LED Lighting’s Big Expansion

September 21, 2010

There is no shortage of emerging competition in LED lighting. Capacity is rising, prices are falling and some of the world’s biggest chipmakers appear ready to do battle.

This week LED kahuna Cree promised to spend $135 million expanding production at its North Carolina fab. It earmarked another $392 million for a new facility in the state and is said to be considering facilities in the low-cost labor markets of China and Malaysia.

Inside Bridgelux's new Silicon Valley fab

General Electric is ramping up its own production, as is Samsung, LG Electronics, Philips and Osram.  In China, about 55 producers are pumping money (some of its state funds) into their own plants.

Even India wants to get in on the act. De Core Science and Technologies is said to be gearing up for LED production at as many as two locations

Don’t forget Bridgelux, a promising U.S. producer that on Monday showed off a Silicon Valley fab where it has big plans for expansion. The company has the capacity to make 5,000 wafers a month and hopes to expand that five fold. About 180 new workers are expected by next year.

The growth should enable Bridgelux to more than double revenue next year from this year’s $30 million, says CEO Bill Watkins.

The industry’s expansion has an obvious motivation. Some estimates suggest a $19 billion worldwide market for LED lighting by 2014. There is big money to be made.

But with the steady expansion around the world, the danger of over capacity and commoditization rises as well.

Clean-room workers in the Bridgelux plant

The excitement of a massive LED market has attracted growing enthusiasm from venture capitalists. Money has poured into companies across the market spectrum, from software makers to hardware designers, including Luminus Devices, Superbulbs, Terralux, Digital Lumens, Albeo, LEDEngin. Bridgelux itself has raised $113.5 million.

There will be more to come.

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Posted by Mark Boslet

Will The U.S. Generate Too Much Energy? Vinod Khosla Thinks So

August 12, 2010

The potential for clean-tech innovation is so great you might be wise to expect the unexpected. What about an energy glut?

This was the prediction of rock star venture capitalist Vinod Khosla during a panel discussion Tuesday. The event at Google’s Silicon Valley campus was held to discuss the implications of California’s Proposition 23, an attempt to rollback the state’s ambitious climate legislation.

But Khosla stole the show with his outlook for the clean-tech innovation and energy use. “In 10 to 15 years, we will be shutting down (power) plants” because of an excess of electricity in this country, Khosla said. There is an “infinite” opportunity for technological innovation.

Such an upbeat outlook is no surprise from a man whose venture firm, Khosla Ventures, is an active clean-tech investor. Khosla said his firm is backing companies that hope to cut energy use in lighting and data center server racks by 80 percent.

He is equally upbeat about prospects for the United States over China – not always the prevailing wisdom these days. “I won’t say China is winning the clean-tech race,” he says. “But they are clearly paying a lot more attention to the race.”

Here are several other observations from the panel:

*Asked if there was an advantage to creating companies in Silicon Valley rather than China, Khosla was emphatic. “No question about it.” The people are here. The markets are here.

*Nuclear power no longer has an advantage over renewables, he added. There hasn’t been a nuclear plant build in recent years that can beat $7,000 a kilowatt. That makes wind and solar (in some parts of the world) competitive, he says.

*Proposition 23 is a threat because it will kill the clean-energy markets California’s A.B. 32 created. Both Khosla and Google Green Energy Czar William Wiehl concur on this point. Proposition 23, which will go to the ballot in November, would suspend A.B. 32 until the state’s unemployment rate drops to 5.5 percent or less for four consecutive quarters. Texas oil companies Valero and Tesoro back the measure. A.B. 32 sets reporting guidelines for polluters, establishes a statewide limit for carbon and guides emissions back to 1990 levels by 2020.

*A.B. 32 has helped create 500,000 clean-tech jobs in California, Wiehl says.

*Google, adds Wiehl, has made strides with energy efficiency. The company builds its own data centers and servers. As a result, data center energy use is one half of what it would be if the company followed industry-standard best practices, he said.

*As to the next “Google.” “There is no doubt in my mind we will see 10 of these” in clean tech, says Khosla. “Today California has the pole position to win that race.”

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Posted by Mark Boslet

Are Venture Capitalists Starving Clean Tech Innovation?

