Solar Energy - Heat or Hype ?

There is so much written about solar energy these days, that it almost reminds one of the Internet days of 2000. Stocks like SunPower are at 400+ PEs and new startups are getting funded in the 10s of millions of dollars. It almost begs the question - how hot is it and will the trend continue for ever? I had been wondering about this question when I got an invite to a talk on "Current Status and Future of Solar Energy" from the speaker himself, Dr. Amit Kumar. Talk about coincidences. :-) The talk was on October 17th at the PARC auditorium in Palo Alto and was hosted by the MEMS Journal club.

Dr. Amit Kumar did his Ph.D research in Photovoltaics at Stanford and Caltech in the late 80s and early 90s, and is now CEO of a publicly traded biomedical company and is on the boards of several solar energy companies. The talk was well laid out and had a wealth of data drawn from a variety of sources including Dr. Kumar's own estimates.

Current worldwide energy use is 14-15 Terawatts (TW), with the US consuming about 4 to 5 TW. Of the total worldwide energy consumption, about 12TW is from fossil fuels, 1.5TW from hydroelectric and biofuels, 1TW from nuclear and 0.2 TW from all other including solar. In 30-50 years this 15 TW is expected to grow to 30TW from population growth, emerging nations consumption and economic growth. One of the estimates which surprised me was the fact that about 3.5TW of the 4TW US consumption came from transportation related energy consumption (planes, trains, ships and automobiles). The vast infrastructure put in place to deliver oil and gas worldwide from raw material to consumable gasoline enables it to be sold at prices cheaper than most other liquids except tap water. :-)

If fossil fuels continue to be the primary source we will continue to pump carbon into the atmosphere (currently estimated at 8 billion tons/yr) aggravating any existing problems. Dr. Kumar estimates resources for oil, gas and coal to be 120, 300 and 1500 years, respectively. He then considered each of the alternative energy sources in terms of their opportunities, challenges and potential to supply the global energy requirements.

Cleaning up fossil/bio fuel use with carbon sequestration methods allows continued use of fossil fuels with less of their problems. However, challenges here are entropy, cost, capacity and leakage. Without technical breakthroughs it does not look easy. Geothermal and ocean tides have the potential to supply 70 TW, but economically feasible capacity is on the order of 2TW and installed capacity is minimal.

Hydroelectric has a gross potential of 4.6TW and installed capacity of 0.6TW in 1997 and a possible 0.3TW more production increase. Problems include capital cost and issues like the relocation of a billion people (?) for the Three Gorges dam in China. In India, I am aware of some projects shelved due to environmental impact.

Wind energy has a theoretical land potential of 10 TW and practical potential of 2TW. Offshore potential can be up to 5TW. But, wind power is intermittent, needs storage and has distributed generation restricted to some areas only. It is viable, supplying at close to grid power rates where it is deployed.

Biofuels like Ethanol need large land areas for cultivation and have energy densities close to half of gasoline and cost more in energy to make than we can get out of them. They are also water resource limited for cultivation. If all available land is cultivated 8-10 TW is possible, but practical potential is 1-2TW. Their primary attraction is being able to use the existing fossil fuel distribution infrastructure and subsidies.

Nuclear fission is a viable alternative, and much capacity is deployed worldwide and even in the US. Estimate that 20% of US power is nuclear. Waste disposal, uranium availability and weapons and terrorism concerns are major issues. To get 10TW we need 10000 plants, which seems like quite a lot to build. So, delivered capacity from nuclear is limited to the number of 1GW plants that will be built.

Solar has a theoretical potential of 120,000 TW if irradiation of the whole earth's surface is considered. Practical possibility is about 1200 TW. To deliver 3-4 TW at 10% solar cell efficiency needs land area of about 250miles x 250 miles or 62500 sq miles. Currently we have about enough solar modules to cover 50-100 sq. miles. Even this is a $30B market. So, we have a long way to go :-) Maybe, the high PE of the solar panel makers are justified :-) But, there's more to this story. One of the limitations of solar energy is that its not very concentrated. Rooftops and other viable sources can only provide about 10% of the surface area required. The rest has to come from generating installations which can be capital intensive. One can see why many startups are targeting this space. Capacity is increasing, but nowhere near what is required. Silicon may be a limitation even at current levels.

