Many of our readers may not know that Lightspeed has been very active in cleantech over the past year and a half. We have evaluated over 400 cleantech startups to date and have made investments in solar (Stion), biofuels (LS9), clean coal (Coaltek), LED lighting efficiency (Exclara), and batteries (Mobius). My partner Peter Nieh and I (Andrew Chung) lead up the cleantech effort here at Lightspeed, and here are some of our solar prognostications for 2008:
1. Solar will sustain its torrid growth, as costs continue to fall. The solar market has grown at ~40% per annum in recent years, and there are many reasons to think that it will sustain, if not exceed, that clip in 2008. Solar panel prices have followed a predictable experience curve since the 1970’s, with prices dropping by 20% with each doubling of manufacturing capacity. As the silicon-dominated industry moves to thinner and higher-efficiency wafers, increases manufacturing scale, improves wafer and cell processing technologies, sees polysilicon prices return to rational levels, and migrates production to lower-cost countries –- costs will continue to drive towards parity with grid rates, and solar will become increasingly more attractive. Companies have developed creative PPA (power-purchase agreement) financing models to reduce or eliminate upfront installation costs, which will make solar more accessible for a wider range of corporate and residential customers. The election year should also see more state subsidy support for solar and a renewal of the federal tax credit, which will further bolster growth.
2. Emerging startups that benefit from the polysilicon supply shortage will face increased pressure, as the poly-Si crunch begins to ease. Solar veterans can debate the timing endlessly, but many expect additional poly-Si supply to come online by late 2008. Startups that tout silicon-independent solar solutions, like concentrators and thin film (CIGS, a-Si, CdTe, etc.), will face pressure to come to market more quickly, as their cost/supply advantages erode with greater availability of poly-Si and a retreat from spot-pricing. E.g., none of the CIGS thin-film startups, which have collectively received hundreds of millions in investment in recent years, managed to reach mass commercialization this past year as many had projected. They will continue to be under pressure to reach market before the window of opportunity closes.
3. Entrepreneurs will increasingly look beyond cell and module production. As the technology-heavy areas of cell and module production get crowded, more and more entrepreneurs look to startup opportunities in the downstream balance-of-systems part of the value chain. This area has seen less attention to date, yet makes up ~50% of the total installed cost. Novel packaging techniques, distributed inverter / MPP tracking / power management technologies, systems monitoring solutions, streamlining of the installation process, and creative solar financing models — entrepreneurs increasingly recognize the ripe opportunity in this part of the solar business, and 2008 should see heightened startup activity in this area.
4. China and India will begin to emerge as strong domestic markets for solar. With a 500 MW coal-fired plant going up in China every week, the growth of greenhouse gas emissions has reached dizzying levels. China already “boasts” 16 of the 20 most polluted cities in the world, with hundreds of thousands a year dying prematurely from such pollution. Many experts expect that the government will spend tens of billions of dollars in the next 5-10 years –- a significant portion going to solar -– to reach the mandate of 15% from renewables by 2020. In India, where the energy shortfall has reached 15% and domestic coal reserves will run out in ~50 years, the government is actively pursuing incentive policies and feed-in tariffs to help drive the use of solar and other renewables. 2008 should see further policy refinement in both countries, which will spur increased domestic adoption of solar.
5. More IT entrepreneurs will continue to start or join solar ventures. Cleantech has captured the imagination of many seasoned IT entrepreneurs, and we expect that 2008 will be another high-water mark for crossovers into the space. Solar, in particular, has been attractive to IT veterans due to a high translatability of manufacturing skills from semiconductor production in the upstream part of the value chain; and the applicability of IT-related disciplines like power management, systems management and monitoring, supply chain management, and financing arbitrage in the downstream part of the value chain.