During a panel on carbon-based greentech financing at Always On's Going Green event, Jon Anda, Visiting Fellow, Nicholas Institute for Environmental Policy Solutions, delivered news that harshed everyone's mellow.

"Washington did not have a Going Green day. My phone has been buzzing all day. It does not look like the Senate is going to pass a climate bill this year. According to Harry Reid, we're not going to have anything till next year," he said. 

According to E&E News, Harry Reid, the Senate Majority Leader (D-Nev.) told the Senate on Tuesday that energy and climate change might have to wait until next year, given the crowded legislative schedule. (Socialism, Communism, death panels, healthcare.)

There remains the possibility that the energy piece of the bill might be decoupled from from the climate change portion. 

The mood of the cap-and-trade-related entrepreneurs and investors was significantly deflated after this news.

Seambiotic, located in Ashkelon, Israel, uses eight raceway/paddle-wheel open-ponds for algae cultivation, fed by C02 flue-gas from a nearby Israeli Electric Corporation power plant. The company employs genetic optimization and has teamed up with Inventure Chemical to turn the algae into fuel.  

And now it has a new CEO.  Daniel Chinn is replacing founder and previous CEO Amnon Bechar who will now assume the position of COO.  Mr. Chinn is a GP at Israel Seed Partners and has a background in M&A and law. 

The last algae company helmed by a VC in a management switch was GreenFuels led by IT-guru Bob Metcalfe.  GreenFuels was the proud winner of the Frost & Sullivan Technology Innovation of the Year Award and oxidizer of $70 million in VC.  May they Rest in Peace.

Like most algae farmers, Seambiotic expects to harvest the algae for nutraceuticals and biofuel.  The CO2 from a nearby power plant as feedstock makes some sense.  I remain curious about where they're going to get a constant large supply of water and nutrients in a water-challenged, resource-starved nation.

Summer 2009 saw an enormous amount of activity in algal biofuels.  Some called it "The Summer of Algae."  I'll have to settle for calling it the "Summer of Algae Hype" until a company actually produces algae-based biofuels in volume at a price close to "pump-parity."
 
Recent announcements have included:

• Sapphire Energy's plans to build a 300 acre integrated algal bio-refinery in New Mexico.

• BP investing $10 million in Martek. 

• Exxon pledging $300 million to Synthetic Genomics for algae research. 

• LiveFuels changed course to become a fish aquaculturist.

• Solazyme received $45 million in funding and was selected by the Pentagon to develop algal biofuels for the Navy.

• CMEA announced an investment in San Diego-based Biolight Harvesting. 

• Aurora Biofuels made strides in algal fuel production and CO2 consumption.

• BioProcess Algae developed a proprietary photo bioreactor.

• Algenol Biofuels is working with Dow Chemical to efficiently produce commercial quantities of ethanol directly from algae.

More on algae's future as a biofuel feedstock to come.

At the risk of sounding slightly self-congratulatory, it feels nice to be right (at least once in a while). A week after the publication of GTM Research's report on U.S. PV manufacturing, which predicted that a major build-out of domestic manufacturing capacity was gathering momentum (the numbers say that the U.S.'s share of module manufacturing capacity will grow from 5 percent in 2008 to 14 percent by 2012), three major announcements vindicated this thesis: Trina Solar, Clairvoyant, and SunPower all made declarations this week to establish manufacturing module assembly plants in the U.S.

These developments aren't particularly surprising when one considers the 2.7+ gigawatts of U.S. PV projects in the pipeline over the next half-decade, combined with the knowledge that module assembly has historically followed markets. Barring a few exceptions, however, media attention on the U.S. PV landscape has focused almost exclusively on the demand side of the coin. It's somewhat understandable given that the stimulus funds made available through State Energy Program grants are all deployment-focused and that installation holds more employment creation potential than manufacturing, being more labor intensive. Still, it's frustrating that this issue continues to be ignored by most: 20,000 manufacturing jobs ain't no joke, especially at a time when unemployment is approaching 10 percent. On top of this, a build-out of PV production in the U.S. will also create all manner of opportunities for their vendors – for example, producers of polysilicon, glass, and encapsulants, and equipment, to name a few.  Perhaps most importantly, while deployments uneasily await the return of credit markets to resume, growth in manufacturing is happening here and now.

And not to beat a dead horse, but this development is all the more interesting in light of the recent competing trend of outsourcing PV production to "low-cost" locations. It certainly provides a tangible counterpoint to those in the industry who believe that, like consumer electronics, PV production will eventually be reside almost entirely in Asia. My guess: While this is likely to be true for crystalline silicon cells and wafers (MEMC, anyone?), the U.S. will be home to a sizeable chunk of thin-film and c-Si module assembly plants over coming years. Then again, with China making all the right noises about gigawatt-scale PV deployment, I could end up having to eat my words. Which, I suppose, is all the more reason to flaunt it when you got it.

