With all of this in mind, here is a good checklist for what I think makes a thin-film solar cell company both a competitive presence in the market and a viable investment opportunity:
- High efficiencies (13-15 percent) on commercial-scale modules at 90 percent yield or greater in 2010-11 in first production line.
- Capital costs below $1 per watt on the first 100MW line (and declining from there), and a production platform that leverages proven equipment
- Panels made using larger (than FSLR) monolithically integrated circuits as opposed to small unit cells, which generally have higher costs as well as significant manufacturability and performance issues
- Designs that drive installation and BOS costs lower.
- Advantages that are particularly valued by a substantial market; e.g., a uniform, all-black panel with superior aesthetics makes a big difference in the residential market. (Likewise, pay attention to potential disadvantages for markets.)
- Attributes that exclude others from a substantial market; e.g., completely cadmium free / lead free product is critical for some geographies. (Likewise, pay attention to attributes that may outright ban it from markets, now or in the future.)
- DOE loan guarantees are usually a good thing but only if the company has an economic product and is ready to scale. I would not interpret a DOE loan guarantee as “validation” of costs or a reason to IPO. Would you rely on somebody in government to understand the dynamics of competitive costs in the global marketplace? Nor would I rely on bankers offering IPO’s to have validated a technology either, especially if they are getting commissions for the deal. Also remember that a big loan gets the treadmill running and cash flowing out to repayment of the loan. Great product margins are the only source of cash for paying off a big loan (without dilutive equity raises).
- If the total equity in a company is approaching $500m prior to production startup, I would ensure that the startup is going to beat the pants off First Solar, Chinese low cost Si, and solar thermal in utility scale installations. Otherwise it is going to be a successful niche play and deserves a niche company valuation. Bear in mind that Sunpower is among the largest niche players and even its valuation does not justify a billion dollars of investment.
2010 and 2011 will be a very interesting growth phase for the more recent entrants into the PV arena. Many of them will not raise adequate funds to continue their development and scale-up efforts, and will fail. Others will be acquired; a fair degree of consolidation is likely amongst the marginal or poorly differentiated players and half a dozen players will have10-13% thin film cells that need “elusive” scale to reach costs targets and “when at scale/maturity” will remain “when’s” while cash flow hemorrhages.. In the end, for the current thin-film players missing efficiency targets by just 1 point translates into 10 percent+ cost bump in an increasingly competitive 20-30 percent margin business. Innovative startups may re-invent silicon technology but probably only if efficiencies of 25 percent or more are achieved. Today’s conventional wisdom targets are the wrong ones for them to shoot at.
Over time, Chinese manufacturers are likely to gain market share as they continue to drive costs down. Very little innovation seems to be happening in Europe (likely due to the economics of feed-in-tariffs that are only now starting to be updated in some countries). A few large companies that have recently entered the market with aspirations to become global leaders, will be relegated to fairly narrow niches. Those DOW-like promises of building integrated solar will die as the big behemoths fail to keep up with small innovative competitors. The more than 200 PV companies in the world today will undoubtedly shrink, while a select few new entrants will break away from the pack based on superior cost and products, and join the heated battle for market share that is already taking place among established incumbents. There are other niches which will continue to develop, like the 25-40 percent+ efficiency cells usually made out of exotic materials. Silicon vendors will generally start declining rapidly by 2015 unless they re-invent silicon, and get well above 20 percent efficiency cost effectively. The high concentration based 40% efficient multijunction cells will stay in the high concentration niches unless they offer 25-35% efficiency at “one-Sun silicon $/watt” costs. Yes, this is possible and companies are already attempting this seemingly impossible feat. And no, I am not bullish on high concentration solar. Low concentration solar for utility markets may work well with high efficiency silicon or next generation cells at low enough costs, though they will face stiff competition from incumbents and may need to be creative in their value proposition.
So my last words to startups: be competitive with silicon cells at thin film costs or be competitive with III-V cells (well over 20 percent) at silicon costs. Then you have a 50/50 chance of making it. But a billion dollars of capital and billion dollars of debt will be hard to pay off.
PS: Those of you who will critique me for having my views match our companies’ strategies; I suggest that we invested in companies that match our views and not the other way around.
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Khosla Ventures offers venture assistance, strategic advice and capital to entrepreneurs. The firm helps entrepreneurs extend the potential of their ideas in breakthrough scientific work in clean technology areas such as solar, battery, high-efficiency engines, lighting, greener materials like cement, glass and bio-refineries for energy and bioplastics, and other environmentally friendly technologies, as well as traditional venture areas like the Internet, computing, mobile and silicon technology arenas. Vinod Khosla founded the firm in 2004 and was formerly a General Partner at Kleiner Perkins and founder of Sun Microsystems. Khosla Ventures is based in Menlo Park, California.
