California’s Carbon Cap And Former Secretary Of State George Shultz

June 25, 2010

The costs of California aggressive measures on climate change have been called devastating, catastrophic, job killers. A measure on November’s ballot would like to end them.

The emmission of carbon imposes a cost on society, says former Secretary of State George Shultz.

Opponents cite several studies, including a 2009 analysis by the California State University at Sacramento, which calculates implementation costs at $100 billion and expenses for each household at $3,857.

These dire predictions may be off the mark. Costs should be far less moderate, and despite all the yammering, state regulators appear ready to move ahead.

The California Air Resources Board still intends to begin working on a statewide cap and trade system later this year, says the board’s Assistant Executive Officer Kevin Kennedy. It also plans to impose responsibilities for anti-sprawl measures on local planning boards with the goal of reducing miles driven.

Giving cover to these efforts are several smarter studies of the state’s effort to promote renewable energy and cut greenhouse gases 15 percent by 2020. “It would be inaccurate to say, if these studies are right, that AB32 will kill the California economy,” says Lawrence Goulder, director of the environmental and energy policy analysis center at Stanford University.

Goulder said Friday at the Silicon Valley Energy Summit that three studies, including one by Charles River Associates, predict global warming regulations to:

*Reduce California’s gross state product by a modest .2 percent to 2.2 percent;

*Change incomes in the state in a range that will add $86 to salaries or cut them by $2,800;

*And increase jobs statewide by 10,000 or reduce them by as much as 485,000.

According to former secretary of state George Shultz, now a distinguished fellow at the Hoover Institute, greenhouse gases might be more intelligently viewed from the opposite angle.

“The emission of carbon imposes a cost on society,” he says. “That is a fact.” Regulations such as cap and trade or a carbon tax help level the playing field and assign a monetary value to innovation.

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Posted by Mark Boslet

Boston-Power Raises $60 Million, Seeks Stimulus Money In China

June 24, 2010

Boston-Power said Friday it raised another $60 million in venture funding as it closes in on stimulus money from China and its first Chinese factory.

The new capital brings financing for the lithium-ion battery maker to $185 million, making it one of the most richly financed start-ups in the industry. The high cost of battery factories makes large bank accounts a necessity.

The Westborough, MA, company said the money should help it win stimulus funding from the Chinese government. CEO Christina Lampe-Onnerud declined to predict how much or provide details on the negotiations. But she said talks with several authorities in the country are continuing and an arrangement is expected in three to four months.

Boston-Power says it expects to announce new electric vehicle deals this year. The company is already working to develop an EV patterned after the Saab 9-3.

A deal will require Boston-Power to build a factory in China, which reportedly will be near Shanghai. Such a deal would represent a major step for a company that was turned down for $100 million in federal stimulus money last August in a bid  to build a U.S. factory.

Separately on Friday, Boston-Power said it is close to announcing deals with additional vehicle manufacturers and utility customers. The announcements are expected later this year.

The company’s first contract, a deal with Saab, was unveiled in December. Lampe-Onnerud said in an interview that the development of an electric car patterned after the Saab 9-3 is on track. The first prototype is to be on the road this summer at Saab’s Trollhattan headquarters in Sweden. More will follow in 2011. The program has production models scheduled for release but has not disclosed the date, she said.

Despite the progress, Boston-Power has no shortage of well-funded competitors. Battery maker A123, which went public in a $378 million IPO in September, raised $266 million prior to the offering and added another $249 million last year with an Energy Department grant.

EnerDel received $118.5 million of government funds, and Warren Buffett put $230 million of his money in Chinese battery maker BYD.

Boston-Power said it would use its new money to expand manufacturing in Taiwan. The company’s plant, owned by GP Batteries, needs scale to supply laptop batteries to Hewlett-Packard and Asus, which Boston-Power added as a customer earlier this month.

The company also will add engineers and sales staff at its Westborough, MA, headquarters and elsewhere.

The five-year-old start-up differentiates itself from rivals by making a lithium-cobalt battery with the same chemistry commonly used in notebooks and by the Tesla Roadster. The technology is modular, meaning that numerous small cells are packed into a single casing, as with laptops. The Saab prototype now under development will have 2,000 small cells clustered together from Boston-Power’s new Swing battery line.

