battlefield are shaping up to be based on energy and environmental topics.  The list is long:

Keystone XL pipeline.  High gasoline prices.  EPA regulations.  Fracking and shale.  Nuclear energy.  Energy independenceSolyndra.  Extension of the wind production tax creditSubsidies to fossil fuels.  Dumping of solar panels from China.

The airwaves are crackling with a cacophony of messages for and against these issues…and I’m hearing lots of misstatements and oversimplifications.

I’ve been ruminating on the advent of Politifact, that aims to prove or debunk political claims in as unbiased a fashion as possible, and thinking that there ought to be some similar effort focused on the issues of importance to us in the cleantech community.  Maybe someone will take this on…

…But, in the absence of such an effort, and lacking the personal will to tackle it comprehensively on a topic-by-topic basis, I will use the remainder of this post to offer general advice to thoughtful citizens wishing to weigh energy and environmental issues in something other than a knee-jerk or dogmatic fashion. 

First, I am reminded of some advice from mentors upon beginning my career in the late 1980’s, as an economic analyst of various energy and environmental policy issues on behalf of (primarily) Federal clients:  “Be an ‘equal-opportunity offender’.  If you’re pissing off people on both sides of an argument, then you’re probably close to the truth.”

In my experience in the energy sector over the intervening 25 years, this is so much more a truism than can possibly be imagined.

The implication of this insight is that any message you might hear or read from any one source — unless that source is doggedly determined to be unbiased — is likely to in fact be highly biased.

If the only source of information you use to develop a perspective on energy issues is, for example, Americans for Prosperity, you will arrive at a selective and skewed view.  As noted in this articleThe Guardian recently reported on how AFP, and other groups of its ilk, are making a deliberate effort to discredit many policies to promote renewable energy, and so are unlikely to present any evidence that paints renewable energy in any positive light. 

Then again, it should further be noted that The Guardian is pretty well-known to have an agenda it seeks to advance.  Indeed, even most highly-respected newspapers known for excellent reportage — from the Wall Street Journal to the New York Times — have editorial boards that are widely-recognized to have a distinct political philosophy that they aim to espouse.  So, one must always take what information is obtained, even from the most reputable of sources, with a grain of salt. 

Alas, there is little substitute for decades of direct experience in an industry, examining issues from multiple angles, working productively (or at least trying to) with people from across the spectrum of interests.  It could be argued that this is the only professional asset and advantage I have accumulated over the years.

In addition to being slanted and aiming to press forward a position — regardless of whether the facts fully support it or not — most reportage of energy and environmental topics suffers from woeful lack of basic understanding of science and economics.  Publishers and journalists are approximately equally guilty. 

And, with its grave innumeracy — and the consequent inability to make tradeoffs — the electorate is subject to being swayed and stuck to a position only because it sounds right, best “fitting” their pre-existing and fairly unmalleable mental model, coming from a source they unblinkingly accept.

In energy and environmental issues, just about everything involves tradeoffs.  There is no perfect solution, no silver bullet.  There are benefits, but there are also costs, to all possible options.  When confronting a world of this much complexity, it may be comforting for many to resort to idealistic dogma.  However, those positions — which tend to be on the extremes — is not where reality usually lies, and it’s not where the action is.

If you were to limit my intake to one and only one general information source, I would choose (drum roll, please) The Economist.  OK, this is surely no surprise to those who have followed me for awhile.  Sure, I was trained as an economist,  but that’s not why I endorse the publication.  Simply, I find its weighing of all the diverse factors, and its understanding of the underlying facts and evidence, to be more thorough and — yes, actually — fair and balanced than other outlets.

Even so, The Economist can’t cover all energy and environmental matters.  A better approach to developing a healthy and informed perspective on these topics involves more work, accumulating from a variety of sources from across the spectrum.  It is unfortunate but seemingly the case that certain media — and especially, the blogosphere — has joined politics in becoming an adversarial contest of opposing views, where one side or the other will not let certain facts get in the way of telling the story they want told.

In the upcoming Silly Season, I urge conscientious voters to weigh all sides of energy and environmental issues, from multiple sources of information, before coming to any conclusions.  Don’t take what is said by the Democratic or Republican candidate, or their PACs, as gospel.  Don’t blithely assume that what environmental advocates or industry trade groups are reporting is the truth, the whole truth, and nothing but the truth.

