Well, the bad news has hit us enthusiasts hoping for the next Killer Apple App yet again. Although disappointed, the eternal optimist in me leads me to believe this is a serious blockbuster product introduction on the scale of the iPhone, and Apple (AAPL) is being extremely cautious that they have the right suppliers, capable of producing the right technology, to meet and exceed their product and procurement/manufacturing expectations. So I'm viewing this delay very much as a positive - it's showing me Apple has something special, and they want it exactly right.
I wrote some comments on the iSlate (Apple Tablet - I will use iSlate here, as most of my sources at Apple, as well as the media, are pointing towards that name) earlier this week, and I wanted to expand on them.
I'd first love to point out that there is a lot of negative scuttle out there regarding the Apple iSlate. Comments like, "what purpose will this product serve," "no one else has ever had a killer app tablet product - what makes this any different?", etc etc. This is completely missing the point. Apple (as rumor has it - I have friends at Apple that won't even talk to me after a great bottle of scotch about iSlate, or whatever it will be!) is internally saying they are about to release a product with revolutionary technology - the only semi-official word I can get internally is "Apple is about to revolutionize wireless computing for the second time in less than three years." Apple absolutely revolutionized the smartphone space with the iPhone, despite a lot of initial skepticism leading up to the launch, and any argument to the contrary is really wasted air. Android and the slew of handsets coming out to compete with the iPhone are just that - reactionary tactical maneuvers by Google and other smartphone manufacturers, understanding computing is getting smaller, slimmer, much more mobile, and data will be residing in The Cloud. Apple, based on the decade they have had and the amount of testing and innovation they are seemingly throwing into the iSlate Tablet product, is indeed set to revolutionize mobile computing for the second time in less than three years, if what we are hearing is true (and let's be fair - this is all conjecture at this point, despite some of the levity of the contacts I and industry followers are getting inside information from).
Absolutely, this product could be a flop - I mean, nothing is impossible. But based on what I am hearing from inside, reading from great inside Apple reporters, and Apple's track record, which all reasonable investors can agree has been extraordinary over the past decade - I am doubling down that the Tablet product will be a the new Apple blockbuster.
It's not supposed to fit in your pocket or purse. I love my MacBook Air, but imagine the possibilities of a touchscreen with new gesture innovations, superior graphics, tactile feedback (I can't put my Google Documents or iWorks presentations together too well on my iPhone - it's actually my most-used device but it's too small for those duties, yet I would love if my MacBook Air had no keyboard, was slimmer, etc - perfect for someone very mobile like myself). The potential, again if Apple has the ability with their manufacturing partners to pull this off, are truly phenomenal.
Some important points:
1. This of course won't be a product for everyone - it's not supposed to be, there is no such thing in this space - but my bet is it will have a much wider mass appeal than many of even the enthusiasts are expecting.
2. Apple was just named "Brand of the Decade," Steve Jobs was "CEO of the Decade" - these are not your Father's Mac-Head conspiracy publications, these are publications like Fortune Magazine, Time and AdWeek. So to simply dismiss this effort by Apple as an over-hyped marketing-based product release with no probable intrinsic value is silly at best, very ignorant or just plain biased at worst - and an very unintelligent analysis for your investing moves. Apple's decade of success, and their recent extraordinary success in entering and revolutionizing the entire smartphone vertical, makes these comments just rubbish.
3. Everything points to this Tablet product being strongly tied to the iPhone brand lineup - you know, the one that stems from the "Invention of the Decade," the iPod. Again, IF executed correctly, to come out of the gates with this type of brand family reliance, Apple's incredible brand recognition, proven marketing prowess...yes, indeed it could be the blockbuster I think it will be. I would absolutely LOVE to be Apple's ad agency (Chiat) this month if indeed we get the expected product release - this is one you dream for in the ad world.
4. The recent reports of tying several different versions of OSX together (OSX Desktop, OSX Tablet, OSX Mobile, OSX Server) is something, as a technology marketing man for years, I have wanted to see since the iPhone launch. OSX is truly a fantastic operating system, and Apple has not done a fantastic job in tying this very strong operating system product together across all their outstanding devices.
5. The recent news of streaming cable over Apple TV - could these content deals be extended to the iSlate Tablet and the iPhone? Apple has already proven to be extremely shrewd in their media dealings, and pulling a comprehensive content deal across multiple Apple products in a stream-less fashion would be a coup that would leave competitive products at a serious disadvantage, potentially taking years to catch up. Add the eBook functionality, and Apple has an opportunity to gain a stranglehold on content-over-IP in a very innovative fashion.
5. I'm an Apple fan - been that way since I broke down and actually started using one back in 1996, by force of an employer. Since that time, I still use a Windows computer as well for testing and competitive comparison usage, and also possess the new Droid phone (again, as a technology fanatic, my iPhone is actually my most often used product in my life, but I am very impressed with a lot of what Android has to offer, and am currently a big user of many of Google's products - fantastic company). But I truly believe, all enthusiasm aside, the amount of time, testing, and what Apple can bring to the table with this product leaves redundant any argument of "another Tablet, and they all have been abject failures in the past." Think different on this one (pun intended) - the way iPhone completely changed the smartphone vertical, this iSlate Tablet product will have innovations we have not had a whiff of, and could be the killer technology app to start the new decade with.
6. Let's get to investing strategy. Here is where I am soliciting feedback. I'm an aggressive investor by nature - so although I'm more-than-willing to double-down on this being a landmark product launch comparable to the iPhone or iPod, I am doing my due-diligence. That due-diligence, in this particular case, means to me how big a bet - as an industry vet I play my gut in the mobile/Interactive space, and my gut is saying to push the chips forward. However, I would LOVE to hear everyones (well, everyone that just isn't just hating on Apple - real advice, positive, negative or neutral) thoughts on Apple's current stock price - is this launch built in? If so, 50%? 100% If we look at the competitive set, and IF this all goes to launch late January, this will be a dominant technology news story. Short term Q1 play? Would love to hear thoughts - I'm a technology veteran in Interactive and mobile since 1995, but I have never professed to being a world-class equities trader. Love some feedback!
Although the delay is disappointing as far as instant gratification, I think this news is actually very positive long-term for Apple and the product - what do you think?
Disclosure: No positions.
Tuesday, December 29, 2009
Sunday, December 27, 2009
SolVentus Energy's 2010 Solar and Wind Energy Industry Outlook
The Solar and Wind Energy Renewable Energy vertical continued it's quickening evolution into becoming a mainstream focus of Alternative Energy development. Though the overall percentage of electrical energy generated from Solar and Wind-based generation remains low in the United States, SolVentus Energy is convinced that the vertical is poised to overcome several substantial challenges in 2010, positioning the sector for a breakout year.
This article serves as a glimpse of a much larger white paper research project currently in development by SolVentus energy in conjunction with several other major contributors to evaluate the vertical's evolution in 2010. The goal is not to provide specific company or equity price predictive analysis, but rather to dive into several critical factors that can be factored into those specific company and sector analyzations, and provide overall guidance as both industry players and investors make their tactical judgement calls with all other factors critical in predictive modeling (revenue projections, cash and debt positions, management track records, corporate health, financing prospects, industry consolidation, competitive-set analysis, inventory issues and the like). So please keep that in mind as we dive into a glimpse into how our team feels 2010 very well could play out, and as we highlight some of the critical issues that will effect the industry.
The Copenhagen Effect - A Positive or Negative?
Read through ten in-depth reports from respected sources on the effects of the 2009 Copenhagen Climate Conference, and you will get ten different views of it's various successes and failures, and their corresponding effects on the GreenTech industry. We view the Copenhagen Climate Conference as a non-issue as it pertains to the continued development of the solar and wind energy generation evolution in the United States marketplace. Americans have a long nature of taking a leadership position in critical technology development through primarily the open-market entrepreneurial path (with a secondary hybrid approach of the free-market combined with heavy government investment and involvement - witness the space program and aviation industries as examples). SolVentus Energy's team strongly feels the hybrid-approach to GreenTech's technology evolution will continue in 2010 as it has in 2009, with government (both state and Federal) subsidies, grants and legislation continuing to provide a strong impetus for accelerated investment by open-market funding sources. Venture Capital firms, Private Equity firms, equity markets and substantial investments by large corporations will continue to fuel much-needed capital investment to further accelerate technological advances to bring the costs and availability of solar and wind energy generation sources more and more competitive with traditional energy generation sources.
Make no mistake, the Copenhagen Climate Conference failed to produce some of the key goals and sovereign national commitments many were hoping for to bring about an even further accelerated compression point of Alternative Energy advancement and deployment globally, and again, the United States was viewed as one of the major "blockade" nations in terms of reaching some of the more lofty global goals and commitments to reducing the world's carbon footprint. However, our team remains neutral on the actual proven science behind some of the hot issues at Copenhagen, such as Global Warming and it's short and long-term ramifications. Realistically, we still don't have firm scientific evidence pointing towards impending global environmental doom in the near-term. That said, I think all reasonable parties can agree that long-term ramifications do exist, and for a number of critical environmental, geopolitical, national security and economic reasons, the strong momentum towards Alternative forms of energy generation has reached the tipping point of no return. For these compelling reasons, while Copenhagen was a disappointment for many, we feel it just further highlights sustainable, long-term momentum this quickly-accelerating technology sector.
The GreenTech Funding Environment
Venture Capitalist Firms, Private Equity Firms, and even traditional lending organizations made very large bets in 2009 on the GreenTech Industry and all its internal sectors, and all signs point to a 2010 funding record for GreenTech. There are several negatives often heard around Sand Hill Road's ability to fund GreenTech startup technology companies - the main one being that VC's are simply not well-suited to venture capital-like funding. I want to point out a few of those challenges often stated, and offer some counterpoints:
1. The Capital Costs Are Too High in GreenTech - Yes and no. In the past, many venture capital firms have been disappointed with the pace of return-on-capital invested throughout the early half of this decade. The industry was nascent in its evolution - the advancements from just five years ago are truly breathtaking. As with the Interactive space in the 90's, we are seeing capital costs decrease as technologies build upon technologies, raw source manufacturing production capacity is already beyond current raw material needs for silicon for panels, and CRITICAL components to really accelerating Alternative Energy generation sources, like Smart Grid, communication and technology advancements to bring the National Energy Grid into the 21st century and usher in unprecedented achievements in conservation, distribution and soon, streamlined marketplace energy trading (that will bring downward pressure to solar and wind energy costs while bringing the inevitable efficiencies inherent in a free-market environment), are not nearly as capital-intensive as current thinking suggests. Think of the bevy of startups that are working on building energy management control software, home retrofit an d energy consumption reduction software for everything from commercial buildings and warehouses to transportation fleets. Each of these firms, if their Intellectual Property is executed successfully and provides its intended benefits, will provide a massive overall effect on our National Energy policies and evolution moving forward, and do nothing but help bolster the movement to Alternative Energy Generation. Even many current solar panel manufacturers are seeing cost-savings through innovative research, design, development and production processes.
2. Venture Capital Firms Handle Founders - As a veteran of the Internet's rise, our team here at SolVentus together have been involved in over ten technology startups. Personally, I have been either a founder, part of a founding team, or have lead startup fundraising in a revenue consultancy role six times. And they are indeed wild rides. VC firms are perfectly structured, with far more experience than I, in handling the rather eclectic personalities that come from founders and pioneers in technology sectors. I will venture a bit father in GreenTech - I see two main sets of startup founding partners that are proving to be every bit as adventurous in terms of management of expectations and adherence to business models and monetization plans as the boisterous days of the Internet Boom - the die-hard Greens, who will make any decision, despite its deviance from the business model or even profitability if it is saving mother earth, and the technology folks (many of which have migrated from the digital and technology space, like the Internet and PC/hardware verticals). Both can be a handful, and venture capital firms are very well equipped to handle the absolutely inevitable challenges that are inherit in technology startups. This may seem like a minor issue to many readers, but experience shows time and time again many of the most successful technology companies today were very close to crashing and burning during their early startup phases, and I have long held that venture capital firms do not get nearly the credit they deserve in handling those very delicate and potentially devastating challenges - challenges that often occur on a daily or weekly basis. One last point - venture capital firms can tolerate failure - in fact, it's often a badge of honor for the big boys. For every home run, there are several whiffs. That matches perfectly with GreenTech and its inevitable evolutionary pains it will experience over the next decade.