July 22, 2010

Clean-tech investing is a top priority for venture capitalists. But a big chunk of their money is avoiding the tiniest, early-stage start-ups with the most ambitious plans for innovation in favor of more established, later stage businesses.

The result could be a dearth of innovation several years from now, when a new generation of companies might be expected to fuel growth in the industry.

The trend toward later stage investing appears to have been gathering steam in the past year. In 2008, 197 follow-on investment deals were sealed in the United States compared with 93 first-round financings, a 2-to-1 ratio of later stage versus early stage.

In the first quarter of this year, the ratio was closer to 3-to-1, with 85 follow-on rounds completed compared with 31 first fundings.

“There are too few start-ups,” complains long-time industry insider Mark Jensen, managing partner for national venture capital services at Deloitte & Touche.

This shift comes amid a clear sign that clean tech is a growing venture capital priority – both domestically and abroad. A recent study from Deloitte & Touche and the National Venture Capital Association found that 80 percent of general partners plan to increase their clean-tech investing over the next five years. The commitment was far ahead of their number two priority, health care services, which 63 percent said they would fund more actively.

The survey contacted more than 500 venture capitalists in nine countries, including the United States, China, France, the United Kingdom, Brazil, Canada, Israel and India. And it found the intentions were pretty uniform country to country. Clean tech was the top focus for VCS in the United States, China, India, the United Kingdom, Germany, Canada and France.

And yet in countries such as the United States and Europe, money is flowing most readily to later stage businesses where partners hope for a big kill if a high profile Better Place or Amyris goes public.

The fallout is that early-stage entrepreneurs are forced to seek money from angel investors for seed and sometimes first rounds. In some cases, angels have begun playing the role of venture capitalists, but with less cash to deploy.

This was clearly the case in the second quarter. Venture capitalists in the United States set a quarterly record by investing $1.47 billion in clean-tech start-ups, a 107 percent increase from the first quarter.

But the number of companies receiving money remained almost unchanged at 71, compared with 70 in the first quarter.

Large deals dominated. Better Place raised $350 million, BrightSource collected $150 million and Boston Power added $62 million to its bank account.

Experts such as Jensen say they don’t expect the trend to reverse itself any time soon. At least not until VCs start making some money on clean-tech and become more comfortable taking on risk.

Until then, early stage businesses are likely to find money hard to get.

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High Quality Biodiesel, Small Community Plants

July 20, 2010

Novozymes is testing a new method for producing biodiesel that it hopes will result in high-quality fuel and a blueprint for small, community-scale plants.

But the new technology that uses enzymes instead of alcohol and acid may not immediately solve the biggest hurdle facing biodiesel: costs. Without the $1 a gallon government incentive that expired in January the fuel is not be able to compete.

Novozymes new technology uses enzymes instead of alcohol and acid to process cooking oils and grease.

The Danish company said a North Carolina pilot plant is to begin testing the new technology in an agreement with Piedmont Biofuels. The plant is relatively small in size – 12,600 gallons annually – and if successful could spawn a generation of copycat facilities of about 6 million gallons in size that serve local communities.

The goal is to produce a high quality fuel from the low-quality cooking oil and grease that might be discarded by a restaurant. Most biodiesel today comes from food oils, such as soybean or canola, and is processed using alcohol – typically methanol, or sodium methoxide. Feedstocks with a high level of fatty acid, such as grease, often require pretreatment with a catalyst, such as sulfuric acid. Part of the problem is that both sodium methoxide and sulfuric acid are hazardous to handle.

Working with an enzyme made of a protein, like egg white, is safer and simpler, claims Hans Christian Holm, Novozymes’ global marketing manager. “We’re taking the danger out of the process,” he says.

The project is the first to use a biodiesel enzyme with cooking oil and grease.

Holm says Novozymes and Piedmont must convert 95 percent of the feedstock to make the process economical. But he suggests this is possible based on laboratory tests. At that conversion ratio, costs should be equivalent to biodiesel made from soybean oil, but higher than diesel from fossil fuels.

“I think it will be a step in the right direction,” he says. But it is part of an evolution for the industry.

The challenge is that biodiesel costs in general can be as high as $4.50 a gallon, or well above the roughly $3 for diesel. The market took a big hit this year when the $1 a gallon federal subsidy expired.

It may take more than a new production technique or a pint-sized plant to reverse the fall.