It’s a very rough generalization — and as Alexandre Dumas once said, “All generalizations are dangerous, even this one” — but I submit that most pro-environmental positions underweigh economic considerations.  It’s simply naive to argue for tighter environmental control and then dismiss any possibility of negative economic consequences.  And, environmentalists are sometimes prone to “sky-is-falling” hyperbole, which undercuts their credibility in legitimate policy debates.

On the other hand, self-interested messages from the conventional energy sector are often disseminated through the filter of so-called “astroturf” (phony grassroots) organizations, that sound as if they’re representing the views of Bob & Betty Buckeye but instead actually are reciting the scripts of oil, gas, coal and utility companies.  The old adage from Watergate still applies:  “Follow the money.”  It’s incumbent upon the citizen to pierce the fog and see through to who is paying a lot for these media buys so you can hear their opinion.  Also:  don’t forget that the conventional energy sector has a lot more money to throw around than the other side in telling the stories they want you to hear.

And, in the end, to maintain your sanity in the face of inanity, it’s a good thing to fall back on this gem of folk wisdom.

2011 In The Rear-View Mirror: Objects May Be Closer Than They Appear

It’s that time again:  sifting through the detritus of a calendar year to sum up what’s happened over the past 12 months. 

Everybody’s doing it — for news, sports, movies, books, notable deaths…and now even for cleantech:  here’s the scoop from MIT’s Technology Review, and here’s a post on GigaOM.

So, my turn [drum roll, please], here’s my top 10 take-aways from 2011:

