Manufacturing and Industrial

– Advanced Packaging
– Monitoring & Control
– Smart Production

Capturing the value in Efficiency

Posted on by brettalan

Reducing energy use through improved efficiency measures is often a better investment when compared to investing in cleaner energy generation sources as we have noted on this blog. While the returns to the consumer are documented well in our previous posts (3.0x-4.0x ROI)- how do investors capture these excellent returns?

Let’s first identify the business. A company seeks residential and/or commercial clients who need to retrofit an existing building. The firm may implement measures such as: improved insulation, replace lighting, replace roofing materials, install energy usage monitoring equipment and replace some appliances for more efficient versions. On some occasions these firms may offer to install solar panels or micro turbines.  For discussion’s sake- let’s focus on the efficiency side and ignore the generation component.

The question I pose to our readers is this: With such an excellent return profile for the clients, how can the firms delivering the value from efficiency also earn a good return?

Installing equipment is not very “value added” and does not differ much from any typical contractor who could also be installing a new pool or painting a house for example. The returns on these labor services are small and also very competitive in most markets. The value added, in my opinion, comes from the expertise of the efficiency firm in determining how to best maximize returns for the client when deciding where and how to invest the capital. The experts can best procure products and customize solutions for the individual needs of each building and house. Labor can be outsourced or done in house.

So, does a firm simply charge a fee to the client for their expertise? Again, margins on re-selling equipment and labor are not likely to be very productive. In this entire value chain, it seems like the biggest value is delivered to the end-client who will then save money once their return on investment is received. Perhaps efficiency firms could negotiate to capture a percentage of the energy savings until a target is met, using historical energy use and cost as a baseline model? It would be an ‘incentive’ payment of sorts- of course with many caveats.

What do you think? Your comments below are highly suggested.

PS. Check out two firms I’m currently reading about in the sector: OPower and GridPoint (who just bought Standard Renewable Energy)

Batteries, Lithium Ion and the Automotive Industry

Posted on by S Klamp

MEET (Muenster Electrochemical Energy Technology), Germany is getting ready to launch a new 2000sqm research hub focusing on battery technology, most likely a significant effort will go into lithium-ion.

Prof Winter, MEET (University of Muenster, Germany)Professor Winter (recently at Graz, Austria) will chair the workgroup at MEET (homepage). Research-in-Germany.Org gives a summary of the plans and objective proposed by MEET. We note that the commitment by the regional government, the University and the private sector (including Volkswagen, Evonik and Chemetall) is impressive, on a regional scale: “The Ministry of Innovation, Science, Research and Technology of the state of North Rhine-Westphalia is funding the project to the amount of €5.5 million for the coming three years. Münster University is contributing €7.5 million. Further funding is coming from the North Rhine-Westphalian Ministry of Economic Affairs and Energy as well as the German Federal Ministry of Economics and Technology.” The private sector is financing the chair at the University with some €2.25m which is certainly impressive given the economic climate we are in.

We wrote about Evonik previously and consider it a very interesting company that may be in the position to shape the future of lithium-ion batteries. Naturally, since Volkswagen is one of the key sponsors of the centre we must assume that they have a commercial interest to link themselves with Professor Winter and his battery research team. The automotive industry is bound to change forever, no doubt. My colleagues focused on the supply side of the lithium-ion market and whether, subject to a successful scale of electric vehicles, the supply chain is secure. In his piece “The Great, Fake Lithium Supply Scare” Brett draws the conclusion that we should not worry. Although the market is too young to make credible predictions the debate is certainly worth watching. Arguably we need to better understand whether lower grade lithium-ion can be used as an input into a high-end technology process.

Autocluster, NRW (http://autocