Thin film on thin ice

Solyndra’s well-publicized annus horribilis was usually explained as being specific to the company: their technology didn’t improve quickly enough, they didn’t execute, they weren’t able to scale commensurate with their sizable capitalization.

Others see it as part of a broader problem of Silicon Valley’s cleantech infatuation, in particular the inability of high-cost American firms to use technology to compete with low-cost Chinese rivals to produce commodity electrons. I think the jury is still out on that point.

A clearer picture is the failure of the thin film experiment. (FirstSolar excepted.) Cheap low-efficiency thin film panels are losing to cheap average efficiency crystalline silicon panel, as the volumes of cSI drives ongoing cost reductions.

DowJones has an (apparently exclusive) report about a cramdown for MiaSolé, the Santa Clara-based maker of CIGS thin film panels. According to DJ’s sources, the $100+m Series F round closed with a pre-money valuation of $550 million, versus $1.2 billion three years earlier.

The article identifies a pattern of troubles for similar companies. Companies seeking a valuation above $350m will find few takers. The price of panels has plummeted since 2008, in part because the temporary spike in polysilicon materials has passed. However, the biggest problem seems to be economies of scale — or lack thereof — in a commodity industry where cost savings are driven by scale.

Although MiaSolé has achieved enviable efficiency for a thin film maker — planning to ship panels with a 13% efficiency later this year — the company and its technology are fighting the scale economies of its mainstream rivals. Or as the final paragraph put it,

By moving into efficiencies in the mid-teens, the company is beginning to compete directly with polysilicon-based modules. But the small scale of production means that costs are still high. Miasole's 22 MW last year is a drop in the global photovoltaics market that was around 18 gigawatts last year, according to Barclays Capital.

I can see one other problem for the go-it-alone, technology-based Silicon Valley thin film startups: there’s no exit strategy.

Companies with capacity aligned to the mainstream silicon market can merge and combine with other companies to increase their scale economies. But the firms building their own processes and technologies and production have no potential mate — and with falling valuations, no IPO options either.

Once the world’s leading solar manufacturer by volume, in 2010 First Solar may have slipped behind China’s Suntech to become number two, but it’s still the first company to ship more than a gigawatt of capacity in two consecutive years. That makes it the only thin film maker to achieve scale on its own, and the latest news continues to suggest that its US rivals will be hard pressed to match that scale.

All biofuels not created equal

Efforts to replace fossil fuels with renewable energy are proceeding on two parallel tracks. Solar, wind and other technologies are being deployed to generate grid-connected electricity (instead of coal or natural gas) while biofuels are being developed to replace petroleum-based transportation fuels.

In addition to concerns about (net) greenhouse gas emissions, biofuels have also attracted support from those who want to reduce U.S. imports of foreign oil.

Biofuels are thus one of the major research areas of the U.S. Department of Energy and its National Renewable Energy Laboratory. A 2006 NREL brochure summarizes the various alternatives.

Two major types of biofuels are being developed — alcohol and biodiesel — to replace petroleum-based gasoline and diesel respectively. (For safety reasons, efforts to test jet fuel replacements have so far used blends of regular jet fuel and biodiesel.)

While next-generation alcohol fuels are under development, the current generation fuels are mainly ethanol. The most widely used (and most controversial) biofuel in the US is corn-based ethanol, which is sold today at many gas stations as a 10% (soon 15%) blend with conventional gasoline.

Ethanol is a grain-based alcohol that has numerous disadvantages when compared to gasoline. It has lower heat content, is miscible with water and highly corrosive. However, for more than a decade, some “FlexFuel” cars have been designed to run with (and resist corrosion from) E85, i.e. 85% ethanol. My 2000 Ford pickup says it is compatible with E85, although I’ve never seen it for sale here in California.

Corn-based ethanol also poses economic challenges. After the U.S., the second largest producer of ethanol is Brazil, which refines its ethanol from sugar cane. Brazil’s ethanol industry is pushing for trade sanctions against the U.S. over our net 99¢ subsidy for use of domestic over imported ethanol. Because ethanol consumes one-third to 40% of American corn, some also blame it for the recent increase in food prices.

Cellulosic ethanol offers a way to overcome these food vs. fuel problems, because it uses crop residue, grasses and other organic material that do not require prime farmland. However, these feedstocks pose greater technological problems in processing to produce fermentable sugars. To overcome these challenges, cellulosic ethanol is attracting hundreds of millions of dollars in government and industry investment to develop commercial-scale bioprocessing facilities.

Broadly, there are also two categories of feedstocks for biodiesel. One category includes the existing oilseed crops — such as canola, jatropha or palm oil — which were used in some of the earliest bio-jet fuel experiments two years ago. Indigenous to the Sonoran Desert, varieties of jatropha have become a popular fuelstock for growing in arid areas such as the U.S. Southwest, Africa or India.