The advantage with lithium cobalt is power and long life – perhaps 1,000 charge cycles compared with 300 or so with more conventional lithium-ion technologies. The downside is the greater chance of a meltdown and short circuit. Alternative chemistries – lithium manganese and lithium phosphates – don’t catch fire, but also don’t have as much power.

Boston-Power says that despite the competition, revenue growth is “very fast.” It declines to offer figures, but says it employs 110 people in Massachusetts, 50 in China and 350 in Taiwan.

“I believe we have the chance to be one of the significant players” in the industry, says Lampe-Onerud. “I think (the funding) will be a very serious signal for big time growth.”

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Posted by Mark Boslet

SunPower Builds 24% Cell As Solar Market Shifts Underfoot

June 23, 2010

In the Mexican standoff that is the long-standing U.S.-China currency debate, the outcome for the solar industry is difficult to predict.

But one thing is clear. The changing landscape could shift the axis of the solar market over the next year or two as price declines moderate and advanced technology plays a bigger role in buying decisions. With this change as a backdrop, SunPower said Wednesday it successfully built a solar cell with a 24.2 percent market-leading efficiency.

Sunpower says new cell sets record for large wafers. Meanwhile, a rising Chinese currency could change the solar landscape.

The Chinese blinked in the currency debate last Saturday and vowed to permit more market flexibility in the pricing of the renminbi. But after several days of very minor, carefully orchestrated increases, the promise seems to lack short-term monetary firepower.

The most optimistic of analysts predict gradual appreciation in the under-valued Chinese currency over the next several months. The most skeptical observers have begun calling for legislation to combat “currency manipulation” and the artificially low exchange rate.

The implication for clean-tech companies, particularly solar panel makers, is profound. A more expensive Chinese renminbi will raise the cost of what some in the industry consider subsidized, below-market solar panels coming from the country. (Besides being low priced, there are claims some of these panels are low quality as well, failing after a couple years of use.)

In a research note, Wall Street analyst Edwin Mok at Needham said a stronger Chinese currency will result in higher priced panels – or at least a slowing of price declines. This in turn could reduce worldwide demand.

But while Chinese companies might see lower profit margins (or higher losses), companies in the United States and Europe could see benefits. These firms, including SunPower and First Solar, would no longer have to compete with excessively cheap Chinese labor.

In this shifting market place, the race to higher efficiency cells could gain in importance. SunPower said its new cell set a record verified by the National Renewable Energy lab for large silicon wafers.

It did not say when it expects to see 24 percent efficient cells in the market. But the company does seem to be maintaining its lead over rivals, such as JA Solar, with laboratory cells now at 18.5 percent, and Suntech, which is struggling to get its new 19 percent efficient Pluto cells to the market.

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Recurve Raises $8 Million From Lowe’s, Others

June 23, 2010

If you need more proof that big-box home-improvement retailers are sold on the home-energy retrofit business, here it is.

Home-energy remodeler Recurve said Wednesday that it raised another $8 million. High on the list of investors is Lowe’s Companies, the North Carolina home-products chain with 1,700 stores in the United States and 14 million customers.

Latest investment show big-box home improvement retailers, like Lowe's, see gold in home energy retrofits

The retailer, which has been courting renewable energy companies in recent months, made a $4 million equity investment in the San Francisco start-up, joining existing investors RockPort Capital Partners and Shasta Ventures. The investment doubles to $16 million the money Recurve has raised since its founding six years ago.

CEO Pratap Mukherjee says the unusual investment is evidence of Lowe’s interest in its year-long partnership with Recurve. The two companies market a co-branded energy-audit and retrofit service in a handful of Lowe’s San Francisco Bay area stores. Lowe’s also sells solar panels from Akeena Solar.

The arrangement has been successful, says Mukherjee, who declined to offer sales figures or deal volume. It also isn’t likely to the last among energy contractors and home-products companies.

