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General Motors Decides on Battery Maker for Volt—Will it Help or Hurt A123 IPO?

Michael Kanellos: August 29, 2008, 5:39 PM
The beauty contest is over. Unfortunately, we don't know the winner. Bob Lutz, chairman of General Motors, said in a press conference in Joliet, Ill. that the automaker has decided on a battery maker for the Chevy Volt, the hotly anticipated plug-in hybrid coming toward the end of 2010. Lutz, however, didn't say which of the two battery makers GM is working with has selected. The money-losing automaker has been working with two vendors: Compact Power, whch is a U.S. based subsidiary of South Korea's LG Chem (Life's Good with Chemicals) and Continental Automotive Systems. Continental has been working with A123 Systems. GM is also an investor in A123. For A123, the Volt contract is a make or break moment. The battery developer filed documents earlier this month to hold a $175 million IPO. It generated $41.3 million in revenue but posted a $31 million loss last year. The company's largest customer right now, Black & Decker, cut back purchases in the first quarter. In all, A123 has raised $132 million. Being part of the Volt contract would give the company the opportunity to drastically grow revenue. The batteries in plug-ins are a lot bigger and more expensive than those in power tools. Consumers and policy makers have also gone bonkers for plug-ins. If GM builds a decent car, it could go a long way toward reversing the company's fortunes. I saw a prototype last year in Los Angeles and spoke to Andrew Farah, one of the chief engineers on the project. GM has clearly taken this seriously and wants to have a hit. It's not a half-hearted effort. On the other hand, if GM goes with brand B, there will be a flurry of people writing the A123 obit.

Prediction Comes True! Miox Raises $19 Million

Michael Kanellos: August 27, 2008, 5:39 PM
Follow the chatter. A few weeks ago, we reported here that Miox, a company that's devised a system to purify water with salt, was in the midst of raising a new round. And today, the company said it pulled in $19 million to expand. In Miox’s system, electricity converts salt into sodium hypochlorite and/or mixed oxidants, which then get injected into water. Salt electrolysis has been around for decades–bleach giant Clorox started this way. Miox, however, claims that its onsite equipment is more electrically efficient than conventional products and has been optimized to squeeze the benefits of putting mixed oxidants in water. Using solids to disinfect has numerous advantages over standard pressurized chlorine gas or bleach. Delivering chlorine as salt cuts down on transportation and handling costs as well as improves plant safety, according to the company. Tests also show that it prevents fouling of membranes and pipes, which in turn reduces maintenance costs. Standard chlorine can also result in unwanted or dangerous chemical byproducts that have to be eliminated by further processes. Several VCs have told me they love the concept of investing in water. There’s only a finite amount on the earth and demand is escalating. The tough part is finding good deals. Miox got $14.5 million in January. Halosource landed $11 million in July. The big cleantech IPO of the year so far has been Energy Recovery Inc., which makes an energy efficient desalination system. The customer base can also be tricky. Municipal water districts are some of the big customers of this kind of equipment and they move at a glacial pace. Still, agribusiness buys a lot of water equipment.

