/* Google Analytics */

Wednesday, September 30, 2009

Warren Buffett helps make PHEV maker rich

The richest man in China is now 43-year-old Wang Chuanfu, founder of BYD (“Build Your Own Dream”). According to an annual ranking of Chinese billionaires, Chuanfu is worth 35 billion RMB or $5.1b.

Founded in 1995, BYD worked its way up to become the world’s leading maker of cellphone batteries. The Shenzen-based company (and Chuanfu’s holdings) gained tremendous legitimacy by selling a 10% stake last year to a subsidiary of Berkshire Hathaway, the investment vehicle of the Oracle of Omaha. The $232 million investment has appreciated fivefold since then.

Part of the attraction of the BVD investment was its foothold in China’s high-growth auto industry. Last December it got favorable publicity for its pathbreaking F6DM plug-in hybrid. However, earlier this month it revealed it had only sold 100 units since introduction, rather than the target of 3000+ units. It still hopes to sell the PHEV in Europe next year.

Friday, September 25, 2009

California’s latest $3b EE plan

California has been emphasizing energy efficiency since the first oil crisis 35 years ago. Still, the belief is that the $3 billion plan approved Thursday by the state’s Public Utilities Commission is a major turning point for the state.

(With the state’s characteristic hubris, supporters also see it as a model to be emulated by the rest of the country. Given that our state government is a laughing stock for its budgetary failures, I wouldn’t hold my breath.)

In the Friday papers, the SF Chronicle has a brief note on the approval, a follow up to a preliminary analysis of the plan last month. The San Diego Union has the most complete coverage with a front page story. (I didn’t see anything on the websites of the San Jose or LA papers).

Here’s a few highlights from the latter story:
State regulators yesterday committed more than $3 billion over the next three years for programs aimed at getting people to use less energy by retrofitting 130,000 homes, training 15,000 workers and using smarter appliances.

The programs will be coordinated by California's four investor-owned utilities and paid for through electric and gas bills.

The initiatives, which are an expansion of efficiency efforts long in place in the state, mark a change in direction by moving away from rebates for devices such as light bulbs and instead making buildings more efficient.

“The focus is to shift priorities away from rebates for widgets to sustained energy savings in the built environment,” said Dian Grueneich, a member of the California Public Utilities Commission, which approved the programs yesterday.

Overall, the program represents a 42 percent increase in spending on energy-efficiency programs statewide.

For its part, the Public Utilities Commission expects to introduce a set of home-efficiency programs statewide in January, targeting homeowners and renters.

One set will focus on getting homeowners, buyers and renovators to reduce overall power consumption through better energy management. A second will focus on getting consumer electronics to use less energy. A third will aim at transforming the lighting industry, eventually phasing out incandescent bulbs.
I am curious to see whether the $3 billion goes for carrots to enable investment in energy conservation or merely more sticks.

I’m also curious what this means for PUC’s future policy towards decentralized rooftop solar. California has high insolation (and high electricity costs) that make PV inherently more cost effective here than almost anywhere in the world, but the originally budgeted PV rebates are halfway towards their eventual phaseout.

Perhaps the assumption is that the gun held to the head of utilities (i.e. the 33% RPS standard) will be enough to stimulate enough RE capacity without more specific initiatives.

Tuesday, September 22, 2009

Serious RE money

On Monday, one of the Bay Area’s biggest (if not the biggest) energy efficiency companies announced that it had doubled its venture invested capital from $60 million to $120 million.

