Recent Posts:

Newsweek’s Eco-Friendly Companies, plus Aerogel Composite and P21

Rob Day: November 29, 2005, 2:56 PM
  • In case you missed it last week, here are Newsweek's profiles of "Ten Eco-Friendly Companies," many of which will be pretty familiar to regular readers of this site.
  • Germany's P21, which is developing stationary fuel cells, announced a 5M euro raise from existing investors Target Partners, Conduit Ventures, and Tech Fund Capital Europe. There appears to be room for a similar investment from a new investor.

Random articles on alternative energy

Rob Day: November 29, 2005, 2:01 PM
Below are some links to articles that have come along in the past few weeks:
  • Red Herring had a couple of good surveys of flywheels and fuel cells. Interesting quote from the latter article: "While the technology might still be shaky, its promise is certainly large enough to be worth pursuing, even if early adopters have to endure a few moments of shaking, tapping, and cursing." Fuel cells, of course, continue to have their critics.
  • Stirling Energy Systems has been in the news a bit lately. Here's the latest such mention. It's a different take on solar from what you might usually picture -- far different from panels on rooftops.
  • As CleanEdge noted, BP has made a big commitment to commercializing alternative energy technologies, pledging to invest up to $8B over 10 years, in large part through their newly-formed division BP Alternative Energy. Notably, they expect BP Solar to hit $1B in sales in 2008. This is all a big deal for clean energy investors, since it not only provides further momentum, but could signify good M&A exit dynamics. Coincidentally or not, one academic believes that "peak oil" happened over the Thanksgiving weekend -- did you notice?

Bill Gates invests in Pacific Ethanol

Rob Day: November 29, 2005, 1:36 PM
Pacific Ethanol, which is building a series of ethanol plants in the west coast region, announced an $84M investment by Cascade Investment, LLC (note: opens PDF), which is owned by William H. Gates III.

Pacific Ethanol, which is publicly traded (Nasdaq: PEIX), is building sites in the west coast to try to capture first-mover advantage in building out ethanol production capacity in what they see as an untapped region. This points to the fact that much of ethanol production (and biofuel production in general) is a very well-understood, mature process, so the competitive advantages for winning players are more likely to be due to location, feedstock costs, financial engineering, operational excellence, customer relationships, etc., rather than a proprietary technological advantage. Also, the investments tend to be project-oriented by nature. As we've discussed before, it can make it tough for technology investors (ie: VCs) to participate -- with exceptions, of course.

The price per share of the transaction was at about a 20% discount versus the closing price on the 15th, when the deal was announced.

Gridpoint has $9M reasons to give thanks

Rob Day: November 27, 2005, 2:42 PM
According to yesterday's Washington Post, Gridpoint Inc., which sells computerized power backup systems, raised a $9M round Series A recently. The article mentions that "a few" venture capital firms including Advantage Capital Partners participated in the round, but that most of the round was raised from individual investors. There are a number of other interesting details as well:
  • Gridpoint is raising another $6M in addition to the current round, to "increase production" and increase headquarters staff
  • Revenues for 2006 are anticipated to be $10M, off of 2,000 units sold
  • The appliance is about the size of a refrigerator, costs $6-16k (based upon the above revenue estimates, the channel must be taking a pretty big cut), is being sold directly to customers through hardware stores such as Lowe's, and in high-end versions can help manage on-site solar or wind resources.
  • Where time of use pricing is in effect (which is certainly not a given, especially for residential and smaller commercial users), 10-15% electricity bill savings can be gained by moving electricity draw away from peak periods, and potentially by selling power back to the grid from the unit's storage.
The company's last raise was a $1.8M angel round in 2003. Given the pricing data given above, interested readers who want to put such a unit on their own home might contact Gridpoint to see if they can buy one direct from the company... probably not, unfortunately.

Coaltek’s $7.7M Series A, and other items of note

Rob Day: November 21, 2005, 11:16 PM
  • PE Week Wire revealed today that Coaltek has raised an approx. $7.7M Series A from funders including Technology Partners, DFJ, Braemar Energy Ventures, and Warburg Pincus. Coaltek's proprietary treatment process for coal allows dirtier Western coal to much more closely resemble Eastern coal, providing economic and pollution benefits. We last saw Coaltek at the spring Cleantech Venture Forum, where the clean technology implications of such "incremental technologies" were debated (scroll down to "Alternative Fuels" to read about it).
  • Can't link to it, but if you get the chance, see the WSJ's column today on "Where the Bets Are," which describes where VCs are shifting their attention these days. Of course, clean technology is prominently highlighted, with a nice quote from Ira Ehrenpreis of Technology Partners.
  • Cleantech investors EnerTech Capital Partners announced that Wally Hunter is coming over from RBC to become a Managing Member and open up EnerTech's Canadian office in Toronto. Everyone seems quite pleased at what seems like a good fit, compliments all around.
  • For those following fuel cells as an investment area, there was this interesting overview of the 2005 Fuel Cell Seminar. Quite useful reading. It appears that the critical hydrogen storage issue remains unresolved...