Apparently just about every big retailer and home products company is eying the retrofit business with increasing interest, including big names, such as The Home Depot, Masco and Johns Manville.

Already several have made stabs at the market. In March, Masco launched its WellHome energy audit and retrofit service in seven cities with plans to expand by the end of the year.

The Home Depot has a consumer Website where homeowners can self-diagnose home energy efficiency. It also struck a deal this year to have SolarCity install solar panels for its customers.

With 70 million homes in the U.S. in need of $10,000 energy retrofits, “I think everybody sees the tremendous potential,” says Mukherjee.

Recurve, formerly Sustainable Spaces, says it will use the new money to expand its suite of energy-retrofit software and to add to its sales and service staffs.

The company unveiled the first module of the software in April, a program to automate home energy audits. It has 10 contractors using the beta product and plans a commercial release in the third quarter.

The software should be a boon for business. Two hundred companies across the country have expressed interest in using it, says Mukherjee.

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Posted by Mark Boslet

NASA Algae Biofuels Project Engulfed In Controversy

June 22, 2010

Jonathan Trent has big ambitions: to turn millions of acres of ocean into a biofuels factory.

The NASA scientist intends to grow algae in large plastic bags floating on the surface of the water, feed them with municipal wastewater and harvest lipids to turn into fuel. In the process, the wastewater will be purified, the algae will absorb CO2 from the air and renewable jet fuel will replace the billions of gallons of fossil fuel burned each year.

NASA Scientist Jonathan Trent hopes to grow algae in the ocean. NASA Adminstrator Charlie Bolden is under investigation for trying to slow down the project

Now his science project is engulfed in a tsunami of controversy. NASA’s new Administrator Charlie Bolden is under investigation for trying to slow down the work after vetting it with Marathon Oil, a company where he served as a board member until last year and which has interests of its own in cellulosic biofuel and algae.

Trent hopes to conduct a field trial near San Francisco.

The controversy was exposed this week by a story in the Orlando Sentinel. The piece says Bolden, who claims no wrong doing, is under examination by NASA’s inspector general.

Trent’s Omega project is hardly the only promising work being done today with algae. Sapphire Energy, which has taken money from Bill Gates and recently won a $104 million Department of Energy grant, plans to begin construction on a New Mexico demonstration facility this year, growing algae in open ponds, not in enclosed bioreactors.

Solix Biofuels is already producing algae in bioreactors at research and demonstration plants in Colorado, and Solazyme of South San Francisco hopes to expand production to hundreds of thousands of gallons by the end of the year, with costs of $80 a barrel or less in two years.

But the unusual “holistic” nature of the Trent’s effort distinguishes it. The process cleans wastewater, frees up agricultural land for food crops, and cuts down on energy use with the ocean acting as a temperature control for the algae.

According to the Orlando Sentinel, Bolden consulted Marathon after learning of Omega and was advised against pursuing it. “I continue to have doubts about the viability of this project, especially after discussions with representatives of the Marathon Oil Corporation,” he wrote in a May e-mail.

Bolden was a member of the Marathon board from 2003 to last year, when Barack Obama named him NASA administrator. When he left Marathon he received stock equivalents of between $500,000 and $1 million.
He denies there was a conflict of interest.

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Posted by Mark Boslet

Is Ivanpah The World’s Most Efficient Solar Plant?

June 21, 2010

BrightSource Energy’s planned Ivanpah plant will be one of the world’s largest solar farms and possibly its most efficient.

When the solar-thermal plant is built on the edge of the Mojave National Preserve (construction is expected to start this year), it will operate at 18 percent efficiency and earn a capacity factor of 30 percent.

BrightSource boasts of 18 percent plant efficiency and a 30 percent capacity factor.

This performance should make the 392-MW facility more efficient than plants with crystalline-silicon panels, thin-film cells or rival thermal technologies using parabolic mirrors, according to analysts.

The plant is to be laid out on three nearby tracts covering 3,500 acres of desert and should run at full capacity 10 to 11 hours a day. The company says a back-up natural gas system will aid performance during its long hours of operation, easing power fluctuations on cloudy days. This consistency of power should put electricity costs on par with natural-gas plants, something photovoltaic plants will take another two years to achieve, some analysts say.

