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Solyndra Looking for $350M in High-Wire Financial Play

Michael Kanellos: August 12, 2008, 1:10 PM
Solyndra, the secretive developer of copper indium gallium selenide (CIGS) solar cells, is trying to raise $350 million in an effort to get into mass production, but the deal is causing some in Silicon Valley to shiver. The Fremont-based company, which raised $79 million in venture funds in 2007, wants the money to build a 420-megawatt solar plant, according to sources and documents reviewed by Greentech Media. Under the deal, Goldman Sachs, the lead bank on the deal, is trying to sell $120 million of convertible securities to existing investors and $230 million to newcomers. The convertible securities could be converted to Solyndra shares in the event of an IPO. Assuming an IPO can be pulled off, the owners of the securities would get Solyndra stock at a discount of the IPO price. If Solyndra eventually sells shares at $10, for instance, investors holding the convertible securities would be able to get shares for $8 dollars. The exact discount isn’t specified in the document, but sources say Goldman is telling investors that they will get a discount of 20 percent. But the discounts increase if Solyndra fails to hit certain deadlines. If the company does not file a registration statement to go public or undergo a fundamental change (i.e. get acquired) within twelve months of the issuance of the convertible securities, the security holders get another 10 percent discount. If the SEC has not declared a filed registration statement effective in 18 months, security holders also get a 10 percent discount. Thus, at the $10 hypothetical price, the holders of these securities would get shares at $7 or even $6. Solyndra, after all, could file a registration statement in 13 months (a ten percent penalty) and then get approval in 20 months (another ten percent.). And it’s not over yet. The holders of convertible securities earn 6 percent interest on their shares in the pre-IPO phase. The interest rate will be bumped by 1 percent if Solyndra misses its 12-month deadline and by 1 percent if it misses the 18-month deadline. The interest rate jumps to ten percent or the prevailing interest rate, whichever is greater, if an IPO or a fundamental change transaction has not occurred in 24 months. Solyndra did not return calls for comment. Other companies have used convertible funding to move into mass production, but the numbers and circumstances surrounding this one appear to push the stakes somewhat high. First, Solyndra hasn't sold any products yet. Second, it's got quite an unusual product: a cylindrical solar cell. By being cylindrical, the solar cell can gather direct sunlight, as well as convert light reflected from the roof into power. In theory, it sounds great. Taming the chemistry of CIGS, however, is not easy--most CIGS companies are not in production yet and some have faced delays. The vast majority of solar cell makers, CIGS and otherwise, are or are planning to build their solar cells on flat, planar surfaces, not cylinders. Some of Solyndra's early key employees--such as Benny Buller, Ratson Morad and Jonathan Michael--have left the company. Many VCs have begun to discuss a solar bubble and fear that many companies are overvalued. Combined, the leadings CIGS companies--a list that includes HelioVolt and Nanosolar--have already raised hundreds of millions of dollars. Several analysts (including some at Goldman) also expect the silicon shortage to ease next year, which could dent some of the appeal of CIGS by lowering the price of silicon solar cells. Many silicon solar cell manufacturers are expected to bring manufacturing capacity online over the next several years. So, in a nutshell, Goldman Sachs wants to raise over one third of a billion dollars on an experimental product that will enter an increasingly crowded market. Then again, Solyndra recently landed a contract to supply Solar Power with $325 million worth of solar cells between 2008 and 2012. Germany's Phoenix Solar also announced a deal to buy approximately $681 million worth of solar cells from Solyndra over the same period of time. That's over a billion in sales, assuming mass manufacturing can take off. Nonetheless, two VCs contacted by us deemed the deal risky and are declining to join. After the investment, Solyndra may be too expensive as an acquisition, noted one. The people who could be hurt the most in this, potentially, are employees because of the dilution that will occur when the new stock is issued. The additional discounts that the later investors may get if Solyndra fails to hit its deadlines will further depress the value of existing shares, said some.