It certainly is a major development for Serious Materials. As one VC press release explains:
Navitas Capital, a venture capital firm investing in green technology solutions for the built environment, announced today that it participated in a $60 million Series C investment in Serious Materials. According to an Ernst & Young LLP analysis based on data from Dow Jones VentureSource, this transaction represents one of the largest U.S. venture capital deals year-to-date in 2009 and is the largest cleantech deal in the Energy Efficiency category. …

The new funding was led by Mesirow Financial Capital and included New Enterprise Associates, Foundation Capital, Rustic Canyon, Enertech Capital, Cheyenne, and Saints Capital. Navitas is a returning investor, its principals having led Serious Material's initial financing round in 2005.
The Mercury News reports that Serious was founded in 2002 and employs 250-300 people at its Sunnyvale headquarters and five plants around the country. (The company was prominently in the news last April when Vice President Biden visited its Chicago factory).

As it turns out, early this month I met the CEO, Kevin Surace, at a Menlo Park renewable energy event. I had a brief chance to talk with him about his business, although the seating arrangements didn’t allow a more detailed conversation (which I hope to have later).

From talking to Keven, what caught my attention is their efforts to transform the definition of energy efficient windows. Energy efficiency is normally thought of in terms of SHGC or U-value; instead, Serious is selling R-6 windows to save energy over the customary EnergyStar windows rated at R-2 or R-3. I know less about its drywall products, although an architect recommended its unique (and patented) QuietRock for remodeling a room that would be used for practicing music.

I can see why VCs are excited about Serious: it has achieved differentiation through innovation in two huge industry segments. As best as I can tell, the drywall industry in the US is $40+ billion in revenues every year, while the US window industry is about $12 billion/year.

Looking to history, a sudden desire to increase energy efficiency — whether through regulation or market forces — provides a sizable market for both new construction and retrofit applications.

From my childhood, I remember my parents trying to retrofit their 1950s-era designer home with ceiling insulation, which was basically limited to those places that could be covered with blown-in cellulose. Decades later, my girlfriend (now my wife) and I scampered through the rafters of the brick home where I lived, laying down batts of fiberglass insulation to make the summer heat tolerable.

One could argue, in fact, that Owens Corning was the biggest winner of the (limited) US push for energy efficiency in the 1970s. Its pink fiberglass batts (with the Pink Panther branding) have become both a company trademark and the country’s ubiquitous solution for bringing walls and ceilings up to R-19 or R-30 efficiency standards. The ease of installation, low cost and quick payback means that (even without government intervention) that buying yards and yards of pink fiberglass is a no-brainer when building any new home. Today Owens Corning is a $6 billion/year company.

For cold weather locales, SeriousWindows™ offers a similar value proposition. In the Merc story, its CEO emphasizes the bottom line benefits of energy conservation investments that pay for themselves:
The company says its SeriousWindows line reduces heating and cooling energy costs by up to 50 percent, enabling users to recover the additional costs within two years in many climates.

Its EcoRock drywall alternative required 80 percent less energy in its core production than conventional gypsum drywall "and has the potential to save billions of pound of CO2 annually," the company says.

But, Surace added: "We're not out there selling green. We're selling that we can give you your money back."

While Serious Materials supports proposed policy reforms to promote a low-carbon economy, the company doesn't require such reforms to succeed, he said.
An IPO is always a CEO’s first choice, but Serious will also be well positioned for acquisition. Given the most recent valuations, I’m guessing that the acquirer would have to have at least $3 billion in revenues (perhaps more, given Serious will have a high growth multiple). Today, there are a few public building materials companies that big — names like Georgia Pacific, Masco, Mohawk — or Owens Corning.

However, if Serious grows for another few years, it will be too big for an acquisition, and thus a favorable IPO market would be the only option. This would require the IPO market improving from the doldrums it’s been in for more than a year.

Saturday, September 19, 2009

California's proposed plasma TV ban

The California Energy Commission Friday proposed to phase in regulations banning TVs from sale in California that don’t meet minimum efficiency standards — calculated in terms of watts per square inch. According to the Merc, about 20% of current TVs would be banned in 2011, while 80% would be rejected in 2013.

The effect of the regulation appears to be to ban plasma screens, and to force use of OLED or other technologies that are less mature and more expensive.

Retailers and manufacturers that would lose sales naturally opposed the proposal, as did the industry’s main trade association:
“We share the goal of energy efficiency and have worked with the CEC to develop alternatives that will achieve the same or better energy efficiency goals without killing jobs or thwarting innovation. The CEC has chosen to ignore alternatives and input, and small businesses and consumers in California will pay the price.”
Meanwhile, makers of the more efficient technologies praised the proposed regulation that would shift demand in their favor. As the LA Times reported
"The average Californian should not see a cost premium," Bruce Berkoff, chairman of the LCD TV Assn., said in a letter to the Energy Commission. "They will, however, benefit from dozens to hundreds of dollars in energy cost savings over their TV's lifetime, thus making the proposed standard extremely cost-effective for the state of California."
By regulating TV energy consumption the CEC is venturing into politically tenuous territory — unlike, say, Title 24, which impacts only home builders (who are invisible) and rich people who build their own homes. Large screen HDTVs are seen as a god-given right by American consumers — both rich and poor. A poll conducted by opponents claims that 57% of Californians oppose the move. I predict that enterprising state politicians, spotting an opportunity, will campaign in 2010 for repeal of the ban.

According to the LAT, the governator supports the CEC action, suggesting his tenure as a business-friendly environmentalist was short-lived — or that the business opponents of the planned RE regulation are more politically influential than are opponents of the TV EE regulation.

Whether or not this is a good idea in principle, the timing seems terrible. In August, California unemployment hit a postwar record 12.2%. More convincingly, the CEC has not made a compelling argument that this is a state issue. The design and manufacture of televisions have high economies of scale, so cutting the state off from the global market will inevitably increase costs to consumers.

Also, this is not the Bush-era federal government. The Obama Administration and Energy Secretary Chu have made clear that energy efficiency is a major national priority, and additional federal action here during the president’s first term is a virtual certainty.

Earlier this month, the EPA already raised the efficiency expectations 40% for Energy Star-certified televisions, to be phased in in May 2010 and May 2012. While the industry has opposed many aspects of those changes — in part, because they seem to favor small TVs over large TVs — the Energy Star choices are voluntary ones. Consumers can still buy brighter, cheaper TVs that are not Energy Star qualified if that’s what they prefer, even though they’ll pay more for energy over the life of the TV.

The CEC argues that energy use by consumer televisions is increasing, and that at some point it will require an additional power plant to serve all these big screen TVs. Apparently the unelected CEC seems to think that ordinary consumers will make “bad” decisions if left to their own devices, and so that it’s their responsibility to take away those “bad” choices.

However, the CEC could use market mechanisms to achieve the same goal. A free market uses the price system to give feedback between various alternatives, so that (for example) it’s up to consumers to trade off up front purchase price (or features or quality) against long-term energy consumption.

If consumers don’t make “good” up front decisions, then the CEC should try to better inform voluntary choices. One way would be to work with the EPA to create energy usage stickers for TVs like those that are already common for refrigerators. Those stickers have done more than Energy Star to help consumers make intelligent long-term decisions on their appliance purchases, since they disclose the actual consumption differences rather than merely bifurcating products into “good” and “bad.”

Perhaps the problem is that the impact on society of new electricity capacity is not being fully paid by consumers making these decisions. If so, the answer is simple: raise energy prices (whether on average, or for usage above a baseline amount). Some consumers will buy more efficient appliances, some will cut energy usage elsewhere, and some will pay the additional cost. Higher energy prices would also increase the market value of renewable energy.

The CEC now enters a 45 day comment period prior to its planned Oct. 13 hearing. Comments can be submitted via the pending decisions web page, by emailing the commission with the relevant docket number (09-AAER-1C).

Thursday, September 17, 2009

Friedman touts feed-in tariffs

In his column this week, NYT pundit Thomas Friedman is calling for more aggressive US spending to promote solar energy, to provide predictable support for solar entrepreneurs.

