Solar industry chases a cheaper kilowatt

By Martin LaMonica

March 9, 2007

Solar power, long seen as among the most promising of alternative energy sources, may finally get its chance to shine.

Solar equipment manufacturers have been chasing the same goal for decades: producing a cheaper kilowatt of electricity. Now, after years of unfulfilled hopes, experts say that the solar picture is finally improving.

New technology is being developed in solar photovoltaic (PV) systems. And, more important, investors seem to be taking the advice of none other than Thomas Edison, the legendary inventor who famously exclaimed: “I'd put my money on the sun and solar energy.”

Many decades later, venture capitalists are heeding that call.

“Conditions have never been better because electricity prices are going up. The basic challenges with solar energy haven't gone away (since the 1970s) but clearly advances in material science, the economic conditions we're facing, and environmental mandates are all making solar much more attractive,” said William Lese, managing director of venture capital firm Braemar Energy Ventures.

The surge in venture capital activity dovetails with the growing interest overall in so-called clean technologies . “It's not like the Internet boom of the late 1990s, but there's a clear understanding that this is a market that is about to take off,” said Steve Chadima, chief marketing officer at Energy Innovations, a manufacturer of energy systems spun off from incubator Idealab.

Although still a fraction of overall energy industry, use of solar PV goods—products that convert light to electricity—saw rapid growth last year. The total market, which includes components and installation services, grew more than 50 percent in 2005, according to Clean Edge, a clean energy research firm.

Brighter economic prospects for clean energy have set off a race to manufacture more efficient solar panels, which will improve the cost per kilowatt for consumers. Solar PV systems are still substantially more expensive than purchasing electricity generated from fossil fuels or nuclear power, according to industry experts.

The high cost of silicon, the material that converts light to electricity in most solar panels today, is one of the biggest barriers to lowering the cost of solar PV systems, said solar company executives.

“The industry is capacity constrained for the foreseeable future,” said Richard Chleboski, vice president of worldwide expansion at Evergreen Solar , who spoke at a recent Piper Jaffray conference on the solar industry. “Technology is really key in this industry because it's a necessary component to create cost reductions.”

Going beyond silicon

Established solar providers are betting that increased silicon capacity and improved manufacturing will make solar electricity more affordable and stoke more demand. But several smaller companies are taking widely varying routes with the same goal in mind.

Many companies are investing in advanced manufacturing techniques that cut down on the amount of silicon required to make a panel. Evergreen Solar, for example, has devised a “string ribbon” production method which it says reduces silicon waste and boosts the efficiency of panels, thus lowering the overall system costs.

Silicon-based solar panels dominate the market. But several smaller companies are challenging the incumbents with solar cells built from materials other than silicon.

Start-ups Miasole, Nanosolar and DayStar Technologies are using so-called thin film solar cell processing and nanotechnology in an effort to boost efficiency and lower costs.

“There are questions marks around the type of efficiency (thin film technology) can get and the longevity of the cells. But these companies are moving forward rapidly, beyond the R&D stage and into production,” said Ron Pernick, principal of Clean Edge.

Another approach is solar concentrators, where solar panels are equipped with mirrors to focus the sun rays on a photovoltaic cell to make them more productive at creating electricity. These products could be used to supplement the power of a large warehouse or retail outlet, for example.

Energy Innovations, SolFocus, Solaria and Pacific SolarTech are working on concentrators. These systems are being pilot-tested, and the companies are expected to commercialize their products over the next year.

Investors warm to clean energyAnother notable nonsilicon solar company is Stirling Energy Systems. It is constructing huge farms of mirrored dishes in the California desert to generate electricity. It expects to deliver on its contracts to build facilities that generate hundreds of megawatts of power in late 2008, said Stirling CEO Bruce Osborn.

Konarka, which recently raised an additional $20 million in venture funding, is pursuing organic photovoltaics, where solar cells are made from plastics.

Although still in development, this process of “printing” organic solar cells results in flexible strips which can be used for a wide range of applications, from solar-powered cell phones to portable Army structures covered in photovoltaic material, according to the company.

“If you want to dramatically lower the price of PV, it's not about scavenging the last piece of silicon. It's about changing the manufacturing process,” Konarka CEO Howard Berke said at the Piper Jaffray conference earlier this month.

Even as the industry chases a cheaper kilowatt hour, demand for solar PV systems is on the rise from both business and consumers, analysts say. Clean Edge forecasts that the total solar industry is poised to expand from $11.2 billion last year to $51.1 billion in 2015.

Government subsidies and incentives are an important part of the demand picture, say industry executives and analysts. Germany has perhaps the most aggressive solar incentive program in the world and a large solar market. California has earmarked about $3 billion over the next 10 years to build 300 megawatts of capacity in its “million roofs” solar initiative.

The financial community has taken note. Three solar companies went public last year—Q-Cells, SunPower and Suntech Power—raising a combined $800 million.

Because the solar PV industry is so dependent on silicon, many entrepreneurs and venture capitalists can transfer their skills from the semiconductor and IT industries, according to industry experts.

For example, Kleiner Perkins Caufield & Byers, the company that founded IT industry mainstays Sun Microsystems, Google and, recently launched a $100 million “greentech” fund. One company in its portfolio is thin-film producer Miasole.

The spike of investment dollars reflects the growing maturity of the solar PV industry, said Clean Edge's Pernick, who expects competition among solar companies and among countries promoting solar power to go up.

“We're not going to have a future where there is just renewable energy. It's going to be a mix for some time and rightly so,” he said. “But people are moving the needle forward very aggressively.”

What's new:

The high cost of silicon is setting off a race to improve solar panel efficiency and lower costs. Traditional solar companies are investing to boost silicon capacity and improve manufacturing, while a host of start-ups are betting on new materials and production techniques.

Bottom line:

Growing demand for clean energy is fueling a surge in investment and new technology development to improve the performance of solar-powered electricity.