SunPower's Doug Rose, the senior director of technology strategy, presented at the Silicon Valley PV Society last week in a talk titled, "Technology and Economics of High Efficiency c-Si PV." Of course, the thrust of the talk was the strength of SunPower's high-efficiency solar cells and panels, and the impact of efficiency on the cost and payback of a solar system.

The high efficiency of SunPower's solar cell stems in most part from its back-contact technology – a technology pioneered by founder Dick Swanson in the early 1980s at Stanford with low-cost manufacturing breakthroughs in 2001. The back contact design avoids gridlines on the front of the cell so there's no metal obscuring the cell and therefore more light gets converted to power. According to Rose, other design advantages are gained from the back-contact architecture – it allows better optimization of the front surface through texturing, an optimized backside mirror, localized contacts, and obviously backside gridlines.

The all back-contact cells allow SunPower to get to median production efficiency of 22 percent at the cell level. And while they're at it – cell thicknesses in the 150 micron range at about 6 grams of silicon per watt.

Rose raised the question: "How can high efficiency cells be cost effective? You're not using the same platform as everyone else." The response was: "Sunpower spends a little more in cell processing to deliver savings across the value chain."

That's the value proposition of high efficiency cells. The cells are more expensive but cost savings are realized all down the line. 

So how much exactly is this "efficiency bonus?"

According to research performed by crack Greentech Research analyst Shyam Mehta – gains in efficiency drive cost reductions at all steps of manufacturing on a $/W basis, from feedstock cost to module conversion – a 1 percent improvement in efficiency leads to a 5 percent to 7 percent decrease in fully loaded module cost. (Shyam's most recent report is on PV Manufacturing in the US and can be found here). His efficiency thesis is charted below:

In a solar market where prices are plunging, margins are crumbling and market consolidation is on the horizon – how much of a premium can SunPower command for its high-end product? A banker friend believes the dollar per watt premium is only 10 percent to 20 percent over conventional silicon or thin film PV.  With SunPower at a less than $2 per Watt module price in the fourth quarter of 2009 and some c-Si vendors below $1.50 per Watt – can SunPower command a 35 percent premium?

SunPower believes it can. My banker friend says no.

Here are some of the benefits of higher efficiency:

• Lower area-related costs
• Reduced installation costs
• Reduced shipping costs
• Reduced Balance of Plant (BOP) costs
• Optimized for area constrained roofs or sites
• SunPower's product has a better temperature coefficient, tighter distribution and better low-light performance

All factors resulting in a lower LCOE.

A Very Few Words on LCOE

A simplified formula for Levelized Cost of Energy (LCOE) is:

LCOE = Panel cost + BoP cost + O&M costs / Sunlight collection * Conversion efficiency

But, unfortunately it's not really that simple.  SunPower has detailed calculations and displayed the many factors influencing LCOE in its presentation. NREL has its own byzantine formula for LCOE.

An accurate measure of LCOE will have to include:

• Initial investment
• Depreciation tax
• Annual costs
• System residual value
• System energy production

And LCOE calculations have a very high sensitivity to certain input variables such as:

• Annual panel degradation
• Differences in annual discount rate / cost of capital
• System life (inverter replacement, etc.)
• Annual O&M

The major contributors to LCOE are:

• Capital costs
• Modiule $/W
• Area related BPS
• Electrical BPS
• Project related costs

"If someone says the LCOE of my technology is x cents per kilowatt-hour, it still doesn't tell you a lot," said Rose.

Differentiation and Branding in a Commodifying Market

A healthy cost structure, a good balance sheet, and the right level of vertical integration are what will distinguish winners from losers in the coming solar shakeout. Differentiation is going to help as well. And SunPower has that technical differentiation by virtue of the highest efficiency commercial solar product – a 22 percent median efficiency in 2006 looking for over 23 percent in its Gen3 cells. Combined with itss one-axis trackers which increase capacity factor by about 30 percent to match energy production with summer load, an important point for utilities – SunPower has some of the crucial ingredients for survival in the demand-constrained solar landscape.

Of further interest in the differentiation department is SunPower's recent plunge into consumer branding of its panels. Ride a bus in San Francsisco and you'll see a SunPower-branding consumer ad campaign. 

Three questions for our readers:

• Do consumers care which brand of solar panel they're buying?
• What is the real value, the real premium for high efficiency?
• And contrarily – what is the penalty for low efficiency?  Where does 6 percent to 8 percent efficient a-Si or OSC fit into the solar landscape?  Or does it?

We welcome your thoughts.

Erfan Ibrahim of EPRI gave a wide ranging talk on Tuesday evening entitled "EPRI's Smart Grid Vision and AMI/HAN Research Overview."  It was an Industry Outreach Event held at EPRI's bucolic Palo Alto campus. The talk touched upon Noam Chomsky, the effect of high magnetic fields on the menstruation cycles of cattle (long story), and the long-term energy portfolio of the United States. Mostly the latter.
 