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Posted by Mark Boslet

Clean Tech Investments Hit Quarterly Record

July 16, 2010

Clean-tech investing set a record in the second quarter led by a handful of large deals.

The up tick by venture capitalists suggests investment levels should remain strong through the rest of the year.

But there is caution in the figures released by the National Venture Capital Association, Thomson Reuters and PricewaterhouseCoopers. The number of companies receiving money remained largely unchanged from the first quarter, indicating that the investment surge is confined to a relatively small group of start-ups.

The quarterly MoneyTree survey found venture capitalists invested $1.47 billion in clean-tech start-ups during the three months, a 107 percent increase from the first quarter of 2010. (The increase was an even greater 198 percent from the second quarter of last year, when the recession gripped the economy.)

Seventy-one companies received money in the quarter, compared with 70 in the first quarter.

The MoneyTree numbers are the second set of figures to confirm the quarterly investment trends. Earlier this month, the Cleantech Group found a 65 percent quarterly rise with big deals leading the way. The Cleantech Group measures investments worldwide, which partly explains the differences. The MoneyTree surveys focuses on the U.S.

Among the top deals, electric-car battery-swapping company Better Place raised $350 million, the fourth largest deal in the past 15 years.

Also in the top ten, solar plant developer BrightSource raised $150 million; solar technology developer Stion raised $70 million; lithium-ion battery maker Boston Power raised $62 million; electric-car maker Miles Electric Vehicles raised $57 million and solar system financer SunRun raised $55 million.

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Posted by Mark Boslet

Venture Industry Is In A Trough

July 12, 2010

The venture-capital industry is less a harbinger of things to come for the clean-tech industry than it used to be.

In the early years of this century, private money from venture investors helped defined which companies lived and died, which expanded and which did not.

Markets for solar panels, biofuels and smart meters have grown substantially since then. Market-place demand, economic trends and government spending now wield bigger influences on company prosperity.

So the news Monday morning that venture industry fundraising has swooned will have less impact on clean-tech companies than it would have four years ago. But it is still not good.

The National Venture Capital Association and Thomson Reuters announced that the amount of money going into new venture funds fell 49 percent in the second quarter to $1.9 billion. The quarterly total is the lowest since 2003.

Clearly the industry succumbed to the financial turmoil stirred up by the debt crisis in Europe and the corresponding fears of a slower United States economy. NVCA President Mark Heesen says the fund raising trough is likely to continue through the year.

The challenge for venture firms is they raise their money from big pension funds, endowments and financial houses that are sensitive to changes in the broad investment environment. Add that to fears of a continued slow IPO market, from which venture funds make money – and the mixture is catatonic.

A few successes in the IPO market could change this. If Tesla Motors holds onto a gain, or Amyris gets a warm reception, big money could loosen up.

But on the present course, there will be less money for clean-tech companies and more willingness to invest in smaller rounds.

Is this a sign of a long-term change in venture capital? Probably not. Is it a sign of short term slowing of investments. Yes.

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PACE On Life Support

July 7, 2010

Just when you thought things couldn’t get worse  – more bad news for the home energy retrofit program PACE.

PACE was already under pressure from mortgage lenders Fannie Mae and Freddie Mac. Now the Federal Housing Finance Agency has weighed in with its opinion of the program, and it isn’t good.

FHFA statement could bring PACE residential retrofits to a halt unless Congress steps in

The national mortgage regulator claims PACE, or Property Assessed Clean Energy, creates “risk management” challenges and “significant safety and soundness concerns” to mortgage lenders and investors in mortgage securities. The “FHFA urged state and local governments to reconsider these programs and continues to call for a pause in such programs so concerns can be addressed,” according to a statement the agency issued on Tuesday.

Response from the PACE community was uniform. “Unless this guidance is change or Congress overturns it, PACE in the residential sector cannot go forward,” says Cisco DeVries, president of Renewable Funding, an Oakland company that administers PACE programs across the country.

“I think it is going to keep things on hold,” agrees Ethan Elkind, a climate change research fellow at the University of California, Berkeley and UCLA schools of law. “It makes everything a lot more expensive,” including Fannie Mae loans and the bonds municipalities sell to raise PACE money.