  1. Solyndra.  The utter failure of Solyndra, and the messy loan guarantee debacle, has been a huge black-eye to the cleantech sector.  It’s a political football that will be kicked around extensively during the 2012 election cycle, further widening the schism of support levels by the two major U.S. political parties for cleantech.  In other words, cleantech is becoming an ever-more polarizing issue — with Solyndra serving as the most visible tar-baby.
  2. Shale gas and fracking.   A chorus of ardent proponents of natural gas development, most vocally Aubrey McClendon, the CEO of Chesapeake Energy (NYSE: CHK) — the largest player in the shale gas game — is repeatedly chanting the mantra that shale gas is so plentiful that it can very cheaply serve as the major U.S. energy source for the next several decades.  And, recovery of this resource will create a bazillion jobs for hard-working Americans in rural areas.  In this view, who needs renewables?  Interestingly, this view also poses increasing threats to coal interests as well.  On the flip side, of course, the concerns about the use of fracking techniques, and the implications on water supplies and quality, are constant fodder for headlines.  Clearly, shale and fracking will continue to be hot topics for 2012.
  3. Keystone XL.  The proposed pipeline to increase capacity for transporting oil from the Athabasca sands of Alberta to the U.S. is the current lightning rod for the American environmental community.  Never mind that denying the pipeline’s construction will do very little to inhibit the development of the oil sands resources — Canadian producers will assuredly build a planned pipeline across British Columbia to ship the stuff to Asia.  Never mind that blocking the pipeline will do nothing to reduce U.S. oil consumption — which is, after all, the source of the greenhouse gas emissions that opponents are so concerned about.  This has become an issue of principle for NRDC and other environmental advocates:  “we must start taking concrete steps to wean ourselves from fossil fuels.”  Nice idea in theory, but this action won’t actually do anything to accomplish the goal, and will only further paint the environmental community in a damaging manner as being anti-business and anti-economics.  In my view, we have to work on reducing demand, not on curtailing supply; if we reduce demand, less development of fossil fuels will follow; the other way around doesn’t work.  The Obama Administration has punted approval for the pipeline past the 2012 election, but Keystone XL — like Solyndra — will be a major framing element in the political debates.
  4. Fukushima.  The terrible earthquake/tsunami in Japan in March killed over 20,000 people — and sent the Fukushima powerplant into meltdown mode in the worst nuclear accident since Chernobyl in 1986.  As costly and devastating as Fukushima was to the local region, it pales compared to the damages caused by the natural disasters themselves.  Even so, the revival of the perceived possibility that radioactive clouds could spew from nuclear powerplants put a severe brake on the “nuclear renaissance” that many observers had been predicting.
  5. Chevy Volt.  Released after much anticipation in 2011, sales of the plug-in electric hybrid Volt have been well below expectations.  Furthermore, as I recently discussed here, a few well-publicized incidents of fires stemming from damaged batteries have been a huge PR blow to gaining widespread consumer acceptance of electric vehicles.  Clearly, Chevy and others in the EV space have their work cut out for them in the months and years ahead.
  6. Challenges for coal.  As I recently wrote about on this page, the EPA has been working on promulgating a whole host of tightened regulations about emissions from coal powerplants.  These continue to move back and forth through the agencies and the courts, and coal interests continue to wage their battles.  But, between this set of pressures and low natural gas prices (see #2 above), these are tough days for old King Coal.  Not that they couldn’t have seen these challenges coming for decades, mind you, and not that some of their advocacy organizations don’t continue to tell their pro-coal messages with some of the most heavy-handed and dubiously factual propaganda outside of the recently-deceased “Dear Leader” Kim Jong Il
  7. Light bulbs.  One of the most absurd and petty dramas of 2011 unfolded over the planned U.S. phase-out of incandescent light bulbs, as provided for in one of the provisions of the Energy Independence and Security Act of 2007Representative Joe Barton (R-TX) led a backlash against this ban, arguing that it was an example of too much government intrusion into consumer choice — and succeeded in having the ban lifted at least for a little while, tucked into one of the meager compromises achieved as part of the ongoing budgetary fights.  This was accomplished against the objections not of consumers, but the objections of light bulb manufacturers themselves, who had already committed themselves to transitioning to manufacturing capacity for the next-generation of light bulbs:  CFLs, LEDs and halogens.  Now, the proactive companies who invested in the future will be subject to being undercut by a possible influx of cheap imported incandescent bulbs.  Way to go, Congress!  No wonder your approval ratings are near 10%.  Is it possible for you guys to focus on the big important stuff rather than on small bad ideas? 
  8. PV market dynamics.  Solyndra (#1 above) failed in large part because the phovoltaics market has become much more intensely competitive over the past year.  Module prices have fallen dramatically — no doubt, in large part because the market is now saturated by supply from Chinese manufacturers, who are sometimes accused of “dumping” (i.e., subsidizing exports of) PV modules into the U.S. marketplace.  This is stressing the financials of many PV manufacturers, including some Chinese firms and other established players.  For instance, BP (NYSE: BP) announced a few weeks ago its exit from the solar business after 40 years.  However, the stresses are falling mainly on companies that employ PV technology that cannot be cost-competitive in a lower pricing regime, whereas some of the new PV entrants — not just Chinese players, but some U.S. venture-backed players like Stion (who just raised $130 million of new investment) — are aiming to be profitable at low price levels.  And, after all, the low prices are what is needed for solar energy to achieve grid-parity, which is what everyone is seeking for PV to be ubiquitous without subsidies. 
  9. Subsidies.  Ah, subsidies.  In an era of increasing fiscal tightness (see #10 below), pro-cleantech policies are under greater scrutiny.  In particular, renewable portfolio standards are being threatened by state legislators of a particular philosophy who are opposed to subsidies in all forms.  The philosophy is understandable, but the lack of understanding or hypocracy is less easy to defend:  the status quo is almost always subsidized too, especially during its early days of development and deployment — and often remains subsidized well after maturity and commercial profitability.  Fortunately, there’s an increasing body of high-quality work that assesses the energy subsidy landscape in a generally objective manner, such as this analysis released by DBL Investors in September.
  10. Europe.  Although not a cleantech issue per se, the vulnerability of the European economy, the European Union, and the Euro in the wake of the various debt crises unfolding across the Continent is a major negative factor for the cleantech sector.  Europe is the biggest cleantech market, and many of the leading cleantech investors and corporate acquirers are European, so a recession (or worse, depression)  in Europe will be a very big and very bad deal for cleantech companies.

In all, 2011 was not a great year for the cleantech sector, and I don’t see 2012 being much better.  But, that’s not to say that good things can’t happen, or won’t happen.  Indeed, there will always be rays of sunshine among the clouds…or, to use another metaphor, you’ll always be able to find a pony in there somewhere.

Happy New Year everyone!

Solar Eclipse

The sections of the blogosphere concerned with energy topics were abuzz last week with the news that Solyndra had filed for bankruptcy.  

Until recently one of the poster children for cleantech, Solyndra’s apparent demise was all the more notable due to its blue chip investor roster and its prominent selection by the Department of Energy in March 2009 for a $535 million loan guarantee.  Indeed, President Obama visited Solyndra’s facilities only 16 months ago touting the company as a shining example of cleantech innovation, job-creation, and wealth-creation.