3. GreenTech is Science and Technology Intensive - Enough said right there. Venture capital firms have years and years of experience working with technology and biotech firms, with a very admirable rate of success. National labs, universities and governments all have their important roles to play, but they will never approach the success rate of the private market funding of startups in producing blockbuster results in the technology and science sectors.
4. Where is the Google in GreenTech? - Many argue First Solar may be the Google in solar and GreenTech. I disagree. I think we have yet to see the "Google" in GreenTech, and our research in how all the working pieces will fit together to bring solar, wind and other alternative energies into the mainstream national energy mix will require perhaps 20 "Mini-Googles." Each can provide massive returns-on-investment, many in short time-periods, and with our national electricity grid literally the lifeblood of our entire economy and nation, I would suggest the early strong winners will have long, high-margin, very profitable futures, with extremely strong and secure positions in the respective GreenTech verticals they serve.
5. A Pathway to Success Exists - I continue to highlight this point, but there are so many similarities to the advent of the chip industry, the personal computer industry, and the Interactive industry. And with the exponential power of those computers and software development having compressed and accelerated R&D to levels unimaginable just 15-years ago (and that acceleration continuing weekly), look for GreenTech's evolution to produce even quicker, more innovative advancements in a much shorter time-period. The path to success clearly exists, and early innovators with the First-to-Market advantage will quickly emerge as industry-dominant players.
Summary - Look for continued record levels of investment in the GreenTech sector, with larger and larger bets in 2010. An ancillary benefit is the current Administration's seemingly firm commitment to continue to stimulate funding for the GreenTech industry in any way possible, including tax advantages, grants and subsidies, and pro-GreenTech legislation, with the goal of placing the United States in the leadership role in Green Technology and Alternative Energy Generation.
The Effect of Government Subsidies, Grants and Legislation in 2010
The United States has become one of the more aggressive nations in promoting alternative energy technologies, but at the federal level tax credits and depreciation incentives are not currently enough to encourage sustainable demand growth. Instead, some states and municipalities have taken the lead in providing incentives through a variety of mechanisms ranging from upfront rebates and property tax credits to renewable energy credits and even European-style feed-in tariffs. SolVentus Energy’s extensive interviews with both end-users and manufacturers, as well as on-the-ground experience with our clients in solar and wind generation and other GreenTech sectors, lead us to conclude that for sustained growth in the U.S., incentives must, and will, be increased at the Federal level. Due largely to the credit crisis, funding for solar and wind energy generation projects has been tight. In the U.S., this has particularly been the case, because banks are unwilling to lend to projects that have undetermined cash flows.
Our 2010 outlook is that the combination of federal and state incentives and falling module prices will work together to dramatically increase demand in the U.S. As more banks become comfortable with funding these projects, and find ways to securitize the cash flows, we believe it will become an attractive revenue stream for solar lending divisions. Utilities, which are just now getting serious about meeting RPS goals, will likely take the lead in developing new solar projects. Until now, they have been unsuccessful in getting support from their ratepayers who would see up to a 10% increase in their utility bills. However, we believe that the emphasis that the Obama Administration is placing on climate change and positioning the United States in a global leadership position in the GreenTech revolution is quickly filtering into the fabric and culture of American society, and will continue propelling the U.S. solar and wind industry throughout 2010, culminating in the U.S. emerging in the global leadership position in solar PV and wind energy generation market share by 2014, according to our most recent forecasts.
Accelerated Solar and Wind Technology Advancement
The Energy Industry is ruthlessly ruled by the immutable laws of thermodynamics. It's a reality even the Greenest of the Green must address. The very first law of thermodynamics says that energy is neither created or destroyed. It gets redistributed. The chemical energy that is stored in the jet fuel inside a Virgin America airliner in San Francisco is, during a flight to JFK, turned into heat in the atmosphere or heat on the tarmac, or perhaps into air-conditioning that keeps the passenger in seat 2B comfortable. Thus, the energy in the jet's fuel tank doesn't disappear - it gets redistributed. And that redistribution of concentrated energy to a more random form leads us to the second primary law of thermodynamics - which says energy tends to become more random and less available. Heat always dissipates, from hotter to colder, never the other way around. An air-conditioned room during the summer in Phoenix or a heated room in Boston during the winter will quickly become uncomfortable unless more conditioned air is pumped into it. And creating that conditioned air, whether it is cooled or heated, takes a steady flow of energy, or what is called "base load." Taken together, the first two laws of thermodynamics provide the key to understanding why fossil fuels are so dominant in today's economy, and why technology advancements are SO critical in our inevitable move to cleaner forms of energy. Turning diffused forms of energy - whether that energy is stored in the starch found in inside corn kernels, the photons in sunlight, or the kinetic energy available from the strong breezes blowing off of Cape Code - into more concentrated forms of energy is always an uphill battle. And the more diffused the energy source, the more difficult it is to concentrate it into a form that can provide usable work, whether that's lighting a house, powering a jetliner, or firing a furnace.
I present that basic science background on thermodynamics as it relates to energy to help readers understand some simple facts that give solar and wind energy generation three pivotal current challenges that are being addressed and overcome quickly through technology advancements and breakthroughs:
1. Solar and Wind Power is Intermittent - While the fact is obvious, critics claim that solar and wind cannot replace the need for base load electric generating capacity from traditional sources like coal, natural gas, and nuclear. So a technology solution is needed to address turning intermittent generating capacity into base-load generating capacity for wind.
2. The "Not In My Backyard" Argument - Few people want to live near wind turbines (NIMBY, or the "Not In My Backyard" argument). The same goes for the new electric power transmission lines so critically needed for our nation's electric infrastructure, NO MATTER the source of the energy being generated. Factor in the environmental effect of turbines on birds and other wildlife (I am in no way making a political stand on saving birds - again, living in California, I know what a barrier birds and minnows and all sorts of other environmental issues can create) and imminent domain issues, and we have the second limitation to wind power generation especially that will need to be overcome.
3. The Discussion of Solar and Wind Energy CAPACITY Versus Production - So many in GreenTech will boast of the alternative energy generation capacity of a certain new project or field, but, back to it's intermittent nature, it's production is key. These terms have to be kept in mind whenever discussing clean energy sources like wind and solar. This is a slippery issue - we have personally worked on projects (primarily in solar, but also in wind) where, because of all sorts of issues too lengthy to list, actual production ranged anywhere from 11% - 62% of actual electric generation capacity. This third issue is very critical - too many solar and wind energy generation projects that wildly under-perform installed capacity will hurt the industry, so industry players need to be very accurate and conservative in their estimates for the long-term viability this vertical. We will see much more accurate forecasting of generation capacity in 2010 in our estimation, as the industry has had some rude awakenings to this effect.
Technology advancements (our forthcoming white paper will detail many of these, but for obvious intellectual property reasons, permissions to publish details are very hard to obtain) are in turbo-mode, if you will, to address how to solve the intermittent generation issue with both wind and solar. Let's quickly address the three limitations I cite above:
1. Intermittent Electric Power Generation - This is being actively and aggressively addressed by battery storage technology. There are both short term (1-3 years) and long-term (4-10 years) technologies in the works that will allow for large-scale, efficient storage of the power generated to be distributed much more evenly, providing the important "base-load" generation solar and wind energy generation needs to compete head-on with traditional energy sources. Our experience in various technology sectors over the past 20 years show a clear, proven pathway - costs will compress as critical mass is reached, and the acceleration of battery technology, capacity and functionality advancements will begin to see the inevitable compressed acceleration points we have seen in other technology verticals. Another factor will be the evolution of the Smart Grid, and all it's critical components. I will save a long-winded Smart Grid comment here, but suffice it to say, all indicators point to a vastly more intelligent, efficient national electric grid boosting intermittent energy sources like wind and solar tremendously.
2. Not In My Backyard Issue - This is social issue that will need to be resolved, and we feel strongly, with current cultural and social trends, it will be overcome to a great extent in 2010. It is frustrating and completely counterproductive to the GreenTech industry - here is a well-publicized example I highlight only to bring about further awareness of this challenge. Robert F. Kennedy Jr., in 2005 as an outspoken environmental lawyer for the Natural Resources Defense Council, complained in a New York Times op-ed about proposed "ugly wind turbines" off Nantucket Sound. I will let an op-ed response in the San Francisco Chronicle at the time sum it up, calling his opposition to the wind farm as an example of "a worldview born among the privileged patricians of a generation for whom building mansions by the sea was indistinguishable from advocating for the preservation of national parks." Bottom line - these will be issues the sector will have to overcome at the grassroots, local level, with help from Federal Government mandates (similar to the mandate that HOA's cannot outlaw solar panels in residential developments).
3. Clear Standardized Communication of Installed Generation Capacity as Opposed to Actual Production Capacity - We in the industry must be very cognizant of communicating INSTALLED CAPACITY versus ACTUAL PRODUCTION estimates. It is critical to be as accurate and conservative in our power generation estimates. As superior commercial battery storage solutions come online, it will be critical to factor that in those generation estimates as well. Standards (whether mandated by the government or the marketplace) will be critical in bringing about a much firmer reliance on predictive modeling of solar and wind generation project capacities.
I want to reinforce two critical technologies that are receiving not just "billions in government subsidies", but also billions in private funding - battery technology and the Smart Grid (and its related periphery technologies). Simply, we are on the verge of some tremendous advancements in battery storage capabilities that will lead to tremendous efficiencies in storing that intermittent wind energy, lending to solar and wind energy generation providing a reliable base load electric generation source similar to the fossil fuel sources widely used today. The second is the Smart Grid - companies ranging from Google to IBM to Oracle, as well as dozens and dozens of viable, Silicon Valley-funded start-ups, are devoting billions of dollars in solutions for the intelligent and efficient distribution of electric energy. Finally, much-needed infrastructure investments in the construction of new, high-voltage transmission lines, to effectively and efficiently link wind and solar energy generation fields to other parts of the nation are in the process of planning and in many cases, is well underway.
Solar and Wind Energy Generation - Macro and Micro-Generation Trends
We will see continued marketplace evolution in the end-user sales trends for micro-generation alternative energy generation. Players in the industry like Solar City, a turnkey, consumer-friendly solution for a grid-tied residential or commercial solar energy production solution, continue to gain market-share and traction in the industry. Utility-scale macro-generation projects have suffered some setbacks in the second-half of 2009 due primarily to budgetary constraints, but as the economy continues to recover, the Obama Administration continues its push for GreenTech funding, subsidies, grants and legislation, and the likely potential of legislation aimed at mandatory reduction levels of carbon emissions will all lead to a healthy combination of both macro and micro-generation solutions, grid-tied to the nation's utility companies, providing a healthy boost to solar and wind energy generation's overall percentage of electrical energy generation in 2010. Our team at SolVentus strongly believes there will be a convergence of both forms of alternative energy generation, and are working with clients entrenched on both sides of this renewable energy equation.
Utility Companies and Their Directional Strategy in 2010
Utilities, which are just now getting serious about meeting RPS goals, will likely take the lead in developing new solar projects. Until now, they have been unsuccessful in getting support from their ratepayers who would see up to a 10% increase in their utility bills. Again, both state and federal government emission mandates will play a key role in how aggressive the utility companies continue to offer rebates, ease-of-opportunity and competitive feed-in tariffs (or wholesale purchase prices to grid-tied producers during peak energy periods). We predict a progressively more intense effort by local, state and federal governments to put pressure on utility companies to continue the alternative energy trend with ever-more aggressive incentives for consumers to "Go Green."