EPRI is the Electric Power Resource Institute – a non-profit tax-exempt organization funded by utilities and founded in 1972 after the electric blackouts of the 1960s.  EPRI has more than 700 employees, a budget in excess of $300 million and instigates more than 1,600 R&D projects annually. EPRI also engages in relatively high-risk technology innovation and research ranging from new energy storage technologies and new battery chemistries – all the way to cold fusion.

EPRI has four divisions:

• Generation
• Environment
• Power Delivery and Energy Utilization (smart grid is in this segment)
• Nuclear

Long View

Ibrahim set the stage saying: "As we gaze over the grazing animals and the rolling hills of Palo Alto - we think in the long term." How do we deal with coal? It's not going away. How to we lengthen the life of nuclear power plants?

According to Ibrahim, the solution is not wind mills. Nor is it solar. (Adequate transmission lines being just one of the obstacles)

Aim of the Smart Grid

"Our aim is to begin a very serious dialogue on how the smart grid will lead us to a low-carbon environment as a society," he said. Ibrahim emphasized that EPRI is not made up of idealogues, that "there is no panacea" to curb greenhouse gas emissions and that it is going to take a combination of many technologies to decarbonize the electric industry.

The smart grid is just one piece of the puzzle.  

"It's not that the grid is dumb – it's that we haven't found a way to network all of these nodes," he said. There already is a relatively smart grid that functions at an almost 100 percent efficiency rate, according to Ibrahim. Siemens, ABB, etc. have been embedding intelligence into the grid for years.

"We have to intelligently embed networks to create a distributed intelligent network," said Ibrahim. How do we create this distributed intelligent network? EPRI is looking for a movement with realistic expectations.  Not just an IP platform.

EPRI's Prism Study (downloadable here) is a carbon cap strategy that limns out the best way to transition to low emissions technology.

And that includes:

• Efficiency
• PHEVs
• Demand Response
• Weatherization, better water heaters, better pool pumps
• Enabling intermittent renewables via advanced transmission grids
• Expanded advanced light water reactor deployment – increased dependence on nuclear power is going to decrease carbon footprint
• Advanced coal plants with CO2 capture and storage

Nuclear and CCS

It's not that EPRI isn't a fan of of solar – Ibrahim acknowledged it's contribution but doesn't see it playing a large role in our energy mix. In fact, in large-scale, EPRI found that solar actually increased the price of electricity (I'll assume that's due to the necessity of having back up generation or expensive storage to cover solar's flaws.)

EPRI certainly sees nuclear, now about 20 percent of the U.S. energy mix as a necessity. Specifically, third-generation nukes – "passively safe type reactors."  

And if you check the prism chart, EPRI also sees CCS (Carbon Capture and Sequestration) as a necessary part of the U.S. energy picture. In fact, Erfan described coal with CCS
as a "disruptive technology" that will "revolutionize the industry."

EPRI's worldview is a glimpse into the utility mindset and must be considered as the likely trajectory our electric generators will follow.

Greentech IPO floodgates might be opening.

The $225M IPO roadshow begins today: A123 = AONE

It's here.

A123's long-threatened IPO has the potential to draw the market’s attention to the energy storage sector. And the IPO will also give us a glimpse on how investment banks and institutional investors like underwriters Morgan Stanley, Goldman Sachs and Lazard Capital Markets will value energy storage firms.

A commenter suggested that a successful IPO needs a great product, a great team, and profits. Well, two out of three ain't bad. This company loses money. In fact, it has lost $146 million since it was founded and has never turned a profit. And, although it has landed deals with Chrysler and Black & Decker, it lost a titanic contest to sell batteries to the GM Volt,  in part because it is small compared to the winner LG Chem.

With more than 1,800 employees and a staggeringly large burn-rate, as well as having taken hundreds of millions of dollars of Venture Capital, A123 has to go public if it can, and there does seem to be an opening.

A123’s product line ranges from 3.6 Whr batteries for portable power applications to larger 65 Whr batteries for electric vehicles. The company is also developing multi-megawatt battery systems for utilities that can provide electric grid services including standby reserve capacity and frequency regulation. Where and how its batteries proliferate, however, is an open question. A123 specializes in lithium phosphate batteries: phosphates don't pack as much punch as other types of lithium batteries, but they are safer.

A successful public offering could open the floodgates to more greentech IPOs and usher in the dawn of a finance-rich greentech era. Other Greentech IPO candidates would include Silver Spring Networks, Tesla Motors, Nanosolar and Solyndra. Then again, other once well regarded companies--Imperium Renewables, Nanosys--have come up short on the road to the IPO. The fact that A123 is shipping product is defintely in its favor.

The underwriters have set the 25 million shares at an estimated price range of $8 to $9.50 each. At the top of that range, A123 would have a value of $950 million, based on 100 million shares expected to be outstanding after the IPO.

Some facts:

• A123 Systems Inc. designs, develops, manufactures and sells advanced, rechargeable lithium-ion batteries and battery systems.

• Joint Bookrunners: Morgan Stanley and Goldman Sachs

• Offer Size: ~25.7 million shares (97 percent Primary)

• Greenshoe: 15 percent (100 percent Primary)  

• Range: $8.00 to $9.50 per Share

• Launch Date: Wednesday, Sept. 9, 2009

• Roadshow Dates: Thursday, Sept. 10, 2009 to Wednesday, Sept. 23, 2009

• Expected Pricing: Wednesday, Sept. 23, 2009 (post-close)

From Michael Kanellos' recent article on the highlights of the S-1:

• $168.5 million – The total in revenue accrued since early 2006 when it started selling batteries. It breaks down as: $34.3 million (2006); $41.3 million (2007); $68.5 million (2008); $10.3 million (Q1 2008); and $23.2 million (Q1 2009).

• $146 million – Cumulative net losses. Net losses by the year have been: $15.8 million (2006); $31 million (2007); $80.5 million (2008); and $18.7 million (Q1 2009).

• $106.3 million – The total capitalization.

• 75 percent – The amount of revenue that comes from the top three customers. "We believe that the loss of one of these significant customers [BAE Systems] could have a material adverse effect on our revenue," the S-1 states. BAE Systems, which is working with A123 on bus systems, is an interesting touch. In an earlier S-1, it said that Black &Decker "represented 70.7% of our total revenue since inception through March 31, 2008 and represented 55.1% of our total revenue in the quarter ended March 31, 2008." Revenue dipped at the time due to a slowdown from its "most significant" customer.

• 107.5 million – The number of watt-hours, or electrical capacity, contained in the batteries shipped to date. It breaks down as: 20 million (2006); 32 million (2007); 44.9 million (2008); 10.6 million (Q1 2009).

•  151.1 million – The total annual manufacturing capacity, measured in watt-hours, as of March 2009.

• 450,000 square feet – The amount of factory space.

• $96.6 million– The cumulative amount invested in R&D.

It looks like good news for A123 and greentech. Depending on where this prices. Stay tuned.

VC investment in Greentech is thriving. After a soft first quarter brought on by recession and low investor confidence, VC in Greentech has been creeping up steadily. 

Greentech VC in 2009

Q1 2009                        $836  million in 59 deals
Q2 2009                        $1.234 billion in 85 deals
Q3 2009 (to date)          $923 million in 83 deals (to date)

Q2 was 50 percent more than in the first quarter, and the third quarter should exceed the second quarter – a nice trend. That said, rising investment in greentech is not exactly an indicator of the health of the industry. We need more startup revenue, more M&A, and more IPOs – and that's starting.

Some of the biggest VC deals this year have been:

Suniva                       $75M for high efficiency solar
Powerspan                 $50M for CO2 capture technology for coal-fired electric power plants.
Imperative Energy      $43M for large scale renewable energy from biomass
eMeter                       $32M for smart grid management software

(I don't believe we can count Synthetic Genomic's $300 million big algae investment from Exxon as VC).

Greentech M&A in 2009

We've seen some M&A trends, highlighted by:

• Ongoing consolidation in the solar integrator and installer market
• Rising consolidation and land grabs in the carbon dashboard and utlity carbon monitoring field
• Vertical integration in solar – Bosch's acquisition binge created a vertically integrated entity from Ersol, Aleo and Johanna Solar

Greentech IPOs

Plenty of chatter but the only SEC IPO registration looking like it might launch in 2009 is A123 Systems, the developer and manufacturer of advanced, rechargeable lithium ion batteries.  A123’s product line ranges from 3.6 watts per hour batteries for portable power applications to larger 65 watts per hour batteries for electric vehicles. The company is also developing multi-megawatt battery systems for utilities that can provide electric grid services including standby reserve capacity and frequency regulation.

It is reasonable to expect the A123 IPO to come to market in the fourth quarter of this year – reasonable given A123’s revenue, the government and industry focus on smart grid, and the pent up demand for a greentech IPO.

A123's long-threatened IPO has the potential to draw the market’s attention to the energy storage sector. The IPO will also give us a glimpse on how investment banks and institutional investors like underwriters Morgan Stanley, Goldman Sachs and Lazard Capital Markets will value energy storage firms.

A successful public offering could open the floodgates to more greentech IPOs and usher in the dawn of a finance-rich greentech era. Other Greentech IPO candidates would include Silver Spring Networks, Tesla Motors, Nanosolar and Solyndra.

Every Greentech VC and M&A deal, every month – logged in the Greentech Innovations Report.