Solyndra follows closely in the footsteps of fellow solar module manufacturer Evergreen (NASDAQ: ESLR) to receive substantial government financial support…and fail not long thereafter.

So many commentators have written about Solyndra in the last few days that I’m tempted to look at another topic for this week’s posting, but I feel compelled somehow to chip in my $0.02.

The first penny:  what is going on in the solar business that’s causing companies like these to crash and burn?  Isn’t the solar business booming? 

Yes, the solar business continues to grow rapidly.  One of the reasons that the industry is growing is that the price of solar energy is falling, becoming more economically attractive for more potential customers.  This is a good thing.  However, it does put pressure on the companies that make products for the solar marketplace.  Simply put, like most forms of energy, solar energy is generally a commodity, where lower-cost producers win and high-cost producers either have to improve or die.

By its own account, Solyndra was not the lowest-cost producer:  its product was inherently more expensive, but promised other advantages that would reduce costs elsewhere in the total installed solar energy system.  It’s quite possible that these theoretical advantages never really materialized, as most implementers of solar projects – while still with plenty of room for innovation – have begun to standardize their business practices (e.g., sales, marketing, procurement, installation) relative to conventional PV modules, most of which are available from other suppliers at a lower cost.  In other words, Solyndra’s proposed solution did not neatly “fit” the marketplace in which it was competing.

While it is indeed good news that the price of solar modules has been falling, it’s nevertheless inescapable to point out that this trend is driven heavily by increasing penetration of supply from Chinese PV module manufacturers, capitalizing on their low cost structures and immense financial/policy support from the central government – neither of which are readily available to U.S. PV module innovators.  In other words, for newbies in the PV industry like Solyndra to succeed, they are going to have to produce a module at a cost comparable to those sourced from China – yet with higher wages and taxes, more stringent rules for doing business (e.g., environmental regulations), and less government support. 

If you say it can’t be done, you’d be wrong:  U.S. based First Solar (NASDAQ: FSLR) is widely-recognized as the leader in today’s global PV market, with a very low cost structure due to several proprietary inventions.  The Chinese and new entrants from the U.S. alike will have to aim at First Solar as its target.  At the same time, First Solar will have to hustle to maintain its competitive edge in the dog-eat-dog solar business.

My second cent:  the hue-and-cry from many pundits that Solyndra’s collapse is evidence of faulty energy policy from the government – not just the loan guarantee program and Solyndra’s selection, but all of the efforts to promote clean energy technologies like solar energy.

There’s no question that the government is not great at picking winners.  In my view, it’s far more effective for the government to put in place market-based mechanisms with overarching goals, and then let the private sector players compete fairly.

The problem is, when it comes to the energy markets, those who oppose subsidies for renewable energy like the loan guarantee program are almost unanimously also opposed to any market-based mechanism that aims to internalize the cost of emissions associated with fossil fuel energy so as to make the playing field for clean energy closer to fair. 

(As an aside, these same opponents also tend to oppose the removal of subsidies for fossil fuel energy.  And, these same opponents also tend to deny that anthropogenic climate change is likely to be happening.  And, these same opponents also tend to oppose a variety of environmental regulations.  And, these same opponents are often led by sources of information that derive financial gain from fossil fuel interests.  A lot of generalizations in the above passage, and while generalizations are often dangerous and there are undoubtedly some exceptions, I feel comfortable in making these statements on the whole.)

Lacking any political will to try and structure the energy marketplace in the most logical manner to drive towards clean energy solutions, the government thus resorts to incremental, tactical, second-best (actually, probably closer to nth-best) policy mechanisms like the loan guarantee program.

As a venture capitalist, the loan guarantee program does very little to spawn technology innovation and support start-ups of interest to me.  Rather, the program is aimed to provide some security to lenders to offer debt for scaling up companies whose technologies are essentially proven.  The loan guarantee program mitigates execution risk in the growth or expansion stage, or in early project deployment.  Typically, the assets against which the loans are made (e.g., manufacturing equipment) have substantial residual value. 

Thus, as Solyndra goes through the liquidation process, the private sector lenders behind the company are likely to get some of their money back – and the hit to the taxpayer will probably end up being less than the face value of $535 million, although my fellow CleanTech Blog colleague Neal Dikeman is not too optimistic.  Time will tell.

