Solon Partners

We all have our favorite “computer guy,” “theater gal” or “tax guy” – to whom we turn to, and who’s sage niche expertise we blindly and gladly follow, because it just makes no practical sense to try to replicate their passion and depth of understanding. The system works great — a more personalized and astute human version of Amazon’s recommendation engine. Latest proof, a recommendation from my “quality reading guy,” and a very funny local author. He passed on this gem of an article New Yorker by David Owen “The Inventor’s Dilemma.”

David Owen’s story gives an insightful glimpse into Saul Griffith’s life – MIT’s supercharged “invention engine” who’s projects are financed by the likes of Google. Griffith gives a very practical description of how difficult it is sometimes to define from which side to approach global problems – technology or market.

Successful startups are lectured on the need to be addressing real market problems with their solutions. Easier said than done. Griffith found out that despite his invention of a simple machine that makes lenses for glasses so cheaply that they become affordable even to the poorest of the world, this was not the problem that needed solving. The solution actually already existed (cheap Chinese lenses), and the real problem was — lack of professionals to deliver prescription eye testing to the poor, for which Griffith had no technology solution.

Griffith’s also believes that capping greenhouse gases at levels currently recommended by climatologists to keep the global warming under control would require the biggest public works project in the history of the world and is financially and technologically impossible at this time.

It’s not the trilateral commission or some other shady organization blocking all the useful inventions – it’s just that coal (the most abundant fossil fuel) is simply too cheap right now, and the other energy technologies have not advanced far enough to be competitive. Griffith’s insights into power storage are concise and to the point:

Unfortunately the difference between the world’s best battery and gasoline, in terms of energy storage per kilogram, is not a factor of ten; it’s more like a factor of hundreds or thousands.

Griffith makes you wonder if sometimes we choose to narrowly solve technological problems because the alternative – changing social/market habits seems like a much more expensive quixotic quest. All start-ups, and especially “saving the world through green energy” start-ups, take pause to consider — will the technological solution you offer really solve the problem or merely expose the underlying social/market barrier.

yrjo books, cleantech energy

Printing money is hard work

When writing my March6 blog entry I wondered when we would the United States be added to the list of countries resorting to printing money to boost the economy.  That day has already come.

In the words of Goldman Sachs analyst Jan Hatzius, the Fed is going to the “kitchen sink” strategy of throwing everything it had to jolt the economy out of its downward spiral.

The Federal reserve is dropping a $1.15 trillion money bomb into the bond markets to boost lending. Yes this money will literally be eased out of the printing machine in major quantities (official term being “Quantitative Easing”). Ok maybe I am not using  exactly the proper description they teach in the MBA program.

Wickipedia defines QE as follows:

The term quantitative easing refers to the creation  of a pre-determined quantity of new money ‘out of thin air’ through open market operations by a central bank as the start of a process to increase the money supply. It can, more simply, be understood as an indirect method of printing money.

yrjo books, cleantech, economy, mobile apps, software, uncategorized, venture capital inflation

Tesla's $128K Electric Vehicle

The promised breakthrough of clean fuel vehicles into the mass market has failed to materialize in 2008 and will likely not happen for another few years.  Not only have hydrogen powered cars faded from the scene, even electric vehicles are having a tough time breaking into the mass market. GM has recently announced that it will not be starting the construction of the factory for making its flagship EV Volt’s engines, and  according to CEO Elon Musk even the much publicized Tesla factory construction will now be canceled, and the roll out of the Model S (the $60K “mass model”) put on ice.

There are plenty of factors going against this cleantech sector - the recession has cut into financing both on the investor side and the tech buyer side, low oil prices entice the buyers back to other cars, and the technology still has not resolved many of its limitations.

In 2008 Chris Morrison wrote an article about EVs and listed the 30 major companies involved in the field. Several of these companies have gone bust, including American Electric Vehicle and Spark EV, while others have not been able to come out with their models. 2009 promises to be an even tougher year for the industry.

There is a bit of hope on the horizon, Pres. Obama’s revitalization plan looks to invest into renewable energies which might boost the EV sector, and John Doerr of Kleiner Perkins in a New York Times article is promising a near term solution from his stealth Lithium ion company to the biggest problem with the EV industry that would double EV battery capacity.

yrjo cleantech cleantech, electric vehicles

New A123Systems Li-ion battery packaging

In the end of January Boston Power  closed its 4th round of financing raising $55 million (for a total of $125 million since 2005 founding) according to Venture Beat. Boston Power batteries will now come standard in HP laptops, but Boston would like to expand also into the electric vehicle battery market. This news follows A123Systems, closing their $102 million 6th round of financing with $30 million investment from from General Electric Commercial Finance.

GM’s Volt and Toyota’s Prius will both have Lithium ion batteries in 2010. Lithium ion batteries are touted by many battery manufacturers as the ideal solution for electric vehicles.

Lithium ion batteries I have used in laptops and cellphones have left much to be desired, and the idea of including them in an entire fleet of cars sold in US, the most litigious society in the world, seemed far fetched.  As such,  the volume of money raised seemed surprisingly high, especially in light of the current atmosphere of panic and a dearth of capital investment. So I did some preliminary research regarding the challenges facing the industry including concerns regarding the safety,  availability and performance of this technology.