Share a computer with a co-worker, get a rebate from utilities

Michael Kanellos: August 12, 2008, 5:10 AM
Virtualization--the ability to use a single server for multiple tasks--has taken off like crazy in the data center world as a way to both cut hardware costs and electricity costs. And in the near future, utilities may start pushing virtualization to cut desktop computing costs. That's the word from Mark Bramfitt, Principal Program Manager, Customer Energy Efficiency, at Pacific Gas and Electric. Mark is the guy that sets up and monitors programs at PG&E to cut computing costs. In these programs, PG&E effectively gives companies rebates to adopt energy efficient devices. (We're on a panel later today at the Flash Memory Summit.) PG&E, he said, may initiate a desktop virtualization program. Potentially, it could be quite popular. Garden variety data servers without virtualization software only utilize their processors about 15 percent of the time. With virtualization, a data center manager can crank that up into the 85 percent range and get more computing per watt. Desktops are even more profligate with energy. If you have a Windows computer, hit control-alt-delete and check your CPU utilization. You are probably only using 6 to 15 percent of the CPU's power. Thus, there is room to share. (I have a Mac--easily the worst computer I have ever owned in my life--and haven't figured out how to check CPU performance. But believe me, the time required in getting the smallest task done with thus thing means it guzzles the same or more than my old Acer.) Desktop virtualization would essentially be a form of thin client computing. You no longer would have a desktop. Instead, you and your co-workers would have thin clients that tap into a server in a computer room. Thin clients each consume about two watts and a server running ten of them would consume 160 watts. A desktop PC can consume 65 watts or more. Thus, a ten-unit thin client installation would consume 180 watts (ten two-watt thin clients and a server) while a ten unit PC fleet will consume 650 watts. PC power consumption will be This doesn't include monitors but that's equal for PCs and thin clients. Notebooks can rival and beat thin clients in power consumption, but they cost a lot more too. You could also set up a network where worker A has a PC on his or her desk and worker B has a thin client that shares the PC's CPU, memory and hard drive with A. Each worker would be separated by a virual partition so that they couldn't read each other's email. Thin clients have been the next big thing for, oh, a good fifteen years or so, but energy consumption may finally give them the oomph that they need for mass adoption. NComputing, a thin client start-up in Redwood City, already has 1 million seats deployed. They've only been selling computers for about two years. Pretty impressive. Bramfitt, though, said that not all programs set up by PG&E gain favor with IT managers. They have responded to programs to promote virtualization and new types of energy efficient air conditioners for server rooms, but not other programs. IT managers, he said, aren't quite used to working with utilties. Also, they don't pay the power bills so they still aren't completely tuned to cutting their utility costs.

Solar IP and Stealth Solar Roundup: Solyndra, Solexel and Netcrystal

Eric Wesoff: August 12, 2008, 2:00 AM

We read solar patents so you don’t have to…

While you were out carousing this past weekend, I was looking at some of Solyndra’s CIGS solar patents. Here’s what I found:

The patent for “Elongated PV Cells in Casings??? is authored by two former Solyndra employees, Ratson Morad, now with Daystar, and Benny Buller, now with CdTe thin-film leader First Solar (First Solar, incidentally, projects annual production of 1GW in 2009). The other listed inventors are Christian Gronet and Markus Beck, Chief Scientist at Solyndra. (And as I said yesterday: Why do patent holders and early employees leave a company like Solyndra?)

Here’s a link to a drawing of the cylindrical form factor from the patent document.  They also have some patent action in interconnecting and securing these very innovative and seriously non-standard solar units.

Since my evening was pretty much shot, I checked out patents by Solexel. Solexel is funded by Kleiner Perkins and Technology Partners. A while back, Daniel Englander and I did a little digging on the company and Kleiner responded by removing most mentions of the company from their Website. We looked into their technology but I think we got it a bit wrong.

These patents, invented by Mehrdad Moslehi describe a 3D thin-film solar cell (TFSC) fabricated with a reusable template sybstrate. (Drawings and photographs below.) And these filings describe a pyramidal 3D TFSC. Interesting stuff and it fits in with the MEMS theme we saw in their job postings.

Solexel’s advisory board includes Peter Peumans, an Assistant Professor of Electrical Engineering at Stanford, Deputy Director of the Center for Advanced Molecular Photovoltaics (CAMP) and an expert in solar cell modeling and characterization. Solexel has a CFO, Bob Komin, a post not usually filled in such an early stage firm.

Peumans is also co-founder and Chief Scientific Advisor of NetCrystal, a startup using a technology developed by Peumans’ group at Stanford. Bala Padmakumar is the CEO of NetCrystal, which is funded by Wellington Partners, Siemens, and X-Seed.

Bala is the principal investigator of a $99,000 Netcrystal SBIR Phase I project focused on the development of high-efficiency, lightweight, non-tracking, microconcentrator PV arrays based on stretched silicon. According to the SBIR document, “The stretchable silicon process can achieve accurate placement and electrical wiring of thousands of miniature solar cells in one parallel and potentially low-cost step.???