As for concerns that Solyndra was improperly or inappropriately selected by the Obama Administration to receive the loan guarantee in the first place, this is an issue worth further investigation.  Improprieties wouldn’t surprise me, as I’ve sensed improprieties of similar flavors in various governmental operations and civic affairs over the past few years.  In my opinion, the U.S. has become a country in which government – federal, state and local – has become increasingly “pay-to-play”. 

If Solyndra turns out to be yet another example, it would bother me…but I would also add two further comments: 

1) I would be willing to bet a considerable sum that the list of companies in conventional energy that have recently received public sector finance benefits unfairly or unethically is very long (as “big energy” has lots of money and they throw it around very liberally in the lobbying arena), and

2) Let’s implement market-based mechanisms in the energy sector to discourage emissions, so that we can get rid of targeted subsidy programs where undue influence in government selection can occur.

OMG Solyndra’s Dead! How Much is This Going to Cost Whom?

Yup.  Solyndra’s going BK.  Taking with it US government loans to the tune of $10 for every taxpaying household in the country and $500K or so for every job it created for one year.

But seriously, raise your hand if you DIDN’T see this coming.  Like, OK, those with their hand’s raised, you are no longer allowed to comment on this blog.  This deal’s been close to a running joke among the cleantech cynics for a couple of years now.

We wrote about this before.  The theory on the product was that rooftop install issues and low wind resistance were so important that they should be coating CIGS on a circle and encapsulating it in the most weird and costly way possible (or maybe because they liked the cattle-grate aesthetic), and then demanding a premium price for it.  Keep in mind, it was roughly the same amount of CIGS material they would have used if they had done a similiar size flat plate module.

Um, only their PR people and the original inventor must have ever really believed that product design was a good idea to sink a billion and change dollars into (the “and change” part by itself being well larger than the average venture fund OR the average venture backed exit).

Open question, does this go down as the largest venture capital bust in history?  Like a billion in equity? Certainly bigger than Webvan.

List of venture firms that look like they came close to or exceeded the typical contractual or house investment concentration limits in this deal for at least one of their funds, and/or had to cross-over investments in later funds to keep up.

  • Rockport
  • CMEA
  • Virgin Green Fund
  • Masdar
  • Redpoint
  • USVP

List of hedge funds/family offices that provided most of the cash to cram down those VCs in the last few of rounds including anchoring the equity for the DOE Loan Guarantee and replacing the the $300 mm IPO with $250 mm private equity deal along the way.

  • Artis
  • Argonaut (George Kaiser family)
  • Madrone (Walton family)

List of those government entities dumb enough to fund a half a billion dollar senior secured loan that went up in smoke within what, a year?  Going poof that fast is usually the lender’s mistake, not the borrower’s.

  • DOE – AKA the guys who created jobs at the price of like $500K per job created – for like 12 months?

My guess as to actual recoveries for the DOE:

It’s specialty equipment in a commodity business and they let the entire manufacturing staff go.  Nobody’s restarting this thing.

  • So you’re looking at tops very low 7 figures for the patents, maybe, I haven’t done a review to see whether there is anything of interest outside of their own product defense.
  • The c. $216 mm (as of Jan 2010)  in equipment gets sold off for tops 5-10 cents on the dollar for other uses, parts, or scrap.  And I think I recall they owned one of their chunks of land and building right? The S-1 has land in it as $32 mm, plus building construction in process.
  • And a few million in inventory and A/R gets recovered at 5-10 cents and 20-30 cents on the dollar.
  • Then, do they have a saleable customer pipeline or development pipeline of contracts that could be sold, or do all those simply evaporate?  Probably the latter, but some possibility here.
  • MAYBE the government gets back 10-20 cents on the dollar tops, assuming that building and land sell off well.  Everyone else?  Nada.  :(

Part of me wants to say I told you so, and part of me is literally cringing from the fallout this could  have on the cleantech investment sector and a lot of smart, dedicated people I know who were involved in this company.  My one nagging fear is that this is just the first of many other multi-hundred of million dollar cleantech venture deals are in the pipeline to go straight to zero.

 

IPOs and Bankruptcies and Cleantech “Hot or Not”

Last night while watching Office reruns, I realized I’d been remiss, and a lot’s had been happening in the public equities end of the cleantech sector.  Not to mention yesterday’s billion dollar BK broiler announcement by the one-time Next Greatest Thing, Solyndra.