The Critical Element - The Development of the Smart Grid and It's Peripheries
We strongly believe 2010 will be a milestone year for the Smart Grid. The first phase of the Smart Grid was about defining it - and it took nearly a decade for utilities (and vendors) to articulate a vision and blueprint for such a complex undertaking. Now that we’re there, it’s time to start making this vision concrete. Phase Two is about building out the smart grid, and again, I believe that 2010 will be a milestone year for progress in this regard. One important measure of our progress will be the number of newly connected homes and businesses by the end of next year.
1. A Year of Interfaces - Commercially available products with real standards and real interfaces will drive a meaningful start to Phase Two of the smart grid. That means utilities have realized that the “last mile” network of the grid is as important as the rest of its networked devices.
2. A Year of the Majors - Now that the Smart Grid is a reality, the world’s leading technology vendors are plunging into the fray. The smart grid’s enormous, complex challenges will be met with ingenious solutions from leading vendors in virtually every technology vertical. Look for new alliances among major networking companies, major telecoms providers, major chip suppliers, major retail household appliance manufacturers and major enterprise software vendors (as well as some unknown startups).
3. The Security Debate Will Be Behind Us - Shocking as that may sound, it’s true. Sure, security generated a lot of buzz (and anxiety) in 2009, but government-grade, standards-based security has won the day. The only questions that remain center around how and where security gets implemented within the smart grid. Stay tuned for lots of debate about how best to implement standards-based security. Granularity -– across devices, data, transport and systems — will play a key role in determining successful (or failed) smart grid architectures.
4. Disruption Is Bound to Happen - Yes, there are government stimulus awards being handed out, as well as contracts signed by putative (and emerging) market leaders. But which vendors are likely to succeed, and why? My prediction - disruption will result from a combination of the “usual suspects” (large, well-known technology vendors) plus some new surprises.
5. Smart Grid Networks Will Continue to Be Built - Until recently, there was lots of talk, speculation, blogging, Powerpoint presentations and whiteboard diagrams — and little else. So who is actually building out a viable, scalable, secure smart grid network? Actual smart grid deployments -– while small -– are now growing (in stature, as well as volume of connected devices). As the smart grid transitions to Phase Two, the vendors that demonstrate real technology (that’s really working in real-world deployments) will have a huge advantage and overwhelming mindshare with utilities.
6. Distributed Generation and Load Shaping Will Be the New “Killer Apps” - In the mid-1990s, everyone used to ask what the Internet’s “killer app” (i.e., the application that would propel massive adoption and growth) was. Seems rather quaint from our 2009 vantage point. Yet keen minds involved with the Smart Grid are now asking a similar question. But first the following queries about distributed generation and load shaping need to be answered:
How can utilities safely incorporate and distribute alternative energy?
How will utilities manage and distribute all that new energy going back into the Smart Grid? Has two-way energy management been a heretofore ignored issue?
How does this transform utilities’ value-add? Do they become energy brokers/marketplaces, as well as energy providers? Will deregulated markets help or hinder this process? How will consumers’ interests be protected? Who really wins? If harnessed properly, can we end our reliance on fossil fuels?
7. The Birth of Retail Energy Will Be Upon Us - With connected smart meters, utilities are on the cusp of developing more powerful ways to connect and communicate online with consumers. Moreover, utilities will need to listen closely to consumers, and work hard to deliver what consumers want. That’s exciting, but daunting. Our prediction: The birth of ‘retail energy’ will happen first in deregulated markets, where there exist meaningful incentives for both utilities and consumers to communicate and transact online.
8. Energy, Voice, Video and Data Will Emerge - and Converge - Back at the start of the century, telecommunications companies described the “triple play” (voice, video, data) opportunity –- a convergence of all media into the home, provided by a single vendor, and streamed onto a variety of consumer devices (phones, TVs, computers, and more). The Smart Grid is the first opportunity to enable the “quadruple play,” and we believe it will be a very, very big opportunity. Quadruple play is made possible by the use of standards-based, scalable smart grid architectures that connect and leverage feature-rich devices and functionality, along with high-bandwidth (and low cost) 4G networking. We are already seeing both vendors and utilities evaluate the benefits of this “quadruple play” approach as they build out their smart grids.
2010 - Solar and Wind Energy Generation Accelerate at a Surprising Rate
In summary, our research is pointing at 2010 as a breakout year for solar and wind energy generation in the United States. As described above, there will be many intricate working parts, from financing, government policy, ancillary technology advancement, invention and development, and even social changes, that will converge in a compressed, accelerated manner, ushering in a new technology revolution in the GreenTech space. SolVentus Energy strongly believes 2010 is the year GreenTech is ushered in as the new high-growth technology space in the United States economy, producing surprising economic benefits, job creation, helping establish the U.S. in a leadership role in a critically important industry, revitalizing and in some cases, replacing aging industries, and finally, providing investors enormous opportunities not only in 2010, but for the decade to come.
Disclosure: No holdings in any of the companies referenced in the article.
This article serves as a glimpse of a much larger white paper research project currently in development by SolVentus energy in conjunction with several other major contributors to evaluate the vertical's evolution in 2010. The goal is not to provide specific company or equity price predictive analysis, but rather to dive into several critical factors that can be factored into those specific company and sector analyzations, and provide overall guidance as both industry players and investors make their tactical judgement calls with all other factors critical in predictive modeling (revenue projections, cash and debt positions, management track records, corporate health, financing prospects, industry consolidation, competitive-set analysis, inventory issues and the like). So please keep that in mind as we dive into a glimpse into how our team feels 2010 very well could play out, and as we highlight some of the critical issues that will effect the industry.
The Copenhagen Effect - A Positive or Negative?
Read through ten in-depth reports from respected sources on the effects of the 2009 Copenhagen Climate Conference, and you will get ten different views of it's various successes and failures, and their corresponding effects on the GreenTech industry. We view the Copenhagen Climate Conference as a non-issue as it pertains to the continued development of the solar and wind energy generation evolution in the United States marketplace. Americans have a long nature of taking a leadership position in critical technology development through primarily the open-market entrepreneurial path (with a secondary hybrid approach of the free-market combined with heavy government investment and involvement - witness the space program and aviation industries as examples). SolVentus Energy's team strongly feels the hybrid-approach to GreenTech's technology evolution will continue in 2010 as it has in 2009, with government (both state and Federal) subsidies, grants and legislation continuing to provide a strong impetus for accelerated investment by open-market funding sources. Venture Capital firms, Private Equity firms, equity markets and substantial investments by large corporations will continue to fuel much-needed capital investment to further accelerate technological advances to bring the costs and availability of solar and wind energy generation sources more and more competitive with traditional energy generation sources.
Make no mistake, the Copenhagen Climate Conference failed to produce some of the key goals and sovereign national commitments many were hoping for to bring about an even further accelerated compression point of Alternative Energy advancement and deployment globally, and again, the United States was viewed as one of the major "blockade" nations in terms of reaching some of the more lofty global goals and commitments to reducing the world's carbon footprint. However, our team remains neutral on the actual proven science behind some of the hot issues at Copenhagen, such as Global Warming and it's short and long-term ramifications. Realistically, we still don't have firm scientific evidence pointing towards impending global environmental doom in the near-term. That said, I think all reasonable parties can agree that long-term ramifications do exist, and for a number of critical environmental, geopolitical, national security and economic reasons, the strong momentum towards Alternative forms of energy generation has reached the tipping point of no return. For these compelling reasons, while Copenhagen was a disappointment for many, we feel it just further highlights sustainable, long-term momentum this quickly-accelerating technology sector.
The GreenTech Funding Environment
Venture Capitalist Firms, Private Equity Firms, and even traditional lending organizations made very large bets in 2009 on the GreenTech Industry and all its internal sectors, and all signs point to a 2010 funding record for GreenTech. There are several negatives often heard around Sand Hill Road's ability to fund GreenTech startup technology companies - the main one being that VC's are simply not well-suited to venture capital-like funding. I want to point out a few of those challenges often stated, and offer some counterpoints:
1. The Capital Costs Are Too High in GreenTech - Yes and no. In the past, many venture capital firms have been disappointed with the pace of return-on-capital invested throughout the early half of this decade. The industry was nascent in its evolution - the advancements from just five years ago are truly breathtaking. As with the Interactive space in the 90's, we are seeing capital costs decrease as technologies build upon technologies, raw source manufacturing production capacity is already beyond current raw material needs for silicon for panels, and CRITICAL components to really accelerating Alternative Energy generation sources, like Smart Grid, communication and technology advancements to bring the National Energy Grid into the 21st century and usher in unprecedented achievements in conservation, distribution and soon, streamlined marketplace energy trading (that will bring downward pressure to solar and wind energy costs while bringing the inevitable efficiencies inherent in a free-market environment), are not nearly as capital-intensive as current thinking suggests. Think of the bevy of startups that are working on building energy management control software, home retrofit an d energy consumption reduction software for everything from commercial buildings and warehouses to transportation fleets. Each of these firms, if their Intellectual Property is executed successfully and provides its intended benefits, will provide a massive overall effect on our National Energy policies and evolution moving forward, and do nothing but help bolster the movement to Alternative Energy Generation. Even many current solar panel manufacturers are seeing cost-savings through innovative research, design, development and production processes.
2. Venture Capital Firms Handle Founders - As a veteran of the Internet's rise, our team here at SolVentus together have been involved in over ten technology startups. Personally, I have been either a founder, part of a founding team, or have lead startup fundraising in a revenue consultancy role six times. And they are indeed wild rides. VC firms are perfectly structured, with far more experience than I, in handling the rather eclectic personalities that come from founders and pioneers in technology sectors. I will venture a bit father in GreenTech - I see two main sets of startup founding partners that are proving to be every bit as adventurous in terms of management of expectations and adherence to business models and monetization plans as the boisterous days of the Internet Boom - the die-hard Greens, who will make any decision, despite its deviance from the business model or even profitability if it is saving mother earth, and the technology folks (many of which have migrated from the digital and technology space, like the Internet and PC/hardware verticals). Both can be a handful, and venture capital firms are very well equipped to handle the absolutely inevitable challenges that are inherit in technology startups. This may seem like a minor issue to many readers, but experience shows time and time again many of the most successful technology companies today were very close to crashing and burning during their early startup phases, and I have long held that venture capital firms do not get nearly the credit they deserve in handling those very delicate and potentially devastating challenges - challenges that often occur on a daily or weekly basis. One last point - venture capital firms can tolerate failure - in fact, it's often a badge of honor for the big boys. For every home run, there are several whiffs. That matches perfectly with GreenTech and its inevitable evolutionary pains it will experience over the next decade.
3. GreenTech is Science and Technology Intensive - Enough said right there. Venture capital firms have years and years of experience working with technology and biotech firms, with a very admirable rate of success. National labs, universities and governments all have their important roles to play, but they will never approach the success rate of the private market funding of startups in producing blockbuster results in the technology and science sectors.
4. Where is the Google in GreenTech? - Many argue First Solar may be the Google in solar and GreenTech. I disagree. I think we have yet to see the "Google" in GreenTech, and our research in how all the working pieces will fit together to bring solar, wind and other alternative energies into the mainstream national energy mix will require perhaps 20 "Mini-Googles." Each can provide massive returns-on-investment, many in short time-periods, and with our national electricity grid literally the lifeblood of our entire economy and nation, I would suggest the early strong winners will have long, high-margin, very profitable futures, with extremely strong and secure positions in the respective GreenTech verticals they serve.
5. A Pathway to Success Exists - I continue to highlight this point, but there are so many similarities to the advent of the chip industry, the personal computer industry, and the Interactive industry. And with the exponential power of those computers and software development having compressed and accelerated R&D to levels unimaginable just 15-years ago (and that acceleration continuing weekly), look for GreenTech's evolution to produce even quicker, more innovative advancements in a much shorter time-period. The path to success clearly exists, and early innovators with the First-to-Market advantage will quickly emerge as industry-dominant players.
Summary - Look for continued record levels of investment in the GreenTech sector, with larger and larger bets in 2010. An ancillary benefit is the current Administration's seemingly firm commitment to continue to stimulate funding for the GreenTech industry in any way possible, including tax advantages, grants and subsidies, and pro-GreenTech legislation, with the goal of placing the United States in the leadership role in Green Technology and Alternative Energy Generation.