Xcel Energy, Cuomo Reach Carbon Compromise

Daniel Englander: August 27, 2008, 12:11 PM
Xcel Energy and New York Attorney General Andrew Cuomo have reached an agreement requiring the utility to disclose climate change-related risks to shareholders. The compromise comes after nearly a year of negotiations between Cuomo and Xcel, one of the country's largest utilities and producers of greenhouse gas emissions, following the launch of an investigation into the disclosure of climate change-related financial risks in September 2007. Peabody Energy, Dominion, Dynegy, and AES Corp. were also targeted in the investigation, though none have yet agreed to the risk disclosure Cuomo has asked for. Xcel is now required to discuss the financial risks associated with state- and federal-level lawsuits and potential carbon legislation in future filings with the S.E.C. Previously, such admissions only came about voluntarily, such as through organizations like the Carbon Disclosure Project, or through shareholder resolutions forced through at annual meetings. Xcel's agreement is a significant step for a utility. The power generation sector has a lot of exposure to potential climate-related legislation, including the introduction of a federal cap-and-trade scheme or a carbon tax (however unlikely). State-level decisions to ban construction of coal fired power plants are another significant financial risk power utilities hav started to face. In agreeing to the disclosures, Xcel has effectively demonstrated for the industry that climate change and the environment are far more important that corporate social responsibility and sustainability issues - they are real problems with financial consequences. Cuomo apparently took a page out of former New York Attorney General Eliot Spitzer's book (no, not that one) in leveraging New York's Martin Act, which allows the AG to bring both civil and criminal charges against corporations suspected of shareholder fraud. As such, Cuomo's argument is that by not disclosing climate change-related risk, utilities are withholding critical information from shareholders, and may be defrauding them. This may place such risks on the same level as critical material disclosures, such as supply chain weaknesses, technology failure, or insufficient liquidity. In other words, climate change has finally become a big f*&$ing deal for utilities. This may lead to critical changes in such things as their long-standing opposition to distributed generation and lack of investment in transmission and distribution capacity. There are fundamental regulatory, operational and financial issues underlying those problems as well. On the other hand, it's not like Xcel has that much to hide. In the utility world, the Minneapolis based power producer is like a model citizen. According to AWEA, Xcel generates the most amount of wind power of any utility - even thoug FPL technically has more capacity - and the company has shed nearly 18 million tons of CO2 emissions since 2003. It's also leading a number of large solar projects in Colorado and deploying one of the first wholly integrated smart grid systems in Boulder. A lot of these efforts may be lost, however, when the Republic National Convention releases approximately 20 million tons of hot air when its takes over the Xcel Energy Center in Minneapolis next week. While we're on the topic of SEC rules... The Commission announced today it may allow companies worth more than $700 million to switch to international accounting standards by 2010, at the earliest. This means roughly the largest 110 companies in the U.S. will get to ignore those pesky Sarbanes-Oxley regulations Congress established in the wake of the corporate accounting scandals of the early 2000s. While there's some argument that U.S. companies following international accounting standards achieve higher profits, there's also concern that the principles-based accounting followed by other western economies lack the stringent reporting and auditing requirements in place in the U.S. This is important because, well... it just is.

AVA Solar Continues Quest to be Next First Solar, Huge Round Soon to Close

Eric Wesoff: August 27, 2008, 9:00 AM
In their quest to create the next First Solar, VC investors are making enormous bets on new solar technologies, including the difficult Cadmium Telluride (CdTe) materials system. I've just learned from a very reliable investor source that AVA Solar, a CdTe photovoltaics manufacturer in Colorado, has received a term sheet for a $100 million round at a $750 million pre-money valuation, with $50 million of that round coming from DCM. A contact at AVA Solar declined to comment. Valuations in these stratospheric ranges are becoming the norm for solar startups with very high expectations and very low revenues such as Solyndra, Nanosolar and Miasolé. My source's investment firm chose not to invest in AVA as the valuation was too rich for their blood. Another VC told Greentech Media's Mike Kanellos that AVA Solar was a tough call, calling it somewhat of a copycat of First Solar and asserting that AVA's success depends on execution while First Solar has shown time and time again that it is great at executing and manufacturing. First Solar looks to shortly enter the realm of Gigawatt capacity solar suppliers, joining a group of four or five vendors expecting to reach that volume by 2010. AVA is targeting a very low cost per watt based on a continuous manufacturing process with technology developed at Colorado State University's Material Engineering Laboratory. According to a source close to the company, AVA can show costs below First Solar and the ability to maintain that advantage with a very low risk ramp to the 200 MW level that they are targeting for 2010 (First Solar boasts costs nearing $1/W). According to this contact, "The ramp from 5MW to 200MW is the simplest and most obvious process you can imagine, a touch of genius." Pascal Noronha, AVA's CEO, is an investor and entrepreneur with ties to Warburg Pincus and the Reliance Group in India. AVA closed its second round of financing in 2007, led by The Invus Group, a New York-based investment firm. There is a toxicity risk to Cadmium Telluride that First Solar has confronted with a 100 percent take back program bonded by Swiss Re in the event that First Solar is not around in 20 to 30 years. There is also an availability risk in the Tellurium market so firms may need to buy old lead or gold mines and set up recovery systems. There are some reliable and not-so-reliable voices on the Web that speculate that First Solar and other CdTe PV firms will see price increases and material shortages in their raw material feedstocks. Armed with their new funds, all AVA Solar has to do is flawlessly execute and ramp to 200-MW volume. In addition to AVA and First Solar there are a few other firms working with CdTe. Here's a list: Antec: A German CdTe PV firm that has had its share of financial fits and starts over the last few years. Bloo Solar: According to Kanellos' interviews, this early stage firm wants to use CdTe-coated nanorods to harvest sunlight, although Bloo can use other chemistries. Calyxo: A subsidiary of Q-Cells founded in 2005 (acquired CdTe PV maker Solar Fields for $5M, forming Calyxo USA). This year, Calyxo is expanding its pilot plant to a capacity of 25MW and looking to construct a 60MW line. PrimeStar Solar: With GE as their majority shareholder and NREL roots, PrimeStar is setting up parallel CdTe fabs in Colorado and New York. Solexant: A next-generation CdTe manufacturer using nanoparticles. Funded by X/Seed Capital, Firelake Capital, Medley Partners, and Trident Capital. Sunovia: Single-crystalline, CdTe on Si tandem solar cells. ZiaWatt Solar: Very early stage CdTe supplier working on improved back contacts.