So, with my usual aplomb, I thought I’d simply peanut gallery what’s “Hot or Not” in cleantech.

 

Bled Out on the Operating Table

Solyndra – BK (and not the burger kind). Well, we wrote about it a lot, and nobody believes us.  But bad product is bad product, and high cost is high cost, regardless of how much money you throw at it.  So who’s going to calculate the impact on the DOE loan guarantee program’s projected loan losses? Not.

Evergreen Solar (NASDAQ:ESLR)  – :(  And it was such cool technology, too.  I’m very sorry to see this one go.  At one point some years back it was the savior deal of the sector.  But we are in a race to cost down or die. Not.

 

Filed, Not Yet Hell for Leather

Enphase – I’m very very interested in seeing these guys make it.   Lots of growth.  Very thin margins so far.  Product costs looks miserably high.  Need to cost down like a banshee running from the Bill Murray.  But you’ve got to love the category killer potential and how fast they’ve executed.  First microinverter guy to manufacturing maturity eats the others like oatmeal (sloppy but eaten nonetheless). Hot.

Silver Spring – Hmmmmmmmmh.  Home run potential, but what’s the term?  Very high beta?  These contracts are massive, far strung, very very tight margin.  They’ve shown they can get the growth.  But with long lead time sticky contracts, it’s about managing costs during slippage and change-orders well, and it’s a very competitive business.  One blown contract gives back all the profits on the last 8.  But, give kudos for getting this far and making it to be a real player.  Now we’ll see if you can execute. Hot.

Luca Technologies – Hello?  Are you serious?  I read this S-1 cover to cover.  I had my technologist read it and go find their patents.  We love this area.  The concept of microbes for in situ is old as can be, but very very interesting..  The challenge is always cost and performance (not really a new nutrient mix?).  How do you get the bugs, nutrients, whatever you’re doing, down the hole and into the formation far enough and cheap and effectively enough to make a difference.  But in the entire S-1 and website, there is not a single technology description, fact, proof point or ANYTHING that suggests they’ve actually cracked the real nut.  The few numbers they do mention are not even to the ho-hum level.  Did a real investment banker really sign up to this?  Who wrote this?  Their PR guy with a liberal arts studies degree?  Really?  This smacks of a “trust us I’m Jesus and daddy needs an exit” deal.  In reality, probably interesting, but still very very very very very very very early science project.   Not.

 

We have a whole collection of biofuels stocks to discuss now.

Solazyme (NASDAQ:SZYM) – half of its 52 week, less than a buck over its low. Not.

Kior (NASDAQ:KIOR) – Somebody correct me, but did the filings really indicate Khosla put money IN to this IPO?  And it got off at low end of the range even after that? From one of their filings: “In conjunction with the Issuer’s IPO, an entity affiliated with the Reporting Persons purchased 1,250,000 shares of Class A common stock, resulting in an increase in beneficial ownership by the Reporting Persons by that amount. The
purchase was made at the initial public offering price of $15.00 per share, for an aggregate purchase price of $18,750,000. The source of funds used to purchase the shares of Class A common stock was Khosla’s personal assets.” At least it’s money where it’s mouth is.  Not.

Amyris (NASDAQ:AMRS) – 58% of its 52 week high, 20% over it’s low. Not.

Gevo (NASDAQ:GEVO) – 40% of its 52 week high, c. 20% off it’s low. Not.

Codexis (NASDAQ:CDXS) – 55% of its 52 week high, c. 20% off it’s lows. Not.

I’d comment on the fundamentals of each one, but I don’t want you to think I’m depressed.  Oh, by the way.  Did I ever tell you the story about the cleantech sector’s magically changing cellulosic biofuels business plans to “cellulosic bio-anything-but-fuels” plans as people finally woke up and realized how tough using lousy feedstocks and high cost processes in a commodities market actually is.  Of course, careful you don’t change from targeting fuels to making feedstock for dirt cheap who would want to be in that business commodity chemicals or specialty chemicals with a global aggregate gross margin market less than your cash on balance sheet.

And a Few Tidbits

Advanced Energy (NASDAQ: AEIS) – I still really like this company.  Somebody’s going to own inverters.  And the numbers look very interesting.  Very. Need to dig deeper. Hot.