The Effect of Government Subsidies, Grants and Legislation in 2010
The United States has become one of the more aggressive nations in promoting alternative energy technologies, but at the federal level tax credits and depreciation incentives are not currently enough to encourage sustainable demand growth. Instead, some states and municipalities have taken the lead in providing incentives through a variety of mechanisms ranging from upfront rebates and property tax credits to renewable energy credits and even European-style feed-in tariffs. SolVentus Energy’s extensive interviews with both end-users and manufacturers, as well as on-the-ground experience with our clients in solar and wind generation and other GreenTech sectors, lead us to conclude that for sustained growth in the U.S., incentives must, and will, be increased at the Federal level. Due largely to the credit crisis, funding for solar and wind energy generation projects has been tight. In the U.S., this has particularly been the case, because banks are unwilling to lend to projects that have undetermined cash flows.
Our 2010 outlook is that the combination of federal and state incentives and falling module prices will work together to dramatically increase demand in the U.S. As more banks become comfortable with funding these projects, and find ways to securitize the cash flows, we believe it will become an attractive revenue stream for solar lending divisions. Utilities, which are just now getting serious about meeting RPS goals, will likely take the lead in developing new solar projects. Until now, they have been unsuccessful in getting support from their ratepayers who would see up to a 10% increase in their utility bills. However, we believe that the emphasis that the Obama Administration is placing on climate change and positioning the United States in a global leadership position in the GreenTech revolution is quickly filtering into the fabric and culture of American society, and will continue propelling the U.S. solar and wind industry throughout 2010, culminating in the U.S. emerging in the global leadership position in solar PV and wind energy generation market share by 2014, according to our most recent forecasts.
Accelerated Solar and Wind Technology Advancement
The Energy Industry is ruthlessly ruled by the immutable laws of thermodynamics. It's a reality even the Greenest of the Green must address. The very first law of thermodynamics says that energy is neither created or destroyed. It gets redistributed. The chemical energy that is stored in the jet fuel inside a Virgin America airliner in San Francisco is, during a flight to JFK, turned into heat in the atmosphere or heat on the tarmac, or perhaps into air-conditioning that keeps the passenger in seat 2B comfortable. Thus, the energy in the jet's fuel tank doesn't disappear - it gets redistributed. And that redistribution of concentrated energy to a more random form leads us to the second primary law of thermodynamics - which says energy tends to become more random and less available. Heat always dissipates, from hotter to colder, never the other way around. An air-conditioned room during the summer in Phoenix or a heated room in Boston during the winter will quickly become uncomfortable unless more conditioned air is pumped into it. And creating that conditioned air, whether it is cooled or heated, takes a steady flow of energy, or what is called "base load." Taken together, the first two laws of thermodynamics provide the key to understanding why fossil fuels are so dominant in today's economy, and why technology advancements are SO critical in our inevitable move to cleaner forms of energy. Turning diffused forms of energy - whether that energy is stored in the starch found in inside corn kernels, the photons in sunlight, or the kinetic energy available from the strong breezes blowing off of Cape Code - into more concentrated forms of energy is always an uphill battle. And the more diffused the energy source, the more difficult it is to concentrate it into a form that can provide usable work, whether that's lighting a house, powering a jetliner, or firing a furnace.
I present that basic science background on thermodynamics as it relates to energy to help readers understand some simple facts that give solar and wind energy generation three pivotal current challenges that are being addressed and overcome quickly through technology advancements and breakthroughs:
1. Solar and Wind Power is Intermittent - While the fact is obvious, critics claim that solar and wind cannot replace the need for base load electric generating capacity from traditional sources like coal, natural gas, and nuclear. So a technology solution is needed to address turning intermittent generating capacity into base-load generating capacity for wind.
2. The "Not In My Backyard" Argument - Few people want to live near wind turbines (NIMBY, or the "Not In My Backyard" argument). The same goes for the new electric power transmission lines so critically needed for our nation's electric infrastructure, NO MATTER the source of the energy being generated. Factor in the environmental effect of turbines on birds and other wildlife (I am in no way making a political stand on saving birds - again, living in California, I know what a barrier birds and minnows and all sorts of other environmental issues can create) and imminent domain issues, and we have the second limitation to wind power generation especially that will need to be overcome.
3. The Discussion of Solar and Wind Energy CAPACITY Versus Production - So many in GreenTech will boast of the alternative energy generation capacity of a certain new project or field, but, back to it's intermittent nature, it's production is key. These terms have to be kept in mind whenever discussing clean energy sources like wind and solar. This is a slippery issue - we have personally worked on projects (primarily in solar, but also in wind) where, because of all sorts of issues too lengthy to list, actual production ranged anywhere from 11% - 62% of actual electric generation capacity. This third issue is very critical - too many solar and wind energy generation projects that wildly under-perform installed capacity will hurt the industry, so industry players need to be very accurate and conservative in their estimates for the long-term viability this vertical. We will see much more accurate forecasting of generation capacity in 2010 in our estimation, as the industry has had some rude awakenings to this effect.
Technology advancements (our forthcoming white paper will detail many of these, but for obvious intellectual property reasons, permissions to publish details are very hard to obtain) are in turbo-mode, if you will, to address how to solve the intermittent generation issue with both wind and solar. Let's quickly address the three limitations I cite above:
1. Intermittent Electric Power Generation - This is being actively and aggressively addressed by battery storage technology. There are both short term (1-3 years) and long-term (4-10 years) technologies in the works that will allow for large-scale, efficient storage of the power generated to be distributed much more evenly, providing the important "base-load" generation solar and wind energy generation needs to compete head-on with traditional energy sources. Our experience in various technology sectors over the past 20 years show a clear, proven pathway - costs will compress as critical mass is reached, and the acceleration of battery technology, capacity and functionality advancements will begin to see the inevitable compressed acceleration points we have seen in other technology verticals. Another factor will be the evolution of the Smart Grid, and all it's critical components. I will save a long-winded Smart Grid comment here, but suffice it to say, all indicators point to a vastly more intelligent, efficient national electric grid boosting intermittent energy sources like wind and solar tremendously.
2. Not In My Backyard Issue - This is social issue that will need to be resolved, and we feel strongly, with current cultural and social trends, it will be overcome to a great extent in 2010. It is frustrating and completely counterproductive to the GreenTech industry - here is a well-publicized example I highlight only to bring about further awareness of this challenge. Robert F. Kennedy Jr., in 2005 as an outspoken environmental lawyer for the Natural Resources Defense Council, complained in a New York Times op-ed about proposed "ugly wind turbines" off Nantucket Sound. I will let an op-ed response in the San Francisco Chronicle at the time sum it up, calling his opposition to the wind farm as an example of "a worldview born among the privileged patricians of a generation for whom building mansions by the sea was indistinguishable from advocating for the preservation of national parks." Bottom line - these will be issues the sector will have to overcome at the grassroots, local level, with help from Federal Government mandates (similar to the mandate that HOA's cannot outlaw solar panels in residential developments).
3. Clear Standardized Communication of Installed Generation Capacity as Opposed to Actual Production Capacity - We in the industry must be very cognizant of communicating INSTALLED CAPACITY versus ACTUAL PRODUCTION estimates. It is critical to be as accurate and conservative in our power generation estimates. As superior commercial battery storage solutions come online, it will be critical to factor that in those generation estimates as well. Standards (whether mandated by the government or the marketplace) will be critical in bringing about a much firmer reliance on predictive modeling of solar and wind generation project capacities.
I want to reinforce two critical technologies that are receiving not just "billions in government subsidies", but also billions in private funding - battery technology and the Smart Grid (and its related periphery technologies). Simply, we are on the verge of some tremendous advancements in battery storage capabilities that will lead to tremendous efficiencies in storing that intermittent wind energy, lending to solar and wind energy generation providing a reliable base load electric generation source similar to the fossil fuel sources widely used today. The second is the Smart Grid - companies ranging from Google to IBM to Oracle, as well as dozens and dozens of viable, Silicon Valley-funded start-ups, are devoting billions of dollars in solutions for the intelligent and efficient distribution of electric energy. Finally, much-needed infrastructure investments in the construction of new, high-voltage transmission lines, to effectively and efficiently link wind and solar energy generation fields to other parts of the nation are in the process of planning and in many cases, is well underway.
Solar and Wind Energy Generation - Macro and Micro-Generation Trends
We will see continued marketplace evolution in the end-user sales trends for micro-generation alternative energy generation. Players in the industry like Solar City, a turnkey, consumer-friendly solution for a grid-tied residential or commercial solar energy production solution, continue to gain market-share and traction in the industry. Utility-scale macro-generation projects have suffered some setbacks in the second-half of 2009 due primarily to budgetary constraints, but as the economy continues to recover, the Obama Administration continues its push for GreenTech funding, subsidies, grants and legislation, and the likely potential of legislation aimed at mandatory reduction levels of carbon emissions will all lead to a healthy combination of both macro and micro-generation solutions, grid-tied to the nation's utility companies, providing a healthy boost to solar and wind energy generation's overall percentage of electrical energy generation in 2010. Our team at SolVentus strongly believes there will be a convergence of both forms of alternative energy generation, and are working with clients entrenched on both sides of this renewable energy equation.
Utility Companies and Their Directional Strategy in 2010
Utilities, which are just now getting serious about meeting RPS goals, will likely take the lead in developing new solar projects. Until now, they have been unsuccessful in getting support from their ratepayers who would see up to a 10% increase in their utility bills. Again, both state and federal government emission mandates will play a key role in how aggressive the utility companies continue to offer rebates, ease-of-opportunity and competitive feed-in tariffs (or wholesale purchase prices to grid-tied producers during peak energy periods). We predict a progressively more intense effort by local, state and federal governments to put pressure on utility companies to continue the alternative energy trend with ever-more aggressive incentives for consumers to "Go Green."
The Critical Element - The Development of the Smart Grid and It's Peripheries
We strongly believe 2010 will be a milestone year for the Smart Grid. The first phase of the Smart Grid was about defining it - and it took nearly a decade for utilities (and vendors) to articulate a vision and blueprint for such a complex undertaking. Now that we’re there, it’s time to start making this vision concrete. Phase Two is about building out the smart grid, and again, I believe that 2010 will be a milestone year for progress in this regard. One important measure of our progress will be the number of newly connected homes and businesses by the end of next year.
1. A Year of Interfaces - Commercially available products with real standards and real interfaces will drive a meaningful start to Phase Two of the smart grid. That means utilities have realized that the “last mile” network of the grid is as important as the rest of its networked devices.
2. A Year of the Majors - Now that the Smart Grid is a reality, the world’s leading technology vendors are plunging into the fray. The smart grid’s enormous, complex challenges will be met with ingenious solutions from leading vendors in virtually every technology vertical. Look for new alliances among major networking companies, major telecoms providers, major chip suppliers, major retail household appliance manufacturers and major enterprise software vendors (as well as some unknown startups).
3. The Security Debate Will Be Behind Us - Shocking as that may sound, it’s true. Sure, security generated a lot of buzz (and anxiety) in 2009, but government-grade, standards-based security has won the day. The only questions that remain center around how and where security gets implemented within the smart grid. Stay tuned for lots of debate about how best to implement standards-based security. Granularity -– across devices, data, transport and systems — will play a key role in determining successful (or failed) smart grid architectures.
4. Disruption Is Bound to Happen - Yes, there are government stimulus awards being handed out, as well as contracts signed by putative (and emerging) market leaders. But which vendors are likely to succeed, and why? My prediction - disruption will result from a combination of the “usual suspects” (large, well-known technology vendors) plus some new surprises.
5. Smart Grid Networks Will Continue to Be Built - Until recently, there was lots of talk, speculation, blogging, Powerpoint presentations and whiteboard diagrams — and little else. So who is actually building out a viable, scalable, secure smart grid network? Actual smart grid deployments -– while small -– are now growing (in stature, as well as volume of connected devices). As the smart grid transitions to Phase Two, the vendors that demonstrate real technology (that’s really working in real-world deployments) will have a huge advantage and overwhelming mindshare with utilities.