I’m scheduled to speak with Netcrystal’s CEO this week, providing he forgives me for the above link. We’ll get you more info then.

Aquanomics Update: UK Consumer Distress a Boon for Investors

Daniel Englander: August 12, 2008, 12:00 AM
British consumers may soon feel the pinch of higher water rates. Between 2010 and 2015, British water utilities claim they will need to make £27 billion in infrastructure investments to comply with the EU-wide Water Framework Directive, which requires water utilities to comply with new water conservation and pollution standards aimed at adapting to climate change-related water shortages. Ofwat, the UK's water regulator, received the proposals Monday amid criticism from British consumer groups who claim ratepayers are having trouble coping with similar rate increases for gas and electricity service. British Gas, for example, raised its service rate 44 percent this month. The rate increase will go to pay for efficiency improvements aimed at driving individual use down from 150 liters per day to 130 liters per day. The highest rate applications have come from Bristol Water and Southern Water, which collectively serve seven million customers. Bristol Water has proposed an infrastructure improvement plan that will raise average annual rates from £149 to £187 next year, representing a 26 percent increase over inflation. Southern Water's 23 percent rate increase will raise annual bills to £426 by 2015 to pay for investments worth £2.6 billion. United Utilities, another large water provider, has asked for a 2.7 percent annual increase over five years to fund a £4 billion investment plan aimed at creating annual efficiency gains of around 1.5 percent. All companies have said the rate increases are necessary to comply with the new EU conservation and pollution standards. While the rate increases understandably create distress for consumers, they represent an interesting opportunity for water-focused greentech companies and investors. The efficiency-focused infrastructure improvements will require water technology far more advanced that what is currently deployed. While some of this technology is deployed already in places like the water-conscious United Arab Emirates, much of it has yet to move from the prototype phase. Nothing will help that more than £27 billion worth of RFPs, especially when the issuers' other choice is to face a hefty EU fine. While Ofwater will probably accept rate increases smaller than those proposed, driving down the amount of total investments, the work required to meet this demand will drive further innovation in water technologies. As far I'm aware, the improvements to be made in Britain between now and 2015 represent the largest concerted effort to rebuild a water industry anywhere in the world. If done correctly, as with all things greentech, the high initial capital expenditures will result in long-term cost savings as resource efficiencies drive down operating costs and service rates. Greentech VCs would do well to get some of their water companies in front of the British utilities. This brings up a related point. Electricity and gas rates have increased in recent years as a result of constrained power supplies, demand levels rising above forecasts, and structural shifts in the natural gas industry. The proposed increase in water rates also stems from use and resource constraint issues. In the power, heat, and water supply industries, however, increasing rates have played a large role in moving green technologies further into the mainstream. But just who should bear the cost of this? Passing costs onto consumers is a common practice in regulated industries. Companies in these sectors are required to negotiate tariffs, and rates of return are strictly supervised by regulatory authorities. This helps (sometimes) to keep rates down and preventing utilities from taking advantage of their natural monopoly status. However, as markets move, utilities are forced to renegotiate, often with undesirable consequences for consumers. But if utilities were unregulated and rates were set to monopoly pricing, wouldn't this drive down demand (or drive up efficiency and conservation)? So maybe regulators should pay. After all, they're the ones who force utilities to keep costs down, though often with limited success. They also force utilities to keep the water on for people who can't or won't pay their bills. And the utilities themselves? Faced with a set of perverse regulation-based incentives, utilities do their best to keep investments and improvements at a minimum. Anything else would raise the ire of shareholders. The answer is a combination of all three. The EU follows the polluter pays principle, which means utilities should bear a considerable portion of the investment burden. Regulators, however, in sticking with their mission of public service should view the infrastructure improvements as a investment in future conservation and insurance against water shortages and drought. Consumers increasingly need to come to grips with their legacy of overuse. When water is in short supply, demand becomes relatively inelastic. Hang out in the desert for a bit with a box of Fiji Waters and you'll see what I mean. Or just ask the Gulf Arabs, who must desalinate more than 95 percent of their drinking water and still face a potentially devastating shortage. GE has found one of their biggest growth opportunities in that market. The UK's water situation represents a similarly significant opportunity for companies developing even newer, more innovative technologies. Perhaps the British Government will use this opportunity to build their own water tech industry. The demand is certainly there.