Safety Questions

Lithium ion batteries have been on the market since 1992 when the first batteries manufactured by Sony were unveiled. Sony, Sanyo and Matsushita have all recalled tens of millions of lithium ion laptop and cellphone batteries due to overheating failures that resulted in fires. Obviously vehicle accidents subject the batteries to much worse abuse than the beating even the clumsiest user gives his laptop. Apparently the latest generation of Lithium ion batteries have resolved issues of overheating and internal damage. Pictured above is the latest battery design that should hold up in car crashes.

Availability of raw materials

Due to rapid adoption of Lithium technology the price of Lithium has shot up from $300 to $3000 per ton. While currently over 70% of the Lithium is mined in Chile and Argentina, most of the world’s Lithium reserves of the future are to be found in Bolivia (5.4 million tonnes or nearly 50 per cent of the global lithium metal reserve), a politically volatile area where President Morales has already nationalized Bolivia’s oil and natural gas industries and is now talking about nationalizing additional sectors.

The different estimates of availability range from William Tahil’s (Meridian International Research) 4 million tons on lithium metal - enough  lithium to build 1.5 million electric cars, to the mining industry estimate of 28 million tons which would be enough for 17 million vehicles.  The gap is due to disagreements regarding the estimated size of the deposits, efficiency of extraction, and processing techniques to turn lithium metal into lithium carbonate. Regardless of the exact deposits size, with these numbers Lithium price will likely to rise further as the adoption in cars ramps up significantly.

Performance

Lithium ion batteries can only be recharged a limited number of  times and with a maximum charge taking you 300 kilometers, the total battery lifetime is less than the lifetime of the vehicle. A lot of work has been done on this front in the past five years to reduce 10 hour charge times to just 3.5 hours (Tesla), driving range from 40 km to 320 km (Tesla) top speed from 40 km/h to  217 km/h (Tesla), and getting the acceleration times for 0-100 km/h from over 10 to 4  seconds (Tesla).

Supercaps to the rescue

Manufacturers have started to experiment with Lithium ion batteries combined with supercapacitors. Supercaps can be used to harness the regenerative braking energy, increase fuel cell durability and provide large bursts of power when extra energy is needed. This kind of applications are already being tested by companies such as EEStor and others.

So overall, EVs are quite close to the mass market. The delay in adoption may come not from technology, but the economic downturn that has hit all car sales in major world markets.

yrjo cleantech electric vehicles, supercapacitors, Tesla

Sustainable energy has been a very popular investment in the past few years, attracting $148 billion in 2007, up 60% from 2006 (which was also a +50% increase year).  Although wind energy got over 50% of that money, solar projects attracted over $28 billion of new capital ($3.7 billion in venture capital and private equity investment). Up until now solar panel market has been an economic anomaly where in a capitalist system supply consistently exceeds demand. That has now begun to change.

I saw the free flow of money into cleantech businesses when became involved with the solar power industry when I was hired to find financing and rebrand a small Finnish chemical company.  We were able to take a product that was previously sold to the display industry and develop a product for the Solar panel manufactures that greatly increases their efficiency by directing more light into the active area of the cell to generate more power.  This kind of a product offering greatly increased company valuation, created industry buzz and enabled us to get new investment into the company. However, it was clear that it was an industry in flux.

After researching and studying the market dynamics and manufacturing issues and negotiating with clients in Germany, US, China and Japan it became clear that manufacturing capacity was increasing at geometric rates, while market uptake was more on an arithmetic track.  Therefore, I was not surprised to read recent reports by Goldman Sachs and other analysts warning of significant oversupply problems. New Energy analysts project an oversupply of approximately 4 GW of modules in 2009.

Oversupply and economic slowdown is causing at least 20% price declines

The market is already showing the effects of oversupply as the cost for rooftop solar systems, including installations, have declined approximately 10 percent in the past 6 months, and with the credit crisis and slowing economy the pricing is expected to decline another 20% in the coming year.  Sun Power executives have already promised to be rolling out a 20% price decrease.

In the long run I see this as a very positive thing for the industry. The oversupply will force industry competition and lower prices.  In order for the energy to really cross into the mainstream and become a viable self-sustaining part of the energy economy, the price per kW of solar power generation must reach parity with traditional energy sources.  Currently the price parity is achieved artificially through feed in tariffs, taxes, incentives and other government interventions.

Thin-film technology driving down the prices

It should be noted that great advances have been made recently in reaching this price parity through the scale up of thin-film technologies manufacturing. The top player for this field is Nanosolar which has raised over $500 million in the past few years. They have opened up 600,000 square meters production facilities in Europe and US, that will house their 1 GW roll to roll panel material printers. Nanosolar claims that the efficiency of their panels is approximately 14%  and volume sales can be done at the price of  $0.99 /Watt (€0.78/Watt).  The savings are achieved through replacement of glass and expensive substrates with metal foil and polymer layers, which also allows for the mass production using the roll to roll printing methods. Konarka and MioSol have also recently unveiled their roll to roll processing technologies and upgrading manufacturing capacities.

The mass production, elimination of expensive materials and competition between the various technolgies could allow solar power energy production to reach the €0.07 per kW mark where it begins to equal average indust rial electricity prices in Europe and US.

yrjo cleantech cleantech, energy, investment, PV, solar