Above the tree-lined streets of Pasadena, California, in the sleek, open-air offices of high-tech start-up incubator Idealab, a team of researchers is huddled around a strange-looking device that concentrates the light of the sun and generates on-site electricity. Bill Gross, Idealabâs founder and the CEO of upstart concentrating-solar PV company Energy Innovations, beams with the nerdy excitement of a computer programmer whoâs just created a nifty chunk of code or a biologist whoâs uncovered a new genome. âThe economic potential for solar is enormous,â says Gross. âWithin a decade, solar will reach price parity with other energy sources.â His vision is to replicate Idealabâs rooftop, where a dozen solar-concentrator demo units track the sun from dawn to dusk. He wants Energy Innovations units sprouting on commercial and industrial roofs around the world, providing low-cost, efficient, distributed electric power from the sun.
Gross, whose Idealab hatched such Internet winners and losers as City-search, eToys, Overture, and Tickets.com, is now in a race to develop his solar technology and bring it to market before other firms, such as Practical Instruments, SolFocus, and Solaria. He firmly believes that the future belongs to those who can help solve two of our worldâs most pressing issues, energy and waterâglobal access to clean, reliable, and abundant sources of each. His solar technology companyâwhich aims to use relatively inexpensive mirrors to reflect the light of the sun onto expensive high-efficiency solar cellsâraised more than $40 million in 2005 and 2006, with hopes of putting its first commercial products onto rooftops in 2007.
Energy Innovations represents just one of the many technological developments taking place in the rapidly expanding solar industry. These developments include everything from incremental improvements in the most abundant form of solar electricityâsilicon-based solar PVâto new nonsilicon forms of solar electric generation, including nanotechnology-based innovations and CIGS (copper, indium, gallium, selenium). The variety of emerging solar electric technologies and applications demonstrates the richness of opportunity in an industry expanding by more than 30% per year since the mid-1990s.
What does this mean for investors, entrepreneurs, and others who want a piece of the growing solar pie? The solar business, once the domain of back-to-the-earth zealots and government and corporate research labs, is now being embraced by nimble, visionary entrepreneurs with access to capital, skilled management, and business acumen. Also joining the race are established multinationals such as Applied Materials, GE, and Sharpâcompanies that are basing their future, at least in part, on corporate spoils in the solar industry.
RAPID FIRE
Part of the growing interest in solar power has to do with the sectorâs astounding growth rate. In 2000, the total annual manufacturing output of all solar companies was about 300 MW. In 2005, solar industry manufacturing output rose almost fivefold to more than 1,500 MW of solar PV modules and surpassed 2,000 MW in 2006. Thatâs enough electricity-generating capacity to serve two cities the size of Atlanta for an entire year.
The entry of multinationals and large, well-funded, publicly traded solar companies into the space provides opportunities for individual and institutional investors to put money into some of the more promising companies and developments. In 2005 and 2006, for example, solar companies such as SunPower and Chinaâs Suntech Power Holdings had successful initial public offerings on U.S. stock exchanges and global giants such as Applied Materials joined longtime corporate solar stalwarts such as BP and Sharp.
Although current solar power costs can be prohibitive in some regions, solar systems can make a great deal of sense in regions that have high-utility costs, offer solar subsidies, or are blessed with a preponderance of sunny daysâoffering opportunities to a new class of systems integrators and financiers. As we discuss below, some companies are packaging systems and financing in such a way that solar can cost less for the customer from first day of useâincluding builders of new homes who are integrating solar systems into mortgages and firms that have developed unique financing options.
The solar landscape is filling up with a range of new companies and business models, offering opportunities for qualified entrepreneurs, managers, and workers to join current efforts in solar manufacturing, financing, installation, systems integration, and elsewhere along the solar value chain.
Solarâs challenges, however, are many. They include entrenched interests that support fossil fuels over clean energy, shortsighted rather than long-term policies and incentives that disrupt growth, nonuniformity among utility districts that makes consistent standards and protocols nearly impossible, and cost barriers that have kept solar from reaching cost parity with retail electric rates. But like any high-growth technology innovation story, solar is in a unique position to overcome many of these challenges and change the world in ways unimaginable.
BRINGING SOLAR DOWN TO EARTH
Invented at Bell Labs in the 1950s and commercialized in the 1970s, solar PV has moved from a niche industry powering space satellites to a mainstream business with such well-known multinational players as BP, GE, Sharp, and Shell and pure-play efforts such as Evergreen Solar, First Solar, Q-Cells, SunPower, and Suntech Power. Since the mid-1990s, the industry has looked eerily similar to the consumer electronics revolution that preceded itâwith annual growth rates in the 30% to 60% range.