While comparing plants is complex and imperfect, the newly available figures from BrightSource make the exercise a useful chore. Sun intensity, atmospheric moisture levels and power transmission costs of course differ plant location to plant location.

But determining who holds the industry’s bragging rights – as well as who deserves project investment dollars – is a task utilities attempt everyday, despite the difficulties.

In an interview, BrightSource Product Manager Andy Taylor described Ivanpah’s efficiency as a sunlight-to-electricity calculation based on two years of testing the company’s Luz Power Tower 550 in Israel’s Negev Desert. At the top of the towers, boilers absorb sunlight reflected from 7-square-meter ground-mounted mirrors and heat water to more than 1,000 degrees Fahrenheit, the highest temperature in the industry. The super-heated steam drives turbines.

The company says a back-up natural gas system permits the long operating hours and the ability to run most of the day at full capacity. The gas is used to warm boilers in the morning and augment solar power on cloudy days to keep output high.

“We’re pretty much a sun-up-to-sun-down resource,” Taylor says.

BrightSource, which has so far raised more than $300 million in financing, expects the plant’s efficiency to rise as the company moves beyond its first-generation technology. Higher-efficiency turbines are already in the market, and additional mirrors, or heliostats, can be deployed. Water temperatures also will rise to above 1,100 degrees.

In contrast to Ivanpah’s 18 percent efficiency, the efficiency of utility-scale crystalline silicon and thin-film plants is likely less than 12 percent. Solar-thermal plants with parabolic mirrors also have difficulties keeping up. Ivanpah’s higher boiler temperatures give it an advantage, and dual-axis tracking can more accurately follow the sun through the seasons. The average efficiency of other solar thermal plants is 13 to 15 percent, says Cara Libby, project manager at the Electric Power Research Institute.

That doesn’t mean Ivanpah won’t have competition, One crystalline-silicon vendor, SunPower, with industry leading 18 percent efficient solar cells, could give BrightSource a run for its money, says Travis Bradford, president of the public-policy think tank, Prometheus Institute. A SunPower farm with a single axis tracking could have an efficiency of 15 percent, maybe slightly higher depending on the location, he says.

Broader competition will come with falling solar-panels prices, unless a stronger Chinese currency slows the trend. Panel prices tumbled about 40 percent last year and, while they are more stable this year, they continue to decline more rapidly than solar thermal efficiency is improving.

BrightSource responds that plant efficiency is only one measure of performance, and not necessarily the best. Capacity factor, a calculation of a farm’s ability to deliver full power over time, may be more important, the company says.

Ivanpah’s capacity factor (including the use of natural gas) should be 30 percent, Taylor claims. A wind farm in an ideal location (think Tehachapi) can have a factor of 40 percent. Photovoltaic plants generally are lower. A Carnegie Mellon Electricity Industry Center study estimates a PV plant in Arizona should be closer to 20 percent.

Another useful metric is the delivered cost of electricity. BrightSource claims this measure makes Ivanpah “extremely competitive,” but declines to release figures to back up the claim. The calculation looks at plant output versus costs and factors in development and financing charges.

An examination of California Public Utilities Commission documents shows only that expected delivered costs are to be less than 12.5 cents a kWh. It doesn’t state how much less.

Nevertheless, Nathaniel Bullard, a solar analyst at Bloomberg New Energy Finance, calculates that the cost of Ivanpah’s electricity will be lower than photovoltaic power and about the same as natural gas. Of course no one knows for sure until the plant is built. “We’ll see if they can meet the targets they have in place,” Bullard says.

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Posted by Mark Boslet

The Difficult Bullish Case For Cellulosic Biofuel

June 17, 2010

Biofuel producers have their fingers crossed on several key Washington policy decisions. They may be holding their fingers for some time.

The news from the halls of government wasn’t encouraging on Wednesday. A bill to extend the expired biodiesel tax credit failed in the Senate, a sign that renewing the ethanol credit later this year could also be politically sticky.

The EPA meanwhile balked on a measure to raise the blending cap for ethanol. A decision had been expected in June and now appears more likely by late summer, at the earliest.