Rumor: Solyndra Burning Through Nearly $15M a Month

Michael Kanellos: August 27, 2008, 5:37 AM
The cash consuming machine that is CIGS never fails to astound. Nanosolar, which makes copper indium gallium selenide (CIGS) solar panels, confirmed with Dow Jones that it has raised $300 million in another round of financing. Sources have said for the past few weeks that Nanosolar was raising another round. Nanosolar already raised about $150 million, bringing their total now close to $450 million. The company, however, has garnered almost no revenues and only started shipping products, to a limited customer base, in December. But the company isn't the only one in this sort of situation. Solyndra, which we reported is trying to raise an additional $350 million, is burning through $15 million a month, say sources. Solyndra already raised $72 million last year and is not shipping product. The company, however, has signed sales contracts to ship over $1 billion in solar panels to two customers between now and 2012, assuming the company can get in mass production. (Nanosolar has estmiated its value at $2 billion while Solyndra has said it is worth $1 billion.) The burn rate for Solyndra is relatively high because it has over 400 employees and a 183,000 square foot facility, according to several sources. How big is that? If you converted that into nickels, $15 million weighs about 3.3 million pounds (about the same weigh as 39 extremely large big rigs.) That's 8,250 pounds of loose change per employee per month. In dollar bills, $15 million comes to 33,000 pounds, or 82.5 pounds for 400 employees. Assuming a 20 day work month, employees would have to put four pounds of paper money into a furnace each day to keep up at this rate. Like they say, working at start-ups is tough. The CIGS money, however, isn't free. Solyndra is trying to raise its $350 million through convertible securities. With these instruments, investors get shares in the company at a discount. The discount increases if the company misses certain deadlines. The company also pays six percent plus interest on the money. Nanosolar, say sources, is raising money in the same fashion, although we haven't confirmed that yet. Many VCs have said that there could be a collapse of some big solar companies next year. Solyndra never returns calls for comments but I will call them anyway. Maybe I can catch someone on the way back from the furnace.