6. Distributed Generation and Load Shaping Will Be the New “Killer Apps” - In the mid-1990s, everyone used to ask what the Internet’s “killer app” (i.e., the application that would propel massive adoption and growth) was. Seems rather quaint from our 2009 vantage point. Yet keen minds involved with the Smart Grid are now asking a similar question. But first the following queries about distributed generation and load shaping need to be answered:
How can utilities safely incorporate and distribute alternative energy?
How will utilities manage and distribute all that new energy going back into the Smart Grid? Has two-way energy management been a heretofore ignored issue?
How does this transform utilities’ value-add? Do they become energy brokers/marketplaces, as well as energy providers? Will deregulated markets help or hinder this process? How will consumers’ interests be protected? Who really wins? If harnessed properly, can we end our reliance on fossil fuels?
7. The Birth of Retail Energy Will Be Upon Us - With connected smart meters, utilities are on the cusp of developing more powerful ways to connect and communicate online with consumers. Moreover, utilities will need to listen closely to consumers, and work hard to deliver what consumers want. That’s exciting, but daunting. Our prediction: The birth of ‘retail energy’ will happen first in deregulated markets, where there exist meaningful incentives for both utilities and consumers to communicate and transact online.
8. Energy, Voice, Video and Data Will Emerge - and Converge - Back at the start of the century, telecommunications companies described the “triple play” (voice, video, data) opportunity –- a convergence of all media into the home, provided by a single vendor, and streamed onto a variety of consumer devices (phones, TVs, computers, and more). The Smart Grid is the first opportunity to enable the “quadruple play,” and we believe it will be a very, very big opportunity. Quadruple play is made possible by the use of standards-based, scalable smart grid architectures that connect and leverage feature-rich devices and functionality, along with high-bandwidth (and low cost) 4G networking. We are already seeing both vendors and utilities evaluate the benefits of this “quadruple play” approach as they build out their smart grids.
2010 - Solar and Wind Energy Generation Accelerate at a Surprising Rate
In summary, our research is pointing at 2010 as a breakout year for solar and wind energy generation in the United States. As described above, there will be many intricate working parts, from financing, government policy, ancillary technology advancement, invention and development, and even social changes, that will converge in a compressed, accelerated manner, ushering in a new technology revolution in the GreenTech space. SolVentus Energy strongly believes 2010 is the year GreenTech is ushered in as the new high-growth technology space in the United States economy, producing surprising economic benefits, job creation, helping establish the U.S. in a leadership role in a critically important industry, revitalizing and in some cases, replacing aging industries, and finally, providing investors enormous opportunities not only in 2010, but for the decade to come.
Disclosure: No holdings in any of the companies referenced in the article.
Monday, December 21, 2009
Smartphones and the PC Wars - Two Very Different Animals
Analysts after analyst, commenter after commenter, makes the comparison that only one handset and mobile OS will survive the "Smartphone Wars." After 12 years in digital, seven of which I continually worked with some of the top mobile and mobile technology firms, I was convinced every year, seeing the incredible opportunity smartphones will offer, that "this year is the year of mobile." Well, here we finally are! And I wanted to add my firmly-held belief that much of this conversation is off-base. This smartphone vertical is not going to play out anywhere near the way the Personal Computer vertical played out. Why? Lessons learned, and too many demographic segments that have demands that one handset producer or operating system can cater too.
The conversation is fairly redundant - no single carrier, handset, or mobile OS will dominate in the same fashion Windows has for so many years. Multiple players will thrive, and based on a particular users needs and opinions on what handset/OS/carrier serves their needs better than others, they will make that choice. Every serious study (and being involved in this space heavily for years until the past eight months) leaves me 100% convinced there will be several strong players. Each has their own merits and as the industry gains critical mass, the major players (survivors) will tailor their operating systems, handset design, and carriers to cater to 4-6 primary demographics. There is plenty of room for more than BlackBerry or iPhone or Android to survive. In my not so humble opinion, all the major hardware/operating system producers will thrive based on the synergistic lift smart phones are achieving, with mid-to-late 2010 being a real tipping point in smartphones (with the upcoming upgrades to hardware/chipsets) thriving, benefiting all the current (and any future) superior smartphone producers. Watch for iPhones next incarnation with a much more powerful chipset and further advancements to their already superior operating system, and I am watching Google's/Android's moves with great interest. And yes, Blackberry will retain a very nice market share, as they do cater to a more serious business-orientated consumer - but that is not to say Android, iPhone, Nokia, Palm (although they have their work cut out for them) and others won't also have versions to challenge Blackberry's current hold on that demographic segment.
Bottom line - to many analysts are holding on tight to the historical model of the Personal Computer wars, and this is an entirely different evolution. Just my two cents, for what it is worth - I will be writing further on this subject over the next few weeks as we head into 2010, the "Year of the Smartphone," and the smart investor is doing some serious due dilligence, studying the different smartphone user demographics, and making bets based on those factors. As a side note, I have noticed many articles from analysts that strongly endorse one handset or mobile OS over another - smartphones (especially iPhones and Blackberry, with Android emerging) endear a very strong personal attachment to many users. It bodes your investment strategy well to put aside those personal passions (I am using both my beloved iPhone, a Blackberry and an Android handset, and I am quickly seeing how each device has very strong appeal to large demographics - large demographics that, in relative terms, are still low in terms of percentage of adoption, leaving each segment with incredible sales opportunities) and dive into the research in a dispassionate fashion.
I hope this helps, and I am always happy to share any information I have with anyone interested!
Disclosure: No holdings in any companies mentioned in this article.
The conversation is fairly redundant - no single carrier, handset, or mobile OS will dominate in the same fashion Windows has for so many years. Multiple players will thrive, and based on a particular users needs and opinions on what handset/OS/carrier serves their needs better than others, they will make that choice. Every serious study (and being involved in this space heavily for years until the past eight months) leaves me 100% convinced there will be several strong players. Each has their own merits and as the industry gains critical mass, the major players (survivors) will tailor their operating systems, handset design, and carriers to cater to 4-6 primary demographics. There is plenty of room for more than BlackBerry or iPhone or Android to survive. In my not so humble opinion, all the major hardware/operating system producers will thrive based on the synergistic lift smart phones are achieving, with mid-to-late 2010 being a real tipping point in smartphones (with the upcoming upgrades to hardware/chipsets) thriving, benefiting all the current (and any future) superior smartphone producers. Watch for iPhones next incarnation with a much more powerful chipset and further advancements to their already superior operating system, and I am watching Google's/Android's moves with great interest. And yes, Blackberry will retain a very nice market share, as they do cater to a more serious business-orientated consumer - but that is not to say Android, iPhone, Nokia, Palm (although they have their work cut out for them) and others won't also have versions to challenge Blackberry's current hold on that demographic segment.
Bottom line - to many analysts are holding on tight to the historical model of the Personal Computer wars, and this is an entirely different evolution. Just my two cents, for what it is worth - I will be writing further on this subject over the next few weeks as we head into 2010, the "Year of the Smartphone," and the smart investor is doing some serious due dilligence, studying the different smartphone user demographics, and making bets based on those factors. As a side note, I have noticed many articles from analysts that strongly endorse one handset or mobile OS over another - smartphones (especially iPhones and Blackberry, with Android emerging) endear a very strong personal attachment to many users. It bodes your investment strategy well to put aside those personal passions (I am using both my beloved iPhone, a Blackberry and an Android handset, and I am quickly seeing how each device has very strong appeal to large demographics - large demographics that, in relative terms, are still low in terms of percentage of adoption, leaving each segment with incredible sales opportunities) and dive into the research in a dispassionate fashion.
I hope this helps, and I am always happy to share any information I have with anyone interested!
Disclosure: No holdings in any companies mentioned in this article.
Wednesday, December 2, 2009
Leasing the Sun - SolarCity's Recipe for Success
As the credit crunch was starting to loosen earlier this year, one of the first glimmers of hope came from the solar energy space. In June, SolarCity and U.S. Bancorp Community Development Corporation (USBCDC) formed a partnership to finance small and medium-scale solar projects for homeowners and businesses across the U.S. The two companies created a new US $50 million tax-equity based fund to finance projects under SolarCity's SolarLease program.
The program allows homeowners and businesses to purchase power from solar energy systems owned and installed by SolarCity through a power purchase agreement (PPA). SolarCity, the system owner, takes advantage of commercial tax credits that it then applies to customer financing. The homeowner or commercial building owner benefits from a reduced monthly energy bill, and the lease payment is fixed, providing the homeowner or business a hedge against future utility rate increases.
The USBDC fund was one of only two tax-equity funds closed in the U.S. during the first half of 2009 that applied to residential solar projects — and both of the funds were created with SolarCity to finance solar installations.
Tax equity financing has been one of the primary constraints on the growth of the solar industry. The fund will allow SolarCity to increase installation throughput and hire more installers to keep pace with the strengthening demand from businesses and homeowners for affordable solar power.
According to sources on both sides of the fund, SolarCity's business model was the foremost driver in the process of getting the deal with USBCDC closed. Despite the fact that virtually every solar company in the country was looking to U.S. Bank for financing, SolarCity was chosen for three key reasons: it top quality products, its commitment to customer service and the equity that solar adds to residential and commercial real estate. For SolarCity, ensuring these areas of the company's business remain strong is the best strategy to be on the radar of financiers in the still difficult economy and credit environment.
Since the expansion, SolarCity has announced the availability of its SolarLease program to customers of Los Angeles Department of Water and Power (LADWP), the nation’s largest municipal utility. The company has also announced a new residential solar service in Oregon. SolarCity’s PurePower program allows homeowners to pay the same rate they were previously paying for electricity from the utility company. PurePower pricing for a 3.5-kilowatt solar system in Oregon starts at $30 per month.
The expansion of the U.S. Bank (NYSE: USB) fund has allowed the company to grow operations substantially to meet increasing demand. SolarCity has hired 140 people in the last 5 months and passed the 4,500-customer mark. SolarCity's growth is part of a wider trend in the PPA market that is taking place because of the retail electricity market it serves. With a large percentage of the nation's rooftops having potential for solar, and the massive and growing electricity industry, many analysts believe the industry won't come close to market saturation for at least the next 20 or 30 years.
USBCDC, one of the nation's largest tax-credit investors, solely makes investments in tax-credit equity and the Investment Tax Credit (ITC) is an extension of the group’s long-time experience in the New Markets and Historic tax credit programs, according to Tina Lin of USDCDC's Historic, New Markets & Solar Tax Credit Investments group.
The structures of USBCDC's tax equity fund deals run the gamut from direct investment, partnership flip models, lease pass-through to sale lease-back structures. USBCDC's return on investment comes primarily from the tax credits themselves so most funds they create with solar companies have short investment horizons, generally just 5 years. However, most transactions are entered into with the goal of doing more business in the future.
Since the closing of this deal, major changes have taken place in the solar finance space. Of these changes, none has been larger than the cash grant in lieu of the ITC provision of the American Recovery and Reinvestment Act becoming an option for developers. As these funds continue to be released and as the economy in general recovers more players will be back in the solar financial picture, but the possibility exists that trend may not last unless the provision is extended.
The conversion of the ITC to a cash grant has improved the tax-equity market, and we are starting to see many new investors enter this space because of that. Important to the industry is an extension of those grants through 2012. This will give new investors time to understand solar investments.
Disclosure: No positions.
The program allows homeowners and businesses to purchase power from solar energy systems owned and installed by SolarCity through a power purchase agreement (PPA). SolarCity, the system owner, takes advantage of commercial tax credits that it then applies to customer financing. The homeowner or commercial building owner benefits from a reduced monthly energy bill, and the lease payment is fixed, providing the homeowner or business a hedge against future utility rate increases.
The USBDC fund was one of only two tax-equity funds closed in the U.S. during the first half of 2009 that applied to residential solar projects — and both of the funds were created with SolarCity to finance solar installations.