Noting the location of Applied Materials factories in Germany, China and elsewhere, Friedman concludes:
The reason that all these other countries are building solar-panel industries today is because most of their governments have put in place the three prerequisites for growing a renewable energy industry:
1) any business or homeowner can generate solar energy;
2) if they decide to do so, the power utility has to connect them to the grid; and
3) the utility has to buy the power for a predictable period at a price that is a no-brainer good deal for the family or business putting the solar panels on their rooftop.
The latter appears to be a reference to feed-in tariffs. Apparently Friedman seems not to have noticed the disaster of the Spanish feed-in tariffs (as reported by Paul Voosen of Greenwire on the NYTimes.com website).

Some might argue that the Spaniards had the right idea, but they just set the price wrong — using the same rate as for cloudy Germany. But that’s the point: when you set a price via government fiat rather than through supply and demand, you don’t know whether the price is right or wrong. The advantage of a direct government purchase subsidy is that at least you know how much you’re distorting the price system (10%, 20%, 30% etc.).

I think the Friedman article is also silly in implying there’s no US solar industry. There’s a thriving industry, with particularly high concentration of such firms here in the Bay Area. If Friedman is concerned about US manufacturing, perhaps he should read the recent Greentech Media report on US PV manufacturing.

Of course, that’s part of the problem with pundits: Friedman is a best-selling author and a very smart guy who thinks that makes him an expert in everything. I’m only slightly less guilty here, but at least I’ve made an ongoing effort to meet and understand real PV experts.

Which brings me to last week’s meeting of the Silicon Valley Photovoltaic Society. The speech by SunPower’s Doug Rose was written up by Greentech Media, and Rose’s slides are on the SVPVS website.

It was Rose’s response to a question that made me first aware of the Spanish fiasco. Speaking for Sunpower, Rose said “We are not in favor of ridiculous things that distort the market.” His suggestion was that the feed-in tariff rate should have been set by a reverse auction. He also implied that Spain should have phased in its program, rather than going from 0 Gw to 2.5 Gw in a single year.

I would note that apparently it's easier to get permits to build utility-scale solar facilities in Spain than anywhere in California. Perhaps Friedman should be arguing for a policy to reduce government barriers to building solar plants (PV and thermal) and the necessary transmission lines.

Another question noted how IC production went offshore and asked whether PV will do the same. Rose noted a number of key differences (I wish there was video) in the value creation between IC and PV semiconductors, including the high value of IC wafers that make it cost-effective to ship via air express.

Rose noted PV systems are bulky and heavy, and less valuable for pound than integrated circuits. Of necessity, final assembly will be done in the continent of use, and Rose said that some upstream manufacturing may eventually come back to the US.

Update, Friday 8:30am: After taking his own tour of the Applied Materials factory, Eric Wesoff of Greentech Media is also critical of Friedman — noting that much of the vaunted German feed-in tariff is shipped to China for the purchase of those solar panels.

Tuesday, September 15, 2009

Business-friendly RE mandates

Today Governor Schwarzenegger again demonstrated what a business-friendly green activist politician looks like. It’s a pretty rare species, and this is one case where it looks like a viable one.

Tuesday, the governor signed an executive order increasing California’s Renewable Portfolio Standard from 20% of 2010 energy consumption to 33% in 2020. At the same time, he has vowed to veto more complex legislation (SB14) that imposes the same standard and more.

The governor’s main objection to SB14 is that the legislature doesn’t want imported renewable power to count. The nominal reason for this restriction is is a promise by key legislators to create “green jobs” are created in California. However, building any power plant (renewable or otherwise) in California is notoriously expensive and time consuming.

The other key issue of SB14 was that it would make it harder to get approval in California to build concentrating solar power plants — one of the most feasible technologies today for utility-scale renewable power production. Thus, the veto won praise from the Independent Energy Producers, a trade association representing the state’s smaller alternative energy producers.