Solar is becoming big business, representing more than $11 billion in global sales in 2005, more than $15 billion in 2006, and a projected $60 billionâplus in 2016, according to Clean Edge research. In 2005, venture capitalists poured more than $150 million into deals based in North America, such as Advent Solar, HelioVolt, Energy Innovations, MiasolĂ©, and Nanosolar. Nearly $1 billion was raised via initial public offerings (IPOs) in Europe and the United States for SunPower, Suntech Power, and Q-Cells; those companiesâ IPOs represented three of the largest technology offerings of 2005.
Piper Jaffray clean-energy analyst Jesse Pichel highlights what the excitement is about. âOur investment partners like solar because it leverages advances made in the semiconductor space,â he says. âOur investors understand semiconductorsâand are therefore more comfortable with solar than many other emerging energy sectors.â
Because of the nature of the solar business, it is the electronics giants in the solar industry, such as Sharp, Sanyo, and SunPower, that are likely to be the big winners, rather than the energy giants such as Shell and BP. And as highlighted below, it will likely be the domain of new nimble start-ups that are leveraging lessons learned from earlier semiconductor manufacturing revolutions.
THE SOLAR âEXPERIENCE CURVEâ
Even though there is no such thing as a subsidy-free energy source (oil, natural gas, coal, and nuclear are all heavily subsidized), solar still must reduce its overall cost to become truly competitive. And thatâs exactly whatâs been happening. As cumulative global output from solar soared from 5 MW in 1979 to more than 2,000 MW in 2006, the wholesale price of a solar PV module dropped from $32 per watt to about $3 per wattâroughly a 50% drop per decade.
And solar, we believe, is poised to reach significantly lower costs and prices in coming years. Technology advances, market growth, increased competition, and economies of scale in manufacturing are all playing a big part in this transformation. Solar PV manufacturing has benefited from fairly constant, decades-long progress in fabrication technology, which has shrunk solar cell weight and thickness while harnessing sunlight more efficiently.
Dr. Richard Swanson, who founded PV cell maker SunPower in 1985 while teaching electrical engineering at Stanford University, is one of the solar industryâs most respected experts on declining technology costs. The costs of PV modules, says Swanson, have moved in a âclassic experience curve,â where product costs fall in direct correlation to increased worldwide production volume. Prices fall about 18%, reckons Swanson, for every doubling of cumulative production volume.
In the late 1990s, his companyâs innovations and growth caught the attention of Cypress Semiconductor CEO and noted chip industry maverick T.J. Rodgers. Cypress bought a majority interest in SunPower in 2002, signifying a major confluence of high tech and clean tech. SunPower is now public, its IPO rekindling memories of the earlier high-tech heydays when its share value jumped 41% on its first day of trading in November 2005.
HIGH-VOLUME, LOW-COST MANUFACTURING
Suppose you could accelerate the learning curve and drive down costs even more rapidly than occurs in the classic âexperience curveâ? One person whoâs explored this concept is former Hewlett-Packard (HP) executive Marvin Keshner. He wrote a report with coauthor Rajiv Arya for the U.S. Department of Energyâs National Renewable Energy Lab (NREL) in 2004 entitled âStudy of Potential Cost Reductions Resulting from Super-Large-Scale Manufacturing of PV Modules.â The authors reported on the concept of a massive solar production facility that could enable the production and installation of $1-per-peak-watt solar systems; the average cost for solar in 2006 was roughly $6 to $8 per peak watt installed. Some of the innovations they envisioned include the use of materials optimized for a 25-to 30-year operating life, driving down costs by minimizing transportation and handling expenses and eliminating intermediaries, automating factory processes to reduce breakage and increase yields, developing modular lines that can be rotated for planned downtime and maintenance, and dramatically scaling up the size of solar manufacturing facilities. Today, Keshner is heading up a new solar venture that is working to drive down costs by implementing many of the recommendations outlined in his report.
Itâs not surprising that an HP executive would take up an interest in solar. Indeed, many of the same companies and entrepreneurs that innovated and built profitable integrated-circuit, flat-panel, and disk-drive manufacturing businesses are poised to win in next-generation solar. Theyâre applying to the solar industry the same expertise theyâve gained in applying conductive materials onto substrates and in ramping up low-cost, high-volume, continuous-flow, semiconductor-based manufacturing processes.