One main issue with solar energy has been the cost. While coal, gas, oil, wind and nuclear have generating costs between 5-8 c/kWh, (with coal the cheapest at 5c/kWh), solar energy costs about 25c/kWh. This does not even include the costs for storage and distribution. Dr. Kumar quoted his thesis advisor, who compared funding solar energy generation to funding the Apollo mission if Southwest were to provide $29 shuttle missions to the moon. Clearly, in spite of these economics, many VCs are pumping billions of dollars into solar energy. Other challenges for solar include inverters for DC-AC conversion and storage.

Cost may be reduced with scale, manufacturing improvements and new types of cells. Efficiencies range from about 25% for crystalline silicon to about 15% or lower for CIS/CIGS, CdTe, amorphous silicon and nano TiO2. The market is dominated by single crystal silicon (92+ %). followed by CdTe, CIGS and particle based cells. Exotic structures like tandem cells and paints are in their infancy. Most of the non-Si technologies have still not achieved the scale of manufacturing capability that is required. Till they do, its too early to make a call on their viability and scaling possibility.

New opportunities in solar include new types of cells and structures, storage and inverters, thin film material and cells, silicon supply and other materials, installation and repair, electric vehicles and catalysts for hydrogen evolution. Cost reduction is a major challenge. The environmental impact of some of the technologies used is another.

Dr. Kumar concluded that in the midst of a global energy crisis we are forced to look at alternatives to fossil fuels and solar is clearly one of the better alternatives. But, we also need massive changes to our way of life, conservation and more efficient products for lighting and transportation and an effort in alternative energy bigger than the Manhattan and Apollo projects. Dr. Kumar can be contacted at amitoptigon (at) hotmail (dot) com.

I am glad that I attended this talk, because it gave a broad overview of many different alternative energy methods and their relative impact and potential. However, the answer to the question of how much of the solar buzz is hype and how many bumps there will be in the road between now and when solar energy is a viable energy alternative to fossil fuels, is still elusive. With oil close to $90/barrel, its easy to fund alternative energy work. But, what happens if oil were to go back to $20/barrel ? Maybe with the impact of global warming being felt worldwide, there would still be an impetus to drive alternative energy. But, with more oil accessible from the less ice-locked Arctic and Greenland, does it drive a vicious cycle of more oil based economies ? :-)

If I were to guess, the VCs will fund more solar energy companies. Silicon Valley will continue to be at the center of much of this action. There will be a few phenomenal successes, as there were in the Internet boom days, and there will be a few fadeouts. However, there will be much energy generated(pun intended :-)), lots of action and excitement and a few millions to be made for the entrepreneurs and investors. The valley will have contributed to global development in yet another realm, maybe with more impact than the previous semiconductor and internet cycles. The more things change, the more they remain the same :-).

How Green is the Valley ?

If Mayor Chuck Reed is to have his way, very green indeed. He has very ambitious plans to make Silicon Valley, or at least San Jose, greener than it already is. His plan covers it all - cut energy use in half while the population grows by 20% in 15 years, add 25000 new clean tech jobs, add 100, 000 new trees and 60 new trails, convert all city waste to energy by 2022, have 100 million gallons of waste water be recycled and have the entire city fleet of vehicles be run by alternative energy. If he pulls off 25% of his ambitious vision, he will have set up a model for much of the rest of the world to follow and establish himself as a politican of national reckoning. It also makes excellent business sense. It will draw many manufacturing intensive clean tech jobs to Silicon Valley and further drive its growth. So, I, for one, hope he pulls it off. That would make the Valley a world leader in a sustainable future. Companies like Nanosolar already have plans for manufacturing in San Jose and this could drive the growth of a clean tech ecosystem. This would be karmic compensation for the early semiconductor fabs which arguably generated not so clean side effects. :-)