About 50 cellulosic ethanol pilot plants operate in the U.S. Several hundred demonstration plants around the world await funding

The uncertainty from these delayed decisions is likely to keep the industry in financial limbo – just as it was hoping for something better. Since the depths of the recession early last year, financing for new plants has been hard to find. Money isn’t likely to flow freely any time soon.

Things could be so different. Cellulosic ethanol is finally coming of age. Technological kinks appear to be working themselves out, and pilot projects are ready to pass the baton to demonstration ones.

As many as several hundred second-generation cellulosic ethanol plants await funding and the certainty of government decisions could help them lock in money.

There is good reason to think they should move ahead, says Poul Ruben Andersen, global marketing director for Novozymes’ bioenergy business. Four cellulosic demonstration plants are in operation (two in the United States and two in Europe) and the results are favorable.

“It is still early days,” says Andersen. But “this makes us confident.” In the U.S., Iogen and Verenium operate facilities, while in Europe Inbicon and Abengoa are demonstrating production. The plants are similar size, each about 1.5 million gallons.

Just as important, the industry believes second-generation costs are coming down. Cellulosic ethanol is more expensive than corn ethanol, which sells at about $1.60 a gallon. Large-scale production should bring it to below $2, or under the comparable price of gasoline.

POET, the largest producer of corn ethanol, says its cellulosic pilot plant in South Dakota (one of about 50 industry-wide in the U.S.) is successful enough that production can move to the demonstration phase. It hopes to begin construction this summer in Iowa. The 25-million-gallon plant will use corncobs and discarded plant material from grain harvesting.

“We will continue to tweak this process and improve it,” says CEO Jeff Broin. For instance, the company is installing a $2 million pretreatment system to better simulate conditions at the demonstration facility It also recently discovered that a second anaerobic digester is more effective at producing power for the plant than a separate boiler.

Yet this next generation of plants requires government certainty before it can take root. A decision on tax credits is one necessary component. Investment credits, loan guarantees and more aggressive production targets also are critical, according to a report released this week by the Union of Concerned Scientists.

At the top of the list is the decision over blending limits. Carmakers worry an increase in the present 10 percent ethanol-gasoline limit could harm engines and catalytic converters. Industry executives hope for 15 percent or more.

At 20 or 22 percent, investors will be upbeat enough to begin funneling money into new demonstration plants, says Andersen. “That would pave the way.”

It also may get production back on track. The EPA had hoped for 100 million gallons of cellulosic ethanol this year, but scaled back the goal to 6.5 million as the realities of the industry became clear. Now it appears the 1 billion gallon mark won’t be hit until 2017, well behind schedule.

Once again, it doesn’t have to be this way. The National Academy of Sciences estimates enough raw material is available to produce 32 billion gallons of cellulosic ethanol, or double the government’s target for 2022. The academy says 400 million tons of biomass can be found each year in the United States from agricultural discards, fuel crops, forest residues and solid wastes.

Unfortunately, a bull-run in cellulosic ethanol doesn’t appear likely in the short term. Analysts continue to expect the technology to get to scale in 2012. At the present pace, this may not be the case.

That suggests industry fingers had better remain crossed.

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Posted by Mark Boslet

Better Place Moves Ahead In China; GE Prepares Charging Station Rollout

June 16, 2010

Clean-tech venture capital is hard to come by, and the smart grid still moves at a glacial pace.

But General Electric is making good on its thrust into charging stations, and Better Place is revving up its efforts in China.

These were the key takeaways from Tuesday evening’s Cleantech Enterpreneurs: Think Global, Think EU event in Palo Alto.

Better Place has had more success in China over the past 90 days than anywhere else in the world, say Communications Vice President Joe Paluska

The session’s overall message was clear: electric cars are hot, but capital-intensive projects are not. And corporations steadily show interest in green technologies even if they not quite sure when the payback will come.

Here is what was said:

*General Electric said it will unveil a suite of electric car charging station products in several weeks. The company has a modular approach to product design, letting customers buy just what they need. The package will include both hardware and software, and a complete set-up will sell for about $2,500.