SunPower’s IPO, silicon supply, and cleantech investing

Rob Day: November 17, 2005, 10:05 PM
The long-anticipated IPO of SunPower happened today, and it shot up more than 40% in one day.

This will undoubtedly bring even more mainstream VC attention to the clean energy market in general, and solar energy in particular. After all, SunPower, with annualized revenues of around $65M, now carries a market cap of $1.5B -- even if that valuation goes down over time as the euphoria wears off, that kind of "pop" will get any investor's attention.

SunPower is certainly a great example of the business opportunity presented by the rapidly-growing solar market. According to Solar Buzz, for instance, solar installations grew 62% from 2003 to 2004, and by all reports the industry has continued to grow rapidly this year as well.

Investors need to realize that it will be difficult for the industry to continue this level of growth, however. Much of this growth has been due to specific regulatory incentives -- solar power is not yet competitive in cost with grid power in most cases, so the pure economic case alone isn't driving most of this growth. Nevertheless, demand for solar is growing quickly and won't stop growing anytime soon.

But then there's the silicon supply issue.

As Tyler at Clean Break and Jim at the Energy Blog pointed out a while back, Piper Jaffray put out a research report on the solar industry last month (pdf available here), with some pretty interesting conclusions:
  • PV modules based upon polysilicon currently make up 91% of the market
  • The supply of polysilicon is constrained, and available polysilicon is sold out already through 2007
  • Polysilicon feedstocks are only expected to grow at 12% through 2007 -- but demand has been growing at least 30% per year
Based upon this information, the report concludes that solar market growth will only be in the single digits next year, and that prices will likely continue to increase for solar modules. They also conclude that PV technologies that don't depend upon silicon are going to see more rapid growth.

What conclusions should venture investors be drawing about the solar market?

First, the good news: PV technologies that minimize or eliminate the need for silicon (so-called "second and third generation" solar) are earlier in their development, and thus are more readily available for venture-stage investments. Even without shortages of silicon, the high cost of silicon was already driving significant innovation in the search for alternatives. If silicon-based PV is going to be unable to meet demand in 2006, then any commercially-available 2G or 3G solar technology is going to see pretty rapid market acceptance. Thin-film and concentrator technologies that are "ready for prime time" may be at an inflection point. And even earlier stage technologies will undoubtedly garner a lot of attention going forward.

But the bad news is that the silicon situation points to a very basic fact about the solar industry going forward -- it is essentially a semiconductor industry. The technologies, manufacturing processes, and even some of the players are the same (SunPower, for instance, was funded in large part by Cypress Semiconductor). And just like with semiconductors, there will be capacity-driven boom and bust cycles. The supply of silicon will be subject to capacity-driven booms and busts, which will flow down the value chain. And then the building of larger and larger PV production lines will also drive periods of undersupply followed by overcapacity, and vice versa. Underlying these cycles will be continued fast growth. But there will be significant price and production fluctuations around that growth trajectory. SunPower picked the right time to IPO, given where we are in the cycle right now...

Finally, while solar has been getting a lion's share of the cleantech investing press lately, I would expect to see SunPower's successful IPO as having a somewhat counter-intuitive effect of broadening mainstream VC interest into other areas of clean energy. The successful IPO will help draw attention to clean energy technologies, but there's already been a lot of recent funding activity in 2G and 3G solar. There will be increased capital deployed in solar, no doubt. But mainstream VCs will be forced to also look elsewhere within the clean energy sector if they are to find significant new opportunities. And that's a good thing, for everyone involved in the industry -- innovators, entrepreneurs, LPs, specialized funders, and mainstream funders with an interest in the space.

Now, let's all hope we see continued strong performance out of SunPower going forward.

Tuesday deals and other notes

Rob Day: November 15, 2005, 9:10 PM
  • Last week, Solar Integrated Technologies announced they raised a $37M private placement of 6.5% 2010 convertible notes. Goldman Sachs and Crestview Capital participated. SIT is developing building-integrated photovoltaic (BIPV) systems, which many point to as the future format for solar power -- the thinking being that BIPV can lead to lower PV system costs by helping to reduce the costs of system installation (a significant portion of the total system costs), if the right form function can be developed. SIT is traded on the AIM.
  • Metara, which provides systems for inline chemical metrology, raised an $11.5M Series E round. VantagePoint Venture Partners and Cipio Partners led the round, which also included Compass Venture Partners and Merifin Capital NV. Metara's systems are used to monitor the use of chemicals in semiconductor manufacturing, so that the use of chemicals is minimized and processes are optimized. Metara is an example of where manufacturing technologies can overlap with sensors and monitoring, with resource efficiency benefits.
  • Seahorse Power Company announced a $1.1M raise of venture capital and angel funds, with funders including the Massachusetts Green Energy Fund and Jim Gordon, President of Cape Wind Associates. Seahorse's solar powered trash compactors are designed for outdoor applications.
  • Last but not least, here's a nice interview with fellow cleantech investor Vincenzo La Ruffa that appeared in Red Herring a while back -- nice work, Cenzo.