Meanwhile, Ed Gunther of the Gunther Portfolio forwarded me this interesting tidbit on the economics of solar technology in developing countries. Solar panels in public installations are being stolen. Readers will find this amusing, and something most solar experts had not counted on in solar technology expansion. But, that's the way technology is sometimes viewed by the poorer segments in a developing nation. Arguably, India is no longer a developing nation. But, there is significant poverty still in the country. I remember hearing stories of people stealing copper strips used in lightning conductors on tall public buildings, when I was a student. But, copper has gained so much in value that these thefts occur even in Silicon Valley these days :-) Clearly, there is even more incentive to cost reduce solar technology. :-)

Ed also sent me this interesting link from MIT on how students can prepare themselves for a career in solar energy. To me this is rather uncharacteristic of MIT :-) MIT rarely handheld students, lest they not learn how to blaze trails. But, the Laboratory for Photovoltaic Research has chosen acceleration of the adoption of PV as its mission, and I say more power to them :-) I would love to see MIT be the leader in yet another "hot" technology :-)

Madan

Clean Tech, Mergers and Acquisitions etc

Its been a while since I blogged, what with travel and a hectic schedule, but its time to get back to writing. Over the summer, Ed Gunther of Gunther Portfolio and I submitted an entry for the California Clean Tech Open. Our entry was in the space of waste heat conversion to energy. It was a lot of work and we got a provisional patent out of it, but we did not quite make it to the finalist list. Our idea was great, we think :-), and I am sure one of these days we will see such products in the market. The competition was stiff and the winners for the CCTO will be announced at the end of October and I think we will see some excellent new companies come from them. This year Forbes covered CCTO and some of the finalists got some excellent visibility.

Meanwhile, Silicon Valley is on a roll. The pace has picked up not only in the Internet space and Web 2.0, but in alternative energy too. Nanosolar raised $100M in June 2007 and is setting up manufacturing in San Jose and in Germany. Not to be outdone, another thin film CIGS company SoloPower of Milpitas raised $30M in July. Its interesting how the Internet and alternative energy fields intersect. The Google founders are investors in Nanosolar. But, that's always been the story of the Valley. The semiconductor entrepreneurs of the previous generation from Fairchild, Intel, National Semi and others became VCs at Kleiner, Sequoia and other firms and they invested in a host of new technologies and companies including Google and Yahoo, which have in turn grown to become giants of their own. If anything, the pace has accelerated in recent years. The Valley is as fertile in innovation as it was in the days of the fruit orchards of the early 20th century. Meanwhile, Fairchild has turned 50 and the Valley is moving even faster with its innovation. Sometimes the more things change, the more they remain the same, however. One could look at the new alternative energy companies, especially in solar energy as related to semiconductor technology.

Mergers and acquisitions have always been an integral part of the Valley scene. On September 20th, the MIT Club Semiconductor Entrepreneur Series hosted an event on " How to Negotiate an Acquisition Term Sheet" at Cooley Godward in Palo Alto. This was an interesting event where two Cooley attorneys, Jenneifer Fonner DiNucci and Jane Ross negotiated a hypothetical acquisition term sheet. They covered the highlights of the negotiating strategy and the structure of the term sheet. There is wide variation in these deals and the devil is in the details. Interestingly, they pointed out that the bigger billion dollar deals tend to be simpler in structure than the smaller million dollar deals. The whole discussion and audience participation was very illuminating and covered the acquirer, acquiree, VC, investment banker, attorney and employee perspectives.

Talking of billion dollar deals, sometimes they don't work out the way everyone wants. Today Ebay announced a writedown of the Skype acquisition. The co-founder and CEO, Zennstrom apparently leaves with an accelerated payment. The earn-out agreement on that term sheet must have been interesting :-) Meanwhile, Zennstrom is probably concentrating on his next venture Joost and a spectacular exit for it as well. Its interesting how quickly Scandinavia has adapted to the Silicon Valley model :-)

Madan