American Superconductor (NASDAQ:AMSC) – Ummm.  Do you believe their wind business ever recovers?  One customer.  Buying a competitor with one customer.  Both in China.  Customer doesn’t like single supplier risk where the supplier makes high margins?  What did you think was going to happen?  Ugly ugly story.  Very real possibility that they trade on a log curve to straight zero.  Some chance of sunshine, but I’d cancel the picnic. Not.

A123 (NASDAQ:AONE) – I really really really want this to work.  But what’s the path to profits?  Not feeling it. Not.

Tesla (NASDAQ:TSLA) –  “Don’t worry, the NEXT car will fix my company’s fundamental problems” – quote attributed to the Tesla CEO who replaces the next Tesla CEO. Not.

Active Power (NASDAQ: ACPW) – Hey, did anyone notice these guys are growing revenues AND margins?  A long haul, but keep it up!  Need careful consideration before I’d jump into flywheels, but someone deserves a ton of credit as coach of the year.  Hot.

Satcon (NASDAQ:SATC) – Hammered, but still a market leader.  Got to think about this one – it’s historically traded for more than it’s fundamentals justified, but with PV Powered and Xantrex snapped up, hard to imagine they stay independent for long. Hot.

SunPower (NASDAQ:SPWR)  – Wow.  Total. No guts no glory.  Highest cost producer, shall we call it the “performance queen”.  I do like this bet by Total, but it takes guts.  But when a market leader’s stock’s been hammered that far down somebody’s got to move and Total did . . .  Whether an individual investor can play is another story. Hot.

Ascent Solar (NASDAQ:ASTI) – Holy star solar batman!  These guys can sell ice to eskimos are have always been great R&D guys.  Still maybe the highest cost CIGS process known to astronauts.  I like these guys, but I’m not sure more cash fixes anything. Not.

Solon – What does “New US operational strategy” mean?  It means solar is a game of scale and execution.  Not.

 

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.

 

My First View of Solyndra Up Close



Solyndra CIGS Panels on South Houston High

I had a chance to see my first Solyndra solar panels in action today.
Three organizations run by friends of mine, HARC, Ignite Solar, and American Electric Technologies, are partnered up to install a 145 kW uber photovoltaic test bed on two schools (Sam Rayburn and South Houston) in Pasadena ISD in Houston, Texas.  They were scrambling around on the roof doing the installation as I watched. A very cool experience.

They’re stuffing an array of 182 Wp Solyndra panels across from an array of 210 Wp Moser Baer crystalline silicon panels on a flat roof penetrating fixed mounting at a 10 degree angle, next door to Uni-Solar amorphous silicon flexible panels (there photovoltaic laminate products) from Energy Conversion Devices (Nasdaq:ENER) with a non penetrating adhesive backing on a 22 degree ribbed roof next to more of the Moser Baer in a non roof penetrating mount on that 22 degree roof. Later they’re putting in more Moser Baer crystalline on trackers.

Unisolar Stick on Amorphous Panels

All the systems are to be wired up to AETI inverters, and will have a weather station, temperature sensors and monitoring.  HARC, the Houston Area Research Council is the system owner, and will monitor the lab for Pasadena ISD, plus they are putting in a kiosk in the schools so the students can see the side by side results live, technology vs technology and school vs school.

A few interesting tidbits.  You gotta love all those slef shadows underneath the 90 Solyndra modules, we will be very interested to see what they actually deliver – though for the price difference, it had better be spectacular.   I hadn’t seen the Uni-Solar product just stuck straight on to a roof before, quite amazing.  The Moser Baer product I’d seen, but it’ll be interesting to watch it go head to head with thin film in different configurations, it’s certainly got the highest power rating of the systems tested.

What really excites me is the side by side comparison.  Ignite and HARC told me they can get actual performance data from each technology type and configuration, that we can compare to costs and rated performance, as well as weather and temperature data, and hopefully this time next year we’ll be publishing a who beat who account with an overunder graph!

Neal Dikeman is a Partner and Jane Capital Partners, a cleantech and alternative energy merchant bank.  He was a cofounder of Zenergy Power, and the founding CEO of Carbonflow, and helped launch Meridan Energy’s solar business, as well as is Chief Blogger of Cleantechblog.com and Chairman of Cleantech.org. A Texas Aggie, his current project is helping grow Jane Capital’s most recent company, Greenhome.com.