Even with the governor’s flexibility, this new targets outstrip the projected availability of renewable power in the US, currently projected to comprise 8% (excluding hydro) of US energy consumption in 2030. However, as the NYT reports:
Establishing a requirement, however, is far different from meeting it, as California is already finding out. The state’s interim mandate of 20 percent of electricity from renewable sources and energy efficiency by 2010 looks likely to fall short. The San Diego Gas and Electric Company, the furthest behind of the state’s three big utilities, says it currently gets 10 percent of its electricity from such sources.
SDG&E has a particular problem in that its service area (and thus the coverage of its transmission lines) is largely limited to two of the state’s 58 counties: urbanized (or mountainous) San Diego County, and the deserts of Imperial County. CSP plants in the desert could meet some of these needs, assuming SDG&E is ever allowed to build a transmission line from Imperial County.

Under the governor’s more flexible plan, utilities will be able to buy RPS power wherever it is available, at the lowest possible price. This will reduce (but not eliminate) the impact of the price increases on California consumers and businesses; many believe that in the long run renewable power will be cheaper than fossil fuels, but that’s not true today. Of course, imported RPS power will reduce CO2 emissions as much as that produced in California.

While the unmet 2010 goals are a problem, the decade-long lead time will also give more time for utilities, businesses and consumers to plan for the increase. This also gives residential and commercial PV production another decade of slow adoption, and for utility and end-user PV investments to drive down the technologies down the experience curve.

The one substantive criticism of Schwarzenegger’s approach is that (as the Mercury News notes), it can be reversed by a future governor. It makes sense for the governator to negotiate with the legislature to pass a clean bill that enacts his goals into law, allowing both sides to claim victory.

Thursday, September 10, 2009

Will RE ever be a regular business?

Wednesday I went to the wonderful SVPVS meeting, one of the best of the many Silicon Valley resources available for local cleantech industry employees, job-seekers and pundits.

One of the things that struck me was that the speaker, a senior manager of a publicly traded solar power company, at several points made appeals to ideological arguments rather than business ones. Decades ago, renewable energy was a cause not a business, but for some reason I was under the delusion that the industry had matured past that. (Here I’m not referring to the presentation of different industry futures based on different policy regimes — certainly something that any strategy analyst would do.)

While ideological arguments have their place in political campaigns or in lobbying for favorable government policies, I don’t see their place for justifying the business of renewable energy. In fact, emotional appeals seem a sign that the economics won’t stand on their own.

In the end, photovoltaic and other renewable energy power generation is about producing commodity photons using an expensive new capital-intensive technology. No matter how wide the evangelism, there will always be price-sensitive buyers who buy the cheapest photons.

Yes, the government can distort the market to make some sources of photons more (or less) attractive than others. In some cases, the arguments for pump priming are economically defensible, if a temporary subsidy accelerates the learning curve efficiencies of a technology that will eventually be cost effective on its own. (This is in contrast to permanently subsidizing a politically favored technology that will never be cost-competitive).

Various aspects of energy efficiency are already a regular business — with or without tax credits, there are energy efficiency solutions where the payback period makes investment a no-brainer. Yes, LED illumination may still need pump priming, but there are dozens of technologies (such as insulation for new construction) which are already economically viable on their own: adoption is widespread among true believers and non-believers alike.

So we can hope that RE will eventually become a regular business, like nearly all other products purchased by businesses and consumers. Perhaps that will happen sooner, due to economic recovery that means an end to unexpectedly cheap fossil fuels. Perhaps that will happen later, as the result of cumulative experience curve effects over years or decades. But if RE is to become a viable business — that survives cycles of rich powerful governments and poor bankrupt ones — it eventually needs to stand on its own two feet.

Update 9/11/9 9:11am: After attending another cleantech event Thursday, I realize that cleantech businesspeople are working at a difficult intersection between business, policy and politics. It will be decades (if ever) that PV is like IT; more in a future post.