Tax equity financing has been one of the primary constraints on the growth of the solar industry. The fund will allow SolarCity to increase installation throughput and hire more installers to keep pace with the strengthening demand from businesses and homeowners for affordable solar power.
According to sources on both sides of the fund, SolarCity's business model was the foremost driver in the process of getting the deal with USBCDC closed. Despite the fact that virtually every solar company in the country was looking to U.S. Bank for financing, SolarCity was chosen for three key reasons: it top quality products, its commitment to customer service and the equity that solar adds to residential and commercial real estate. For SolarCity, ensuring these areas of the company's business remain strong is the best strategy to be on the radar of financiers in the still difficult economy and credit environment.
Since the expansion, SolarCity has announced the availability of its SolarLease program to customers of Los Angeles Department of Water and Power (LADWP), the nation’s largest municipal utility. The company has also announced a new residential solar service in Oregon. SolarCity’s PurePower program allows homeowners to pay the same rate they were previously paying for electricity from the utility company. PurePower pricing for a 3.5-kilowatt solar system in Oregon starts at $30 per month.
The expansion of the U.S. Bank (NYSE: USB) fund has allowed the company to grow operations substantially to meet increasing demand. SolarCity has hired 140 people in the last 5 months and passed the 4,500-customer mark. SolarCity's growth is part of a wider trend in the PPA market that is taking place because of the retail electricity market it serves. With a large percentage of the nation's rooftops having potential for solar, and the massive and growing electricity industry, many analysts believe the industry won't come close to market saturation for at least the next 20 or 30 years.
USBCDC, one of the nation's largest tax-credit investors, solely makes investments in tax-credit equity and the Investment Tax Credit (ITC) is an extension of the group’s long-time experience in the New Markets and Historic tax credit programs, according to Tina Lin of USDCDC's Historic, New Markets & Solar Tax Credit Investments group.
The structures of USBCDC's tax equity fund deals run the gamut from direct investment, partnership flip models, lease pass-through to sale lease-back structures. USBCDC's return on investment comes primarily from the tax credits themselves so most funds they create with solar companies have short investment horizons, generally just 5 years. However, most transactions are entered into with the goal of doing more business in the future.
Since the closing of this deal, major changes have taken place in the solar finance space. Of these changes, none has been larger than the cash grant in lieu of the ITC provision of the American Recovery and Reinvestment Act becoming an option for developers. As these funds continue to be released and as the economy in general recovers more players will be back in the solar financial picture, but the possibility exists that trend may not last unless the provision is extended.
The conversion of the ITC to a cash grant has improved the tax-equity market, and we are starting to see many new investors enter this space because of that. Important to the industry is an extension of those grants through 2012. This will give new investors time to understand solar investments.
Disclosure: No positions.
Tuesday, November 24, 2009
Bye, Bye iPhone - Not So Fast!
I wanted to follow up on my article, Bye, Bye Love: Leaving my Apple (AAPL) iPhone for Verizon's Droid. My main point of contention at the time I wrote the posting - AT&T (T) abysmal wireless coverage. And not just 3G coverage - I have never possessed a mobile phone that drops as many calls as my beloved iPhone (we are going back to 1991 and the OKI 900!). I wish I was kidding, but too many important dropped calls led me to experiment with another wireless device. As for the commentary, please hold all fire when it comes to Apple Fanatics - I am tapping this posting on an Airbook, I have the Apple TV, three iPhones, and multiple MacBooks and one iMac. I am with you, my peeps. But I also run a very service-intense sales and marketing business, where a dropped call can literally mean life or death for a large deal. So, how can I justify keeping as my main phone the single best device I have ever owned - outside of the fact I cannot complete 38% of my phone calls without either a drop, or a long moment of dead silence (I have been keeping careful track over the past month, hence the 38% figure)?
Well, I have tried the Droid. It is a fantastic device, and I have been pleasantly surprised by the Android operating system. It has a long ways to go in terms of the seamless feel the iPhone OS has, but it's a given Google is addressing that quickly. I can happily report I dropped 21% of my calls on the Droid - still a high figure, but as you can see, it heartily beats the iPhone. I do want to note I live in Los Angeles, and I did eliminate any dropped calls that are in obvious dead zones, like the canyon passes.
Here are some of my initial experiences with both phones:
1. I had used BlackBerry (RIMM) for years and years, and I could blow out huge emails on the physical keyboards. It took a while, but I can throw down on the iPhone - especially since the last upgrade to the OS allows my to utilize the larger horizontal touchscreen keyboard. To my disappointment, Droid's keyboard leaves much to be desired. The physical feedback feels clunky, the keyboard itself is bit crowded (even for my small fingers), and actually feels fairly fragile - not impressed with the fit and finish of the keyboard at all. That said, again I am an Apple fan, and not much beats their fit and finish, to be fair. However, Droid and Verizon have been touting their product as a direct competitor to the iPhone, so let's subtract points on the physical keyboard. Most BlackBerry models have far superior keyboards, and even the Palm Pre beats out the Droid when compared directly. In summary, the keyboard, while not horrid by any standard, nevertheless is lacking when compared to the competition. Final note: I have spoken to many who simply prefer a physical keyboard to the touchscreen keyboard iPhone employs. If you find yourself in that category, I would recommend either dealing with the Droid's keyboard until the next upgrade, or waiting for that upgrade, simply because the Android operating system is fantastic. Bypass RIM and Palm - they will be small potatoes in the mobile market share game.
2. No multi-touch makes a big difference in day-to-day usage. I have had this argument 100 times with even Google execs - bottom line, multi-touch on the iPhone makes the overall user experience much more seamless and fluid. Google and Android has a ways to go to match ease-of-use for the average user.
3. I have 95+ applications on my iPhone, and they all work wonderfully, and update fairly well, with only the occasional hiccup. Android really needs to focus on this part of the experience - I have had nothing but trouble with many applications on my Droid. Open Source is fantastic - but there is something to be said for the Apple model of melding hardware and software. Most average users don't have the technical ability to navigate the application issues. Add to that, I cannot get nearly as many Android application on my Droid - they simply don't have nearly the number of applications, and the incredible variety. This leads into my next, critical point for Droid and Android...
4. It is CRITICAL for Android to step up and create a much more cohesive, user-friendly mobile application procurement environment. Long term, their open strategy (which right now is all the vogue with pundits but, as I wrote in another posting, they are way off mark on this) will lead to a lot of applications that are sub-par in performance, or worse, are net-negative on the base operating system. This is a huge issue for Google and it needs to be addressed. I am not advocating Apple is 100% right - but as of right now, their strategy kills Androids. My Android application experience has been confusing and downright awful, to be frank. And if it is for me, many other users are even more frustrated. Their base set of applications are fantastic, but iPhone users smugly look down at their Android counterparts, with dozens and dozens of fantastic, user-friendly and stable applications, easily procured from one easy source.
5. Web browsing speeds - here we give Droid and Verizon an important win, which goes back to AT&T - good old AT&T simply needs to step it up with their coverage. It's great that I am zipping faster than my Droid on Safari at times, but when I move seven paces to the left and the data stream wanes, what is the point of a faster browsing experience? The 3G coverage is frustrating, period, and it needs to be addressed or AT&T will lose iPhone in 2011.
6. I have been speaking with several Droid users having issues with their cameras in certain situations. I have not had the chance to really dive into the camera, but intend to over the Thanksgiving holiday, and post some results for comparative purposes. I WILL say iPhone's camera has never been my favorite, but actually works just fine for the casual well-lit snapshot. Even utilizing third-party apps, any iPhone pic taken in a dimly-lit setting is an act of redundancy - here's hoping what I hear is true, and 2010's update brings us not just a flash, but a fairly revolutionary upgrade to the camera (both hardware and rendering software - my sources say early tests are VERY exciting).
Summary: The iPhone remains first-in-class, but I see a tremendous future for the Android mobile operating system. And the factor that has driven me to carry two phones this month - Droid doesn't drop my calls nearly as much as the iPhone. I don't care about blaming hardware, the carrier, what geographic locale I happen to be in...consumers don't care. It is a phone after all, and my dropped-call percentage of 38% (almost four in every ten calls!) is unacceptable. AT&T and Apple need to address this issue, because if I am pitching a Fortune 100 client, I simply cannot have the phone blank on me if I move three steps top the left. My beloved iPhone is still in the lead over Android's latest and greatest offering, but AT&T and Apple must get the coverage problem solved and reassure their customer base (so incredibly loyal to begin with - as a former advertising executive, this should be an easy public relations fix once the actual coverage problem is addressed and rectified) that they can complete phone calls and have ready and stable access to their data streams without worry.
I will be checking back in with a further update after the holidays, and I would very much enjoy feedback on anyone's experiences with either device!
Disclosure: No holdings in any of the companies referenced in this article.
Well, I have tried the Droid. It is a fantastic device, and I have been pleasantly surprised by the Android operating system. It has a long ways to go in terms of the seamless feel the iPhone OS has, but it's a given Google is addressing that quickly. I can happily report I dropped 21% of my calls on the Droid - still a high figure, but as you can see, it heartily beats the iPhone. I do want to note I live in Los Angeles, and I did eliminate any dropped calls that are in obvious dead zones, like the canyon passes.
Here are some of my initial experiences with both phones:
1. I had used BlackBerry (RIMM) for years and years, and I could blow out huge emails on the physical keyboards. It took a while, but I can throw down on the iPhone - especially since the last upgrade to the OS allows my to utilize the larger horizontal touchscreen keyboard. To my disappointment, Droid's keyboard leaves much to be desired. The physical feedback feels clunky, the keyboard itself is bit crowded (even for my small fingers), and actually feels fairly fragile - not impressed with the fit and finish of the keyboard at all. That said, again I am an Apple fan, and not much beats their fit and finish, to be fair. However, Droid and Verizon have been touting their product as a direct competitor to the iPhone, so let's subtract points on the physical keyboard. Most BlackBerry models have far superior keyboards, and even the Palm Pre beats out the Droid when compared directly. In summary, the keyboard, while not horrid by any standard, nevertheless is lacking when compared to the competition. Final note: I have spoken to many who simply prefer a physical keyboard to the touchscreen keyboard iPhone employs. If you find yourself in that category, I would recommend either dealing with the Droid's keyboard until the next upgrade, or waiting for that upgrade, simply because the Android operating system is fantastic. Bypass RIM and Palm - they will be small potatoes in the mobile market share game.
2. No multi-touch makes a big difference in day-to-day usage. I have had this argument 100 times with even Google execs - bottom line, multi-touch on the iPhone makes the overall user experience much more seamless and fluid. Google and Android has a ways to go to match ease-of-use for the average user.
3. I have 95+ applications on my iPhone, and they all work wonderfully, and update fairly well, with only the occasional hiccup. Android really needs to focus on this part of the experience - I have had nothing but trouble with many applications on my Droid. Open Source is fantastic - but there is something to be said for the Apple model of melding hardware and software. Most average users don't have the technical ability to navigate the application issues. Add to that, I cannot get nearly as many Android application on my Droid - they simply don't have nearly the number of applications, and the incredible variety. This leads into my next, critical point for Droid and Android...
4. It is CRITICAL for Android to step up and create a much more cohesive, user-friendly mobile application procurement environment. Long term, their open strategy (which right now is all the vogue with pundits but, as I wrote in another posting, they are way off mark on this) will lead to a lot of applications that are sub-par in performance, or worse, are net-negative on the base operating system. This is a huge issue for Google and it needs to be addressed. I am not advocating Apple is 100% right - but as of right now, their strategy kills Androids. My Android application experience has been confusing and downright awful, to be frank. And if it is for me, many other users are even more frustrated. Their base set of applications are fantastic, but iPhone users smugly look down at their Android counterparts, with dozens and dozens of fantastic, user-friendly and stable applications, easily procured from one easy source.