The company announced in February a partnership with Ohio-based Juice and promised the first joint offerings would be available by the end of June under the Plug Smart name. Watch out Coulomb Technologies, the giant has arrived.

Smart grid deployment around the world is slower than expected, says GE government relations specialist Kevin Decker

*Better Place expects to kick off a battery swapping pilot project in China, perhaps later this year. The company anticipates China will step up its commitment to electric cars in the same time frame adding new cities to the more than dozen already committed to promoting electric cars.

“We’ve had more success in China in the past 90 days than we’ve had in 2½ years” elsewhere, said Joe Paluska, vice president of communications.

In April, the company took a first step into the Chinese market by partnering with the automaker Chery Automobile to develop electric-car prototypes with switchable batteries. The company said at the time it hoped to secure a pilot project.

*Despite the excitement over electric cars, the deployment of the smart grid around the world is slower than expected given the billions of dollars being spent, said Kevin Decker, U.S. engagement leader in GE’s government-relations arm.

“The smart grid is going to be big,” he said. “It’s not big yet.”

*Venture capitalists continue to be cautious with cash and start-ups find it hard to get funding in Silicon Valley, said Chief Operating Officer and founder of Calisolar, Kamel Ounadjela.

“I would not be able to raise money today with the same story,” said Ounadjela. The company raised more than $170 million since it was formed in 2006.

*However, corporations are investing. Sheeraz Haji, president of research firm Cleantech Group, said investments were up 180 percent from the fourth to the first quarters, with several billion dollars committed. Companies such as Boeing and Raytheon are participating.

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Posted by Mark Boslet

Tesla’s Leap Of Faith: IPO To Launch June 29

June 15, 2010

I don’t get it.

Tesla Motors makes the highest performing electric car on the road today. But it is spilling red ink and the prospects of a reversal are many years away.

Now it has raised the amount of money it anticipates from its IPO to $178 million, well above the original target of $100 million. The company will need a patient group of stockholders.

Battery packs for Tesla's Roadster electric sports car. Can the company turn its red ink to black in next five years?

The Palo Alto carmaker announced Tuesday it will sell 11.1 million shares to the public on June 29 for a price of between $14 and $16 a share. The offering will attract proceeds of $155 million to $178 million.

With underwriters such as Goldman Sachs, Morgan Stanley, J.P. Morgan and Deutsche Bank Securities, one would imagine the temperature of prospective stockholders has been taken. That temperature must be relatively hot considering the 78% increase in the size of the initial public offering.

But for these buyers, the bet on Tesla is anything but a sure thing. The company sold only 1,063 of its $109,000 Roadsters through March and plans to discontinue production in 2011. The car is a technical dynamo, accelerating to 60 in 3.7 seconds and traveling 236 miles between charges.

But the halt in production will leave Tesla without a vehicle until its “every-man’s” car, the Model S sedan, launches in the 2012. But even this people’s car will be geared toward buyers with real money in their pockets, limiting its market appeal. It will start at $49,900, after subtracting the $7,500 federal alternative vehicle tax credit that may or may not remain in place – well more than the $33,000 Nissan Leaf and the expected $38,000 Chevy Volt.

For some shareholders, the real bet on Tesla may be a five-year or more gamble that looks beyond the Model S. In May, the company said it will develop a third-generation electric car with a lower price than the Model S and higher volumes. The model will be built at the Fremont auto plant the company plans to buy from Toyota, but won’t be on the showroom floor for a “few years” after the introduction of the Model S. That suggests it is five years away.

Until then, company finances are a real question mark. Tesla, since its inception, has recorded revenue of $147.6 million and an accumulated loss of $290.2 million. That amounts to red ink of $273,000 a car.

In fairness, the accumulated loss includes start-up and development costs that won’t need to be repeated. So for sake of argument, assume Tesla sold half its Roadsters in 2009 (the car has been on the market for about two years and 2009 is half the period). With losses of $55.7 million in 2009, the deficit per car falls to $105,000.