PACE is the experimental retrofit program that has spread to 23 states and which allows homeowners and businesses to borrow government money for home-energy improvements. Homeowners repay the money as assessments to property tax bills, and municipalities use the cash to repay the bonds they issue.

California is the largest PACE state, with two-thirds of communities preparing to have programs by the end of the year. PACE has been plagued by several challenges since its founding in Berkeley in 2007. For one, managers in municipalities such as San Francisco, which rolled out the nation’s largest PACE program in April and now has it on hold, have struggled to keep interest rates low enough to attract residents.

The FHFA statement may poise the greatest challenge. The statement claims the liens PACE loans place on properties distort the mortgage market and strain the finances of Fannie Mae and other lenders, who have to wait in line for their money in the case of default. The statement suggests Fannie Mae and Freddie Mac respond by lending less money or requiring homeowners to have higher incomes.

It also argues PACE programs lack underwriting and consumer protection standards as well as energy retrofit standards to assure that the work being done will reduce energy consumption enough to improve the value of a home.

On this last point, standards do need to evolve, concedes Elkind. But market place data are needed to help set them. And without a PACE program, that experience will be hard to come by.

Supporters of PACE say the program’s last chance may rest with Congress and with litigation, as state attorneys general argue for a community’s right to levy property tax assessments.

“There is strong support in Congress to overturn this decision, and there may well be litigation, so residential PACE isn’t dead,” says DeVries. “However, it is on life support waiting for an organ transplant.”

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Posted by Mark Boslet

How Big Is The Clean Tech Market?

July 2, 2010

What is the annual market opportunity for renewable energy and efficiency measures, such as building controls, energy reconstruction and electric vehicles? Does $1 trillion sound like an enticing number?

One trillion dollars may sound gargantuan, but it is what the International Energy Agency suggested in a recommendation earlier this week. And it isn’t far from the scale of the global warming efforts called for in other top studies.

In its landmark 2007 report, for instance, the Intergovernmental Panel on Climate Change concluded that mitigating atmospheric heat rise would cost the world 0.2 percent to 3 percent of annual GDP. Mitigation isn’t the same as market opportunity.

To obtain an economy where 50 percent of electricity come from renewable sources, the world will need to build the generation listed above

But it defines the magnitude of the effort – and perhaps the willingness of business to respond with innovation.

To put the IPCC’s projection in annual dollars, consider that the world’s gross domestic product is $61 billion. Three percent of that comes to $1.8 trillion a year. The IPCC’s report says the effort would hold temperature increases to between 2 degrees and 4 degrees Celsius.

The Paris-based IEA looks at impact from a different angle. The agency projects that the world will need to spend $46 trillion between now and 2050 to be sure half of all electricity comes from renewable sources. This includes improving energy efficiency.

Divide the number out and it comes to about $1.2 trillion a year. Most of this spending is to come from consumers buying more efficient, low-carbon equipment and, particularly, cars. Of course some of the money will be paid back through lower fuel use.

But achieving an economy where 50 percent of electricity comes from renewable generation requires an industrial investment as well beyond what might be anticipated to meet growing energy demand. That approach includes the annual construction or deployment of:

*More than 30 nuclear reactors;
*Thirty-five coal-fired plants with carbon capture technology;
*Two hundred biomass plants;
*Nearly 16,000 wind turbines;
*Forty-five geothermal plants;
*Three hundred and twenty-five million solar panels; and
*Fifty-five solar thermal plants.

Energy-efficiency improvements in developed countries also must continue at today’s almost 2 percent a year pace, a pace that is almost double from the 1990s.

The IAE points out that in 2008, the world invested about $110 billion in wind, solar and other renewable generation. Investment levels remained relatively stable in 2009, despite the downturn.

Still, they are one-tenth of where they need to be. It sounds like a monster of an opportunity.

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Posted by Mark Boslet

Solar Tops Venture Investing But Watch Out Below

July 1, 2010

Overall, the second quarter appears a stable investment period for venture capital and clean tech.

A breakdown of second quarter clean-tech investment categories shows the prominence of solar

Venture capital firms poured $2.02 billion into 140 companies despite a relatively tumultuous three months in the public markets. This global total nearly matches the $2.04 of the first quarter and is up 43 percent from last year (an almost pointless comparison given the depths of the global downturn last year).