In fact, many current and emerging clean technologies take advantage of manufacturing breakthroughs perfected in the computer and high-tech industries. As in the high-tech revolution before it, semiconductor-based chips and circuits also lay at the heart of grid innovation and energy delivery. Semiconductorsâsilicon-based devices such as microprocessor chips and transistorsâhave shaped our modern era by enabling the mass manufacturing of computers, radios, TVs, and other consumer electronics. But something equally striking is happening at the intersection of semiconductors and energyâincreasingly semiconductors are becoming the energy source. The first semiconductor revolution enabled the proliferation of computers and consumer electronics, while the second semiconductor revolution is literally powering our homes, cars, and a range of other consumer products.
In the heart of Silicon Valley, Miasolé in Santa Clara, California, is one example of a company applying manufacturing breakthroughs from the disk-drive space to the solar industry. Miasolé founder and CEO David Pearce and his team are leveraging a unique form of sputtering technology that they originally developed and applied to high-volume coating processes for the production of hard disks for the data-storage industry. Now the company is using the same process to enable low-cost manufacturing of thin-film solar technologies. Since 2005, Miasolé has raised more than $51 million from such seasoned investors as Kleiner Perkins Caufield & Byers to help deliver on its plan.
HIGH STAKES
Keshner and Pearce, of course, arenât alone in working to adapt technologies from traditional semiconductor manufacturing and applying them to a new era of low-cost, large-scale solar production. The list of innovators is long, and the stakes are high.
Large electronics companies such as Sharp, for instance, have understood the connection between semiconductors and energy for decades. The Japan-based company, a leader in consumer electronics and flat-panel displays, committed itself to being a leader in solar power in the 1960s. Today, it is the worldâs leading manufacturer of solar PV modules, representing more than a quarter of global solar PV output, with annual revenues of more than $1 billion from that business. The companyâs president, Katsuhiko Machida, predicts that the cost of generating solar power could fall by half between 2006 and 2010, and heâs targeting approximately 20% of the companyâs revenue from its solar division by the end of the decade.
Q-Cells, the German solar cell manufacturer, provides another interesting example. The company, based in Thalheim, Germany, went from zero manufacturing output in 2000 to being the worldâs second largest manufacturer of solar cells in 2006. Q-Cells planned to manufacture about 250 MW of solar cells in 2007.
Solaria, a concentrating solar company in Fremont, California, is taking fabrication technologies used in contract semiconductor manufacturing and applying them to concentrated solar power. The company raised $22 million in series B financing in 2006 from venture capitalists and strategic investors, including Q-Cells. The company aims to drive down the cost of solar modules by replacing silicon with an inexpensive concentrating layer. Unlike some of its competitors that are working on high-concentration solar developments (up to approximately 500 times concentration), the company is focused on low concentration of two to three times. The companyâs products require no moving parts and have a form factor nearly identical to todayâs flat solar panels.
And as mentioned earlier, the leading semiconductor equipment manufacturer for the chip industry, Applied Materials in Santa Clara, California, is now taking aim at the solar industry. What this all means is that the same technologies that have driven down computer chip and PC costs since the 1980s are now being used to drive down solar-cell and module costs. The industry will increasingly become a commodity-driven business, which means it will likely be won by those companies, like electronics manufacturers, who know how to thrive in a competitive commodity environment. And in the same way that the computer industry spawned value-added resellers who provided add-on services, the solar business offers big opportunities for its share of systems integrators and value-added systems packagers.
BREAKTHROUGH OPPORTUNITY
The $2-Watt Solar Photovoltaics System
It goes without saying that one of the biggest opportunities for solar entrepreneurs is getting the cost of solar to cost parity with conventional retail electricity. While the big players such as Sharp and Kyocera continue to drive down costs, it may be one of the new entrants to really rock the boat with breakthrough technology and significantly lower pricing. Players such as MiasolĂ©, Nanosolar, HelioVolt, and Q-Cells could be the first to deliver a truly low cost solar cell or module. Watch out for a current or emerging player that can bring the cost of an entire solar PV system to around $2 per peak wattâthe equivalent of $5,000 for an average-sized 2.5-kW (2.5-kilowatt) residential rooftop system, for example. Systems priced at this level would provide electricity at less than 10 cents per kilowatt-hour (kWh), beating out most customersâ retail utility rates thro...