The second category of biodiesels are algal biofuels. Microalgae can be grown in non-arable land — or even saline or brackish water — and produce a higher concentration of oil than more the complex oilseed plants. They also can be genetically engineered (or selected) for characteristics best suited for fuel production.

Both forms of biodiesel still require manufacturing process improvements necessary to build commercial refineries of scale and efficiency comparable to decades-old petroleum-based technologies. The microalgae approach also requires additional research into developing (or screening) and then cultivating the most suitable strains.

In California, San Diego has become the state’s (if not the nation’s) hub for algae-based biofuels, with two major firms as well as the San Diego Center for Algae Biotechnology, a large university-industry research center headquartered at UCSD. Venture investors, the Federal government, and even oil companies like ExxonMobil have bet heavily on the future prospects for algal biofuels.

Smart Grid: a primer

So far I've been to one Smart Grid event and read only a few articles that were at all useful. All of the best stuff has been from the IEEE Power and Energy Society, which not surprisingly has a major emphasis on educating society about plans for a 21st century distribution system.

For those not up to speed, there is a good primer in the IEEE December newsletter, The Institute, which I get as an IEEE member. (At the end of the semester I get behind on my mail and journals, so I just caught up today.)

Here are a couple of opening paragraphs from the article:

The electricity grid is made up of four main components: generation, transmission, distribution, and customers. Generation refers to the production of electricity from sources of energy, such as coal and natural gas. The transmission system carries the electric power from the generators over long distances to a distribution system, which brings the power to the customers. Distribution systems can include power stations of their own.

Developing countries often have antiquated systems. But even more modern systems, which in a developed country such as the United States can be 50 years old or more, are typically inefficient, unreliable, polluting, incompatible with renewable energy sources, and vulnerable to cyberattack.

It’s a little rah-rah on the technology, but then what do you expect from a bunch of engineers? At least — unlike GE or PG&E or SDG&E — it’s not peddling a specific product or service.

The Department of Energy has a website and a 2008 report that seem even more rah-rah. The latter is a propaganda piece worthy of a political campaign (or lobbying for increased appropriations) rather than a textbook or scientific article.

Still, the smart grid issues are essential for instituting distributed generation with unpredictable interruptions such as residential rooftop solar and small scale wind. So even if smart grid is not an RE fight, it’s one that RE depends on.

Solynda losing raison d'etre

Solyndra had a terrible 2010: it cancelled its IPO, announced plans to close a factory and cancelled its ambitious hiring goals. Many analysts started asking whether the government would ever get back the $535m in Federally guaranteed loans — over and above the $1b in private capital.

Solyndra was once the poster child for green jobs in the Bay Area, with its factory rising only a few miles from the old GM (later Nummi) plant. Instead, it’s looking like California’s answer to Evergreen Solar — except that Evergreen IPO’d early enough to bail out its VCs.

Will 2011 be any better? Not according to Dana Hull of the Merc, who normally offers an optimistic bent on local cleantech companies. Today’s story on the website says “Fremont's high-flying Solyndra hits a rough patch.” However, as lead business story in the dead tree Sunday paper, the headline is more blunt: “Cloudy future.”

Looking at the story, this is one of those balanced stories where the reporter strained mightily to suggest a possible happy ending. The company has money (for now), a top flight team, and has completed some successful installations. It’s still hoping to make a dent in its niche, commercial rooftops.

As for any PV maker, the challenge is the price: if the commodity PV panels aren’t cheap enough, no one will buy them. This is particularly true for most thin film producers, that hoped their lower manufacturing cost would give them an advantage against the established crystalline silicon.

The problem is, crystalline silicon prices continue to fall — driven by an explosion of capacity and scale economies achieved by Chinese makers. Except for First Solar, thin film makers have been unable to keep up.

The prognosis in Hull’s article is grim:

Many low-cost Chinese manufacturers, which benefit from massive government support, are manufacturing at costs in the $1.10 to $1.20 a watt range. Thin-film leader First Solar, based in Tempe, Ariz., manufactures at 75 cents a watt and aims to be at 53 cents a watt by 2014. Solyndra says its current manufacturing costs are about $3 per watt..

"Our manufacturing cost per watt is coming down every quarter," Harrison said. "By the end of 2012 we should be at the $1.30 to $1.40 per watt range, or $2 a watt if you include installation."

But even if Solyndra hits that goal, analysts such as Jeff Bencik of Kaufman Brothers warn that competitors are similarly racing to drive down their costs -- and have a head start.

"It's a moving hurdle," Bencik said. "It will be really difficult for Solyndra to match (other manufacturers' costs) at this point. I'm not saying they can't do it, but I haven't seen it."