5. Web browsing speeds - here we give Droid and Verizon an important win, which goes back to AT&T - good old AT&T simply needs to step it up with their coverage. It's great that I am zipping faster than my Droid on Safari at times, but when I move seven paces to the left and the data stream wanes, what is the point of a faster browsing experience? The 3G coverage is frustrating, period, and it needs to be addressed or AT&T will lose iPhone in 2011.
6. I have been speaking with several Droid users having issues with their cameras in certain situations. I have not had the chance to really dive into the camera, but intend to over the Thanksgiving holiday, and post some results for comparative purposes. I WILL say iPhone's camera has never been my favorite, but actually works just fine for the casual well-lit snapshot. Even utilizing third-party apps, any iPhone pic taken in a dimly-lit setting is an act of redundancy - here's hoping what I hear is true, and 2010's update brings us not just a flash, but a fairly revolutionary upgrade to the camera (both hardware and rendering software - my sources say early tests are VERY exciting).
Summary: The iPhone remains first-in-class, but I see a tremendous future for the Android mobile operating system. And the factor that has driven me to carry two phones this month - Droid doesn't drop my calls nearly as much as the iPhone. I don't care about blaming hardware, the carrier, what geographic locale I happen to be in...consumers don't care. It is a phone after all, and my dropped-call percentage of 38% (almost four in every ten calls!) is unacceptable. AT&T and Apple need to address this issue, because if I am pitching a Fortune 100 client, I simply cannot have the phone blank on me if I move three steps top the left. My beloved iPhone is still in the lead over Android's latest and greatest offering, but AT&T and Apple must get the coverage problem solved and reassure their customer base (so incredibly loyal to begin with - as a former advertising executive, this should be an easy public relations fix once the actual coverage problem is addressed and rectified) that they can complete phone calls and have ready and stable access to their data streams without worry.
I will be checking back in with a further update after the holidays, and I would very much enjoy feedback on anyone's experiences with either device!
Disclosure: No holdings in any of the companies referenced in this article.
Monday, November 23, 2009
SunTech's Optimism - Is it Justified?
I have been knee-deep in research on SunTech's latest earnings release, and I wanted to share some of my findings, both macro and focused, in order to provide some guidance on SunTech, the solar vertical, and the near and long-term outlook for SunTech. I see a lot of positives, and if SunTech can navigate some of the upcoming challenges successfully, they are positioned to be a strong leader in over the next 3-5 years in the solar space.
1. I just had a long conversation today with the head of a leading Greentech distribution company, massive in size. 2010 orders are looking much stronger than 2009, and I think we will see an uptick (from ALL that data I am seeing) in Q1 that will result in a surprising YOY increase. BUT, let's take that optimistic view with caution. This is a vertical very similar to other technology verticals I have been deeply involved with my whole career - the technology is changing constantly, the main players are going through growing pains (an example would be SunPower's accounting difficulties and potential restatements - been through several larger startups, and earnings restatements are very common on the fast-moving tech sector), and I am not going out on a limb by saying the strongest players today could easily be eclipsed by emerging advances from other firms tomorrow. Tread carefully - the laws of Disruptive Innovation and Disruptive Technology rule the day in the GreenTech vertical.
2. We can all count on subsidies to remain, especially in the U.S. with the current Administration in power, but we can also count on those subsidies shrinking in all likelihood. Government fiscal policy will dictate cutbacks, as industrialized nations struggle with high percentage of government debt versus GDP. That said, we also cannot predict what types of legislation will be enacted to continue to force the private sector towards Renewable Energy implementation (e.g. California). It's a low-visibility environment when we look at government policy, but there is a momentum and political environment currently that trends positive for Renewable Energy and the GreenTech sector as a whole.
3. I get flack for this all the time, but to discount the cultural and societal push, both domestic and internationally, towards Green solutions and Renewable Energy is foolish. History has shown again and again, culture is a powerful dictating force in enacting macro-infrastructural and economic evolution. I don't agree or disagree with this trend - as a realist, and an analyst, you simply must factor in, and it's a strong part of my predictive modeling for short-term GreenTech projections.
4. I am going to diverge with the consensus on China. There are some fundamental factors that both bolster the viewpoint that China is going to eclipse the United States and other European countries in Renewable Energy and GreenTech technology advancements and production capacity, to be sure. But China is taking a different approach than, say, Germany, a nation that has invested billions and billions not to power their nation with solar power (at an average of four sunlight hours per day, it's just not a practical environment for large-scale deployment yet - until leaps in energy storage make it so). Germany made that strategic investment as an intellectual property investment, and it is paying off. China is taking a different approach, an approach far more in line with their overall economic model - production capacity, production capacity, and then more production capacity. As a side note, this is a strategy that is frankly a forced policy - they simply do not have the engineering brain trust yet that the G10 nations do (no disrespect to China - they will get there for sure!!). The revolutionary technology advancements will, in my opinion, come from the U.S. and Europe, and China will be a major player in building the production capacity infrastructure necessary to deploy solar on a widespread, positive return-on-capital basis that will help make Q3-Q4 a real tipping point in solar - look at that time frame for the global, and domestic U.S., to reach critical mass, making solar absolutely viable from a Levelized Cost of Energy standpoint (likely without government and utility subsidies). Many variables, but my finger on the pulse for 2010 skews towards the positive projections.
Now, to quickly address SunTech specifically:
1. At this point in their startup evolution, their balance sheet is above average. Keep a close eye on how currency fluctuations are both benefiting and/or having a negative impact on their earnings. Forward -looking, I am 100% convinced that the dollar with strengthen, and I watch as an investor for SunTech to be prepared with strategies in place for this inevitable eventuality. Examples would include distribution models, tactical global production facilities (e.g. Phoenix was a positive development) and currency hedges.
2. There are many players in their particular vertical, again typical of a nascent technology environment in an accelerated growth phase. Keen eyes will be on their research and development revenue allotments. Are they continuing a firm commitment to advancing their technology, as opposed to allowing their current technology to carry quarterlies for the time being? Also, they are fairly deep in terms on their R&D talent base - look to see if they are able to hold onto this talent. R&D will be a big factor in determining the long-term viability and success of SunTech in this environment. Innovation, innovation, innovation! Key to this vertical, as it is with most technology verticals. Investment in R&D, even at the expense of lowering guidance for the next few quarters, may sound like career suicide, but is key to SunTech's long-term industry leadership positioning.
3. They are talking the talk on diversification in their sales channels - let's keep on eye over the next 6-12 months if the walk the walk. With feed-in tariffs and other government subsidies getting squeezed due to budget constraints as the need for further economic stimulus continues, an aggressive, intelligent diversivication strategy will be a critical factor to maintain top-line revenue growth. Eastern Europe is starting to appear ripe for a market share grab. And the sleeping giant called the United States is slowly awakening - maintaining a large piece of the market share in the U.S. should be a critical component to SunTech's sales-mix modeling.
4. The Chinese solar market has gotten a lot of coverage as of late, and rightfully so. But I am stressing caution in the longer-term, 3-5 year time frame - China will absolutely not be able to maintain their current torrid GDP growth rates, and as we see globally, it's much easier to delay or shelve Renewable Energy projects to slow the rate of government spending. Coal is cheaper, and coal in plentiful in China. Despite the protestations to the contrary, the Chinese government's absolute priority is maintaining power, and when their economic growth rate inevitably slow, a lot of systemic troubles within both their government and banking system will be revealed. The Chinese are currently constructing one new coal-powered generation plant a week. The media coverage is fantastic, and it's absolute a positive to those of us in GreenTech. But the reality on the ground is China is committed to ensure their energy needs are met at all costs, and coal is still a cheaper alternative for the Chinese generation plans than solar or wind. So as we see their growth rates slow in the middle of the coming decade, and the turbulence that will go with that slowdown, expect a lot of these Renewable Energy projects announced with such fanfare to be delayed or shelved completely. SunTech needs to recognize this reality and diversify accordingly.
5. I am impressed thus far with SunTech's level of transparency and fiscal discipline. If this continues, and I have no reason at this time not to believe it won't, this makes them a far stronger player globally than much of their competitive set.
Bottom line: I think SunTech is a fantastic 3-5 year play. If you are looking for immediate returns, look elsewhere - volatility is the name of the game in Technology sectors such as GreenTech, still very early in their evolution. But I see a lot of positives in SunTech's fundamentals, and as a five-year strategy, I think they are a safe, strong investment in the GreenTech sector.
Disclosure: No holdings in any of the companies referenced in this article.
1. I just had a long conversation today with the head of a leading Greentech distribution company, massive in size. 2010 orders are looking much stronger than 2009, and I think we will see an uptick (from ALL that data I am seeing) in Q1 that will result in a surprising YOY increase. BUT, let's take that optimistic view with caution. This is a vertical very similar to other technology verticals I have been deeply involved with my whole career - the technology is changing constantly, the main players are going through growing pains (an example would be SunPower's accounting difficulties and potential restatements - been through several larger startups, and earnings restatements are very common on the fast-moving tech sector), and I am not going out on a limb by saying the strongest players today could easily be eclipsed by emerging advances from other firms tomorrow. Tread carefully - the laws of Disruptive Innovation and Disruptive Technology rule the day in the GreenTech vertical.
2. We can all count on subsidies to remain, especially in the U.S. with the current Administration in power, but we can also count on those subsidies shrinking in all likelihood. Government fiscal policy will dictate cutbacks, as industrialized nations struggle with high percentage of government debt versus GDP. That said, we also cannot predict what types of legislation will be enacted to continue to force the private sector towards Renewable Energy implementation (e.g. California). It's a low-visibility environment when we look at government policy, but there is a momentum and political environment currently that trends positive for Renewable Energy and the GreenTech sector as a whole.
3. I get flack for this all the time, but to discount the cultural and societal push, both domestic and internationally, towards Green solutions and Renewable Energy is foolish. History has shown again and again, culture is a powerful dictating force in enacting macro-infrastructural and economic evolution. I don't agree or disagree with this trend - as a realist, and an analyst, you simply must factor in, and it's a strong part of my predictive modeling for short-term GreenTech projections.
4. I am going to diverge with the consensus on China. There are some fundamental factors that both bolster the viewpoint that China is going to eclipse the United States and other European countries in Renewable Energy and GreenTech technology advancements and production capacity, to be sure. But China is taking a different approach than, say, Germany, a nation that has invested billions and billions not to power their nation with solar power (at an average of four sunlight hours per day, it's just not a practical environment for large-scale deployment yet - until leaps in energy storage make it so). Germany made that strategic investment as an intellectual property investment, and it is paying off. China is taking a different approach, an approach far more in line with their overall economic model - production capacity, production capacity, and then more production capacity. As a side note, this is a strategy that is frankly a forced policy - they simply do not have the engineering brain trust yet that the G10 nations do (no disrespect to China - they will get there for sure!!). The revolutionary technology advancements will, in my opinion, come from the U.S. and Europe, and China will be a major player in building the production capacity infrastructure necessary to deploy solar on a widespread, positive return-on-capital basis that will help make Q3-Q4 a real tipping point in solar - look at that time frame for the global, and domestic U.S., to reach critical mass, making solar absolutely viable from a Levelized Cost of Energy standpoint (likely without government and utility subsidies). Many variables, but my finger on the pulse for 2010 skews towards the positive projections.
Now, to quickly address SunTech specifically:
1. At this point in their startup evolution, their balance sheet is above average. Keep a close eye on how currency fluctuations are both benefiting and/or having a negative impact on their earnings. Forward -looking, I am 100% convinced that the dollar with strengthen, and I watch as an investor for SunTech to be prepared with strategies in place for this inevitable eventuality. Examples would include distribution models, tactical global production facilities (e.g. Phoenix was a positive development) and currency hedges.
2. There are many players in their particular vertical, again typical of a nascent technology environment in an accelerated growth phase. Keen eyes will be on their research and development revenue allotments. Are they continuing a firm commitment to advancing their technology, as opposed to allowing their current technology to carry quarterlies for the time being? Also, they are fairly deep in terms on their R&D talent base - look to see if they are able to hold onto this talent. R&D will be a big factor in determining the long-term viability and success of SunTech in this environment. Innovation, innovation, innovation! Key to this vertical, as it is with most technology verticals. Investment in R&D, even at the expense of lowering guidance for the next few quarters, may sound like career suicide, but is key to SunTech's long-term industry leadership positioning.