Algae Oil Maker Solazyme Gets $45.4 Million More

Michael Kanellos: August 26, 2008, 4:51 AM
Solazyme is continuing to move away from the pack in algae oil. The South San Francisco-based company has raised $45.4 million in a Series C funding, according to PE Hub. Investors included Braemar Energy Partners, Lightspeed Venture Partners and Harris & Harris group. The total includes $6.4 million in convertible securities. That brings the total raised by Solazyme, when grants and everything is mixed in, to close to $70 million by some estimates. The company is both one of the oldest algae oil companies (dating way back to the first half of the decade) and one of the most novel. Rather than grow algae in ponds or closed-in water tubes called bioreactors through phototsynthesis, the company has identified species that grow by feeding off sugars in the dark. Solazyme effectively puts these algae and discarded plant matter into kettles and brews up algal blooms. The algae is then harvested for oil. Solazyme also genetically optimizes the natural strains of algae. By eliminating the need for water, Solazyme doesn't have to worry about separating the algae from the water to harvest oil, a big problem. It can also control the growth of algae. The company initially tried to grow algae through photosynthesis but switched. (See further explanation of the company's technology and business plan from founders Harrison Dillon and Jonathan Wolfson in this masterpiece of cinema.) Solazyme also likes to point out that it has made oil, barrels of it, unlike many of the twenty plus algae companies out there today. It also has a development deal with Chevron. The company will also sell oil to the cosmetic industry and likely the food industry. I actually tried some brownies made with algae oil. They were good. The money will be used to scale up their existing manufacturing facilities. (Right now, the company is housed in a building that once served as an ice cream factory.) Critics, though, note that sugar isn't free, and say that the ecomonics of growing algae with water and free sunlight may win out. So we must wait and see The company also isn't the only one working on novel extraction or growing techniques. OriginOil is concocting a system that will force feed algae and then extract oil from the hapless critters with microwaves. Synthetic Genomics, meanwhile, is working on genetically modified algae that will expurgate their own, like sea cucumbers.

Euro VC Posts Abysmal Quarter, Though Energy Surges

Daniel Englander: August 26, 2008, 12:25 AM
The European venture capital sector contracted by 35 percent in the second quarter, it's worst quarter in nine years. Roughly €858 million were invested over 167 deals, down from €1.33 billon in 286 deals during the same period last year. Investments in particularly strong EU portfolio areas like IT and healthcare were down 40 percent and 46 percent, respectively, on the quarter. The venture capital industry in Europe focuses traditionally on mid- to late-stage deals that funnel money to smaller, established companies. Compared with the startup culture in the U.S., European VCs tend to look for companies that have already proven themselves through commercial production or solid protoyping results. However, these companies are also closer to those exits that everyone talks so much about, but no one actually sees. That the U.S. recession has slowly rippled its way across the Atlantic is no surprise. What is surprising is the level of the impact - the British economy ground to a halt in the second quarter, the industrial-driven Germany economy actually came down 0.5 percent, and the French played a great game of catch-up with a 0.2 percent drop in GDP. The Poles are waiting in breadlines. This means the same thing it does in the U.S. for venture-backed companies. Bruised, mature markets with little liquidity aren't able to absorb exits the same ways they were able to in the past. So there are two tactics here: move more funds into later stage investments and try to build up companies at the end of the pipeline, or get down in the mud and find early stage companies to incubate. While the former seems to be the accepted approach in the U.S., it looks like the Europeans are moving toward the latter. Seed and first-round investments comprised 44 percent of second quarter deals, the largest such market share since the second half of 2001. 3i, formerly the EU's largest VC firm, probably has mixed feelings about getting out of the early-stage game back in March. This may also explain Wellington Partners' recent move to California. Greentech and energy investment soaked up €147 million over 10 deals in the second quarter, it's largest ever, placing it behind IT and health care as the third largest venture-backed sector in the European market. In fact, the quarter's largest deal came from German solar company Sulfurcell Solartechnik, which received €85 million in a late-stage deal. Speaking of... Germany topped the VC list for the first time during the quarter. I haven't checked out the deal breakdowns by country yet, but I'd wager the majority of those investments are going to solar companies, and that the majority of those companies are somewhere in the upstream part of the market. Process engineering and manufacturing improvements are just the sort of early-stage deals that a mature solar industry should be attracting. If that's really the case, then Germans have it right on - this industry doesn't need another First Solar, it does need a couple more Suniva's though.