So how much further will it fall with the Model S? That is a key question for investors. The company intends to make up to 20,000 Model S sedans a year. That will generate revenue of about $1 billion. If costs were to fall to $50,000 a car, the losses would also be $1 billion – breakeven.

Tesla suggests its finances may look more appealing. In a filing on Tuesday with the Securities and Exchange Commission, the company says its goal is to design a business model that can generate profits on a low volume of cars.

As if to prove the point, the company says its capital expenditures, and its research and development spending to design and build the Roadster come to $125 million, or only slightly more than the $116 million in revenue it earned if each car sold for $109,000.

And yet, Tesla hits a cautious note as well. “We believe that we will continue to incur operating and net losses each quarter until at least the time we begin significant deliveries of the Model S,” the company says in its filing.

Then it adds: “We expect the rate at which we will incur losses to increase significantly in future periods” as the company designs the Model S, opens new stores, equip its Fremont plant and expands its sales force.

For many investors, buying in to the IPO will be a leap of faith. It will be interesting to see how deep that faith runs.

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Posted by Mark Boslet

SeaMicro’s Minor Revolution In The Data Center

June 14, 2010

Not since the advent of virtualization has the data center faced such an opportunity for change.

Low-cost, ultra-low-power servers – sometimes called microservers – may finally get a jolt of legitimacy.

On Monday, secretive Santa Clara start-up SeaMicro formally launched its long-awaited remake of the x86 server: a 512-processor box that doesn’t use Intel’s ubiquitous Xeon chips but low-power Atoms instead. Atoms are the processors sold in $300 netbooks – giving rise to the observation that SeaMicro’s SM10000 is really just a collection of netbooks stuffed in a one box.

Expect vendors such as Dell to begin making microservers. SeaMicro claims it will cut power use by 75 percent.

It’s an observation that is essentially true. The result is a server that uses one-quarter the power and takes up one-quarter the space while performing the same amount of work. CEO Andrew Feldman says Atom is three times more efficient in performance per watt than Xeon. The reason is it can better power down when not in use and doesn’t waste energy trying to anticipate future workloads, as Xeon does.

That is why the SeaMicro box is better suited to the Internet, where traffic is bursty and generally only places lightweight demands on a server.

The SM10000 is the brainchild of Gary Lauterback, a former AMD fellow and Sun Microsystems engineer, and “is an enormous transformation of the data center,” claims Feldman.

He may not be exaggerating. Zeus Kerravala, a long-time tracker of the server industry at Yankee Group, says: “As an analyst I am often skeptical of technologies people tout as revolutionary, but this one I was really impress with.” If Dell and other top tier vendors aren’t already thinking about microservers “I’d be surprised,” he says.

In truth, SeaMicro isn’t the first company to conceive of low-power servers or ones running Atom. Super Micro Computer launched a rack-mounted Atom blade last year, and Hewlett-Packard markets a $400 MediaSmart home-server with Atom. In Austin, TX, Smooth Stone is working on technology to bring even lower-powered ARM processors, those in many cell phones, to the server market.

Improved efficiency is what motivated cloud-computing vendor Rackable Systems to make use of small servers with modest power to handle fluctuating Internet workloads.

However, SeaMicro hopes to take Atom boxes a step further. The company built into the SM10000 a 1.28-terabit communications fabric powerful enough for a super computer and installed a custom ASICs to handle the complex load balancing for 512 processors. A single box can replace 40 dual-socket, quad-core servers, two Ethernet switches and two terminal servers, says Feldman.

It also shrank the size of processor motherboards to the size of a credit card, taking off unnecessary components and reducing the power draw.

According to IDC, the package may catch on with Web 2.0 companies. Companies spend $27 billion globally a year buying energy to run their servers, the research firm says. Most would die to reduce the bill.

“I think it is a radical approach” that Web 2.0 companies will quickly adopt for their public clouds, says research analyst Katherine Broderick.

The SeaMicro, which raised $25 million from backers including Khosla Ventures, Draper Fisher Jurvetson and Crosslink Capital and received a $9.3 million Department of Energy grant, will make the box available in July. Selling for $139,000, it is likely to begin earning its investors a return.

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