Posted by lsvp in 2009, biofuel, China, Cleantech, electric vehicles, energy efficiency, energy storage, predictions, solar.
Lightspeed has invested across several cleantech areas, including solar (Stion), biofuels (LS9, Solazyme), clean coal (Coaltek), LED lighting (Exclara), and energy storage (Mobius Power). Here are some of our cleantech predictions for 2009 (see our prior year predictions here):
1. Cleantech funding will slow significantly, forcing startups to seek alternative growth strategies
The level of cleantech VC investment reached its highest levels ever in recent years. With the market downturn, however, many of the key players in the recent wave – private equity funds, hedge funds, project financiers, and debt providers – have slowed or halted their funding pace, and the IPO window is effectively closed. VC firms will continue to invest, but at a more modest pace.
As a result, we expect many startups to delay their timing for achieving commercial production. Startups will need to rethink their scale-up strategies and sacrifice growth in favor of reaching breakeven earlier. Hardest hit will be the companies that need to make significant capital expenditures to prepare for commercialization, but still have substantial technology and scale-up risk.
As companies find it more difficult to attract funding and drive down costs, expect some to seek more creative solutions. For example, biofuel startups will increasingly leverage underutilized production assets owned by distressed corn ethanol companies for commercial production capability. Meanwhile, expect large, established energy enterprises to play an increasingly vital role in helping to support startups as a development partner, funding source, customer, distribution partner or acquirer.
2. Companies will come under increased pressure to achieve competitive cost economics
With oil and energy prices falling significantly from last summer’s historical peaks, cleantech startups have stiffer requirements for the cost economics needed to compete with traditional energy sources. Companies with technologies that enable disruptive cost economics and can target higher-value market segments will be best positioned to stay competitive. For example, biofuel companies that can produce higher-value specialty chemicals can thrive even with oil at $40 per barrel. In solar, even with polysilicon prices falling due to the impending supply glut, high-efficiency thin-film solar panel providers will have the potential to exploit an intrinsic cost advantage. Conversely, companies that do not provide compelling cost economics will find it tough to contend.
The downturn has also made consumers and enterprises increasingly price sensitive and less willing to choose products at a price premium for the sake of “going green.” As such, sustainability-oriented green building products without an inherent cost advantage will be a tougher sell with more cost-conscious building owners.
3. Investor interest in energy storage, especially for automotive and grid-scale applications, to grow strongly
VCs will continue to invest in areas with large market opportunities, significant headroom for innovation, and more capital-efficient expansion models. We expect energy storage to be one of these areas. In the automotive sector, batteries with improved safety, performance, and cost parameters will be crucial to the broader adoption of electric vehicles (EV’s) and plug-in hybrid electric vehicles (PHEV’s). In the utility sector, the dramatic increase in distributed generation expected in the next decade from wind, solar, geothermal, and other sources will continue to adversely impact grid stability. We believe that economical grid-scale storage will be a critical part of the solution.
4. Government will play larger role in cleantech, as policymakers around the country increase their support
With passage of the solar investment tax credit and the Obama Administration’s stated support for a $100B+ energy plan, we expect the seeds of key U.S. energy policies for the next decade being planted in 2009. Although policy enactment may not happen in the coming year, expect topics like carbon cap-and-trade/taxation, national Renewable Portfolio Standards (RPS) and Renewable Fuel Standards (RFS), biofuel incentives, EV infrastructure, and grid-scale storage to be hotly debated. We expect that the federal government will move to formalize a venture capital-like arm to invest in promising cleantech startups, with particular emphasis on commercialization as opposed to research & development. State governments will continue to drive cleantech policy, with more states establishing or tightening RPS and RFS, reducing permitting requirements involved in consumer renewables adoption, and offering tax breaks for startups.
Importantly, policymakers at all levels will continue to consult the private sector to understand benefits and risks of emerging technologies that could benefit from regulatory support to avoid legislation that could potentially be detrimental to the cause (see Lightspeed’s presentation to California’s Lt. Governor and the Commission for Economic Development).
5. Cleantech comes of age in China
During the middle of last year, China passed the U.S. as the world’s largest producer of greenhouse gas emissions (GHG). 300 million people in the country have no access to potable drinking water; over a million people each year die from air pollution-related disorders, with new coal-fired plants going into operation on a weekly basis.
The Chinese government has put its might behind increased support for cleantech, enabling viable technologies to achieve distribution more rapidly. After the Olympics ended, the national leadership passed the Circular Economy Law to stimulate cleantech spending through energy efficiency, water conservation, and tighter regulation of GHG emissions. Further, the government has committed to a renewable energy budget of ~$300 billion over the next 12 years, a ~15% renewables target by 2020, and a ~$200 billion environmental protection budget through 2010.
VCs have already responded to this building momentum, as local investment in cleantech rose from $550 million last year to an expected $720 million this year, according to Cleantech China Research. Sectors that look poised to attract VC investor attention in 2009 include wind, clean coal, waste-to-fuel technologies, and energy-efficient building materials.
Posted by Andrew Chung in 2008, China, Cleantech, India, predictions, solar.
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.
If you missed them, here are our 2008 predictions for consumer internet, enterprise infrastructure and mobile as well.