Evergreen took a dramatic step — moving production offshore — but did so too late to save the company. Solyndra is fighting the same commoditization, low cost producers and laws of economics.

So if this article is the hometown paper putting the best face on things, I guess we should expect a major (but unsuccessful) reorg in 2011, and a liquidation or other forced exit within 18 months.

Natural gas: the cleanest practical alternative

The bad news for adoption of renewable energy generation is that natural gas is increasingly cheap and requires relatively small capital investments.

The good news is that natural gas is increasingly cheap and requires relatively small capital investments.

A great discussion of the latter perspective can be found in the fall newsletter of the MIT Energy Institute. In summarizes “The Future of Natural Gas,” a report summarizing a two-year MITEI study.

Some excerpts of the newsletter article:

“Much has been said about natural gas as a bridge to a low-carbon future, with little underlying analysis to back up this contention. The analysis in this study provides the confirmation—natural gas truly is a bridge to a low-carbon future,” said MITEI Director Ernest J. Moniz in introducing the report.

Moniz further noted, “In the very long run, very tight carbon constraints will likely phase out natural gas power generation in favor of zero-carbon or extremely low-carbon energy sources such as renewables, nuclear power, or natural gas and coal with carbon capture and storage. For the next several decades, however, natural gas will play a crucial role in enabling very substantial reductions in carbon emissions.”

To cut to the quick, the best way to reduce carbon emissions is to find a way to retire the dirtiest coal-powered electric plants, and the only way to do that in the near term is to replace them with natural gas. The MIT researchers assume the switch will be complete by 2050.

The price of natural gas has been quite volatile over the past 40 years, so let’s hope for the sake of the economy — and the environment — that it remains cheap enough to enable such widespread adoption.

California has already gone down this path, with (according to 2008 EIA statistics) natural gas accounting for a majority (57.7%) of the state’s electricity generation. For the rest of the country, coal accounts for the plurality (48.2%). Unlike our current fiscal fiasco, this is one case where California remains a model for the rest of the country.

Imagine no fuel from food - I wonder if you can

The Wall Street Journal this morning notes that 39.4% of US corn went for ethanol in 2010, up from 7% in 2001. Corn prices are up 67% from a year ago.

US corn growers account for 39% of the world's corn production. Converting all the country’s corn to ethanol would replace 4% of US oil consumption. As a fuel, corn ethanol is distinctly inferior to gasoline: it creates more smog, is a less efficient fuel and damages car engines.

Even Al Gore has sworn off ethanol pandering to farm state voters. But this didn’t dissuade the lame duck Congress last month, when it extended the $5 billion tax subsidy by a year.

It would be nice to think we could end the lunacy of converting fuel to food — either based on economic logic, or as other biofuels (such as cellulosic ethanol or algae-based fuels) take off.

Instead it appears the corn subsidy won’t end until the politicians can replace it with some other gift to farm state voters. Perhaps the Feds can overcome Eastern opposition to Midwestern exports of wind-generated electricity, which would certainly be popular in Iowa. (Or maybe the two parties can just move the date of the Iowa presidential primary.)

Cartoon Credit: Science Cartoons Plus by S. Harris

Sunny and dark side of deregulation

10 years ago, the California energy crisis came to fruition. Blackouts and shortages rocked the state, made us a mockery of the country and brought down a governor.

Since that time, it’s been tough to find a balanced appraisal of this event. Leftists blamed evil corporations, rightists blame inept government while accounts that consider both perspectives are few and far between.

Economist Seth Blumsack of Penn State offers the rare exception, writing in December’s issue of IEEE Spectrum and posted to the public website this month. (The website comments are also helpful.)

Against the government, there was only partial deregulation which never engendered real competition. Against business, a few companies (notably Enron) were able to game the system for their own ill-gotten gains.

As Blumsack points out, electricty markets are not (and perhaps never will be) fully competitive. In this regard, the last mile resembles wireline telephone companies and other “natural monopolies.” Meanwhile, all energy markets are plagued by demand that is highly inelastic in the short run. (If gas prices double, over time I can buy a smaller car or move 15 miles closer to work, but I can’t do it tomorrow morning.)

Overall, the results are mixed. The partial liberalization has increased efficiency. On the other hand, increased pressures for efficiency have changed the energy grid from a cooperative effort to a zero-sum battle.

Blumsack contends that deregulation means higher cost of capital and thus higher project costs. It’s also possible that deregulated developers have more incentives to cut costs while regulated utilities — like a government entity — will quite freely spend money not their own.

Finally he points to the role of markets in promoting green energy. Markets can be used to buy anything, and most American states are using them to procure geen energy.