What’s really interesting in Thursday report from the Cleantech Group and Deloitte is the amount of money VC continued to put into solar start-ups, despite the prevailing wisdom that these cash-intensive investments so popular several years ago had seen their day. Without that money – $811 million – venture investing looks depressed and should signal a warning for the rest of the year.

Solar drew the largest chunk of the money, and big deals were the fashion of the day. Solyndra took in $175 million; BrightSource claimed $150 million; and Amonix, a developer of a concentrating photovoltaic technology, won $129.4 million from Kleiner Perkins Caufield & Byers and others.

The conclusion one might draw is that VCs continue to think solar will be a big money maker and a substantial piece of the world’s energy future. But there are a variety of factors at play, some not so sanguine. Solyndra took its money after withdrawing an IPO that was unlikely to be welcomed on Wall Street. There may have been no alternative except for venture investors to walk away from money already spent.

BrightSource, too, had special needs. It is trying to secure its first solar thermal plant in the Southwest desert and faces an end-of-year tax credit deadline and a September 2011 construction deadline for its $1.37 billion in federal loan guarantees. It needs to have a lot happen between now and then, including taking in private money to match the public funds.

The second largest category, biofuels, roped $301 million. But this total also needs to be examined closely. Of the amount, Amyris captured almost $109 million. The company is shortly headed to the public markets for an IPO, so is a special investment case. Virent Energy Systems, a Wisconsin biofuel maker, attracted an additional $46 million from Shell and Cargill (not typical venture sources), and Kior of Texas took in $40.

The remaining categories of smart grid and energy efficiency posted investments of $256 million and $147 million, respectively.

In other words, while the quarter appeared stable, several large deals with special needs were responsible for a big slice of the total. Without them, a stable seeming clean-tech venture capital environment might be down in the dumps.

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Posted by Mark Boslet

Mergers Seen As Clean Tech’s Financial Lifeline

June 28, 2010

Earlier this month, Solar panel maker Solyndra cancelled its IPO citing current market uncertainties.

It was not alone. Six other companies cancelled theirs the same month, though they were not in the clean-tech business.

Tesla Motors will soldier on and sell stock to the public on thsi week. The shares may even get a warm reception, despite that the company’s $290 million of losses since its founding seven years ago.

Venture capitalists predict a wave of mergers and aquisitions in clean tech.

These days Tesla is looking more like the exception rather than the rule. Other clean-tech companies have IPOs in the pipeline, Amyris and Zipcar, for example. Still others, such as Silver Spring Networks, will likely get favorable receptions if they decide to launch their own deals. (Speculation is Silver Spring could announce in July.)

But it appears more likely clean-tech start-ups and venture capitalists will make money and fund company expansion with mergers and acquisitions rather than new stock offerings. With the window for IPOs once again shutting, M&As could find themselves on the rise.

“I think we are likely to see a huge wave of M&A kicking in for clean tech,” says Alan Salzman, CEO of Vantage Point Venture Partners. The growing maturity of young companies will fuel it.

There are signs of a building wave already. In the first quarter, clean-tech companies logged 197 M&A transactions compared with just 13 IPOs, according to Cleantech Group. Despite a long list of companies registering for stock sales in the U.S., most of the IPOs – eight – took place in China.

And while the IPOs were off 28 percent from the fourth quarter, mergers and acquisitions seem on the rise. In 2009, 505 deals took place globally, or an average of 126 a quarter.

A noticeable share of the action so far involves solar technologies. Germany1 Acquisitions of Germany, for instance, paid $775 million to acquire AEG Power Solutions, a maker of inverters for solar panels, while late last year Siemens agreed to buy solar thermal company Solel of Israel and SunPower took out SunRay Renewable Energy, the Italian solar plant developer, in February.

In China, GCL-Poly Energy Holdings bought polysilicon wafer maker Jiangsu Zhongneng Polysilicon Technology Development.

But other deals looked beyond the segment. Solar City, for instance, announced in May it would buy the assets of energy remodeling contractor Building Solutions.

Erik Straser, a partner at Mohr Davidow Ventures, says the coming wave of deals could bring higher prices than comparable deals in high tech. That’s because target companies will need to be more mature, and their businesses will need to present obvious benefits to acquirers, such as a General Electric.

A GE acquisitions manager will need to show clear business benefits before a deal is done, he says. That clarity of purpose comes at a price.

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