3. They are talking the talk on diversification in their sales channels - let's keep on eye over the next 6-12 months if the walk the walk. With feed-in tariffs and other government subsidies getting squeezed due to budget constraints as the need for further economic stimulus continues, an aggressive, intelligent diversivication strategy will be a critical factor to maintain top-line revenue growth. Eastern Europe is starting to appear ripe for a market share grab. And the sleeping giant called the United States is slowly awakening - maintaining a large piece of the market share in the U.S. should be a critical component to SunTech's sales-mix modeling.
4. The Chinese solar market has gotten a lot of coverage as of late, and rightfully so. But I am stressing caution in the longer-term, 3-5 year time frame - China will absolutely not be able to maintain their current torrid GDP growth rates, and as we see globally, it's much easier to delay or shelve Renewable Energy projects to slow the rate of government spending. Coal is cheaper, and coal in plentiful in China. Despite the protestations to the contrary, the Chinese government's absolute priority is maintaining power, and when their economic growth rate inevitably slow, a lot of systemic troubles within both their government and banking system will be revealed. The Chinese are currently constructing one new coal-powered generation plant a week. The media coverage is fantastic, and it's absolute a positive to those of us in GreenTech. But the reality on the ground is China is committed to ensure their energy needs are met at all costs, and coal is still a cheaper alternative for the Chinese generation plans than solar or wind. So as we see their growth rates slow in the middle of the coming decade, and the turbulence that will go with that slowdown, expect a lot of these Renewable Energy projects announced with such fanfare to be delayed or shelved completely. SunTech needs to recognize this reality and diversify accordingly.
5. I am impressed thus far with SunTech's level of transparency and fiscal discipline. If this continues, and I have no reason at this time not to believe it won't, this makes them a far stronger player globally than much of their competitive set.
Bottom line: I think SunTech is a fantastic 3-5 year play. If you are looking for immediate returns, look elsewhere - volatility is the name of the game in Technology sectors such as GreenTech, still very early in their evolution. But I see a lot of positives in SunTech's fundamentals, and as a five-year strategy, I think they are a safe, strong investment in the GreenTech sector.
Disclosure: No holdings in any of the companies referenced in this article.
Wednesday, November 18, 2009
Rooftop Solar Generation - Ready for Primetime?
California’s ambitious goal of obtaining a third of its electricity from renewable sources by 2020 has spawned a green energy boom with thousands of megawatts of solar, wind, and biomass power plants planned for ... the middle of nowhere.
And therein lies the elephant in the green room: transmission. Connecting solar farms and geothermal plants in the Mojave Desert and wind farms in the Tehachapis to coastal metropolises means building a massive new transmission system. The cost for 13 major new power lines would top $15.7 billion, according to a report released in August by the state’s Renewable Energy Transmission Initiative.
The initiative, called RETI, is an attempt to build a statewide green grid in an environmentally sensitive way that will avoid the years-long legal battles that have short-circuited past transmission projects.
But the rapidly evolving solar photovoltaic market may moot the need for some of those expensive and contentious transmission lines, requiring transmission planners to rethink their long-term plans, according to Black & Veatch, the giant consulting and engineering firm that does economic analysis for RETI.
In short, solar panel prices have plummeted so much as to make viable the prospect of generating gigawatts of electricity from rooftops and photovoltaic farms built near cities.
“This has pretty significant implications in terms of transmission planning,” Ryan Pletka, Black & Veatch’s renewable energy project manager, told me last week. “What we thought would happen in a five-year time frame has happened in one year.”
That’s prompted Pletka to radically revise the potential for so-called distributed generation—solar systems that can plug into the existing grid without the construction of new transmission lines—to contribute to California’s need for 60,000 gigawatt hours of renewable electricity by 2020.
When Black & Veatch did its initial analysis last year, it predicted that photovoltaic solar could contribute 2,000 gigawatt hours, given the high cost of conventional solar modules and the fact that a next-generation technology, thin-film solar, had yet to make a big commercial breakthrough.
Pletka’s new number is a bit of a shocker: Distributed generation could potentially provide up to 40,000 gigawatt hours of electricity, or two-thirds of projected demand.
“Certainly some of the new transmission lines will be needed but not as many as before,” he says.
That analysis also calls into question the need for as many large-scale solar power plants. Currently there are about 35 Big Solar projects planned for California that would generate more than 12,000 megawatts of electricity.
A game-changer has been the rapid rise of thin-film solar. Thin-film solar modules are essentially printed on glass or other materials. Although such solar panels are less efficient at converting sunlight into electricity than traditional crystalline modules—which are made from silicon wafers—they can be produced more cheaply.
In the past year, utilities like Southern California Edison have signed deals with First Solar, the thin-film powerhouse, to buy electricity from four massive megawatt thin-film solar farms. And in September, China inked an agreement with the Tempe, Ariz., company to build a 2,000-megawatt power plant, the world’s largest.
The next day, Nanosolar, a Silicon Valley startup, announced it had secured $4.1 billion in orders for its thin-film modules, which it claims will be even more efficient and cost less to produce than those made by First Solar.
Meanwhile, California’s two biggest utilities, PG&E and Southern California Edison, this year each unveiled initiatives to collectively install 1,000 megawatts of distributed solar generation. SoCal Edison will put solar arrays on warehouse roofs throughout the Southland - First Solar snagged the first big contracts - while PG&E is focusing on ground-mounted solar systems near its existing substations.
So what’s behind this rooftop revolution in solar?
Partly it’s due to a glut in the solar panel market. The global economy collapsed last year just as solar module makers ramped up production. But it’s also a result of technological innovation and economies of scale that have made thin-film solar, for instance, competitive. Strides have also been made in cutting installation costs, which typically account for half the price of photovoltaic systems. And finally, a giant key in gaining traction towards critical mass in rooftop solar systems is financing. California-based SolarCity has emerged as an industry leader in providing financing that makes fiscal sense for homeowners and commercial building owners through their SolarLease program.
The solar market, of course, is heavily dependent on government incentives—in the United States and overseas—and thus vulnerable to disruption. But the trajectory remains one of falling prices and thus Black & Veatch’s projections pose a conundrum for transmission planners.
Given that transmission projects can take a decade to complete, power bureaucrats make their plans based on 10-year projections of energy costs according to Pletka. That wasn’t much of a problem when planning transmission for, say, a grid supplied by natural gas-fired power plants as the technology or the market was not likely to change radically.
Not so for solar, where technological advances and fast-changing market conditions are shaking long-held views that photovoltaic power, or PV, is not ready for prime time.
“I’ve worked in renewables since the ‘90s and I myself had written off solar PV for years and years and years,” Pletka says. “That’s a firmly rooted mindset among everyone who works from a traditional utility planning perspective.”
“We present this new information on photovoltaics to people and it’s still not sinking in,” he adds. “It would cause a major shift in how we plan.”
While fewer massive transmission projects would be needed if California generates gigawatts of electricity from rooftops, the distribution network will need to be upgraded and a smart grid created to manage tens of thousands of pint-sized solar power plants.
Cities, Pletka notes, could become generators of electricity rather than consumers of power.
“It brings up questions people haven’t had to talk about before,” says Pletka.
And therein lies the elephant in the green room: transmission. Connecting solar farms and geothermal plants in the Mojave Desert and wind farms in the Tehachapis to coastal metropolises means building a massive new transmission system. The cost for 13 major new power lines would top $15.7 billion, according to a report released in August by the state’s Renewable Energy Transmission Initiative.
The initiative, called RETI, is an attempt to build a statewide green grid in an environmentally sensitive way that will avoid the years-long legal battles that have short-circuited past transmission projects.
But the rapidly evolving solar photovoltaic market may moot the need for some of those expensive and contentious transmission lines, requiring transmission planners to rethink their long-term plans, according to Black & Veatch, the giant consulting and engineering firm that does economic analysis for RETI.
In short, solar panel prices have plummeted so much as to make viable the prospect of generating gigawatts of electricity from rooftops and photovoltaic farms built near cities.
“This has pretty significant implications in terms of transmission planning,” Ryan Pletka, Black & Veatch’s renewable energy project manager, told me last week. “What we thought would happen in a five-year time frame has happened in one year.”
That’s prompted Pletka to radically revise the potential for so-called distributed generation—solar systems that can plug into the existing grid without the construction of new transmission lines—to contribute to California’s need for 60,000 gigawatt hours of renewable electricity by 2020.
When Black & Veatch did its initial analysis last year, it predicted that photovoltaic solar could contribute 2,000 gigawatt hours, given the high cost of conventional solar modules and the fact that a next-generation technology, thin-film solar, had yet to make a big commercial breakthrough.
Pletka’s new number is a bit of a shocker: Distributed generation could potentially provide up to 40,000 gigawatt hours of electricity, or two-thirds of projected demand.
“Certainly some of the new transmission lines will be needed but not as many as before,” he says.
That analysis also calls into question the need for as many large-scale solar power plants. Currently there are about 35 Big Solar projects planned for California that would generate more than 12,000 megawatts of electricity.
A game-changer has been the rapid rise of thin-film solar. Thin-film solar modules are essentially printed on glass or other materials. Although such solar panels are less efficient at converting sunlight into electricity than traditional crystalline modules—which are made from silicon wafers—they can be produced more cheaply.
In the past year, utilities like Southern California Edison have signed deals with First Solar, the thin-film powerhouse, to buy electricity from four massive megawatt thin-film solar farms. And in September, China inked an agreement with the Tempe, Ariz., company to build a 2,000-megawatt power plant, the world’s largest.
The next day, Nanosolar, a Silicon Valley startup, announced it had secured $4.1 billion in orders for its thin-film modules, which it claims will be even more efficient and cost less to produce than those made by First Solar.
Meanwhile, California’s two biggest utilities, PG&E and Southern California Edison, this year each unveiled initiatives to collectively install 1,000 megawatts of distributed solar generation. SoCal Edison will put solar arrays on warehouse roofs throughout the Southland - First Solar snagged the first big contracts - while PG&E is focusing on ground-mounted solar systems near its existing substations.
So what’s behind this rooftop revolution in solar?
Partly it’s due to a glut in the solar panel market. The global economy collapsed last year just as solar module makers ramped up production. But it’s also a result of technological innovation and economies of scale that have made thin-film solar, for instance, competitive. Strides have also been made in cutting installation costs, which typically account for half the price of photovoltaic systems. And finally, a giant key in gaining traction towards critical mass in rooftop solar systems is financing. California-based SolarCity has emerged as an industry leader in providing financing that makes fiscal sense for homeowners and commercial building owners through their SolarLease program.
The solar market, of course, is heavily dependent on government incentives—in the United States and overseas—and thus vulnerable to disruption. But the trajectory remains one of falling prices and thus Black & Veatch’s projections pose a conundrum for transmission planners.
Given that transmission projects can take a decade to complete, power bureaucrats make their plans based on 10-year projections of energy costs according to Pletka. That wasn’t much of a problem when planning transmission for, say, a grid supplied by natural gas-fired power plants as the technology or the market was not likely to change radically.
Not so for solar, where technological advances and fast-changing market conditions are shaking long-held views that photovoltaic power, or PV, is not ready for prime time.
“I’ve worked in renewables since the ‘90s and I myself had written off solar PV for years and years and years,” Pletka says. “That’s a firmly rooted mindset among everyone who works from a traditional utility planning perspective.”
“We present this new information on photovoltaics to people and it’s still not sinking in,” he adds. “It would cause a major shift in how we plan.”
While fewer massive transmission projects would be needed if California generates gigawatts of electricity from rooftops, the distribution network will need to be upgraded and a smart grid created to manage tens of thousands of pint-sized solar power plants.
Cities, Pletka notes, could become generators of electricity rather than consumers of power.
“It brings up questions people haven’t had to talk about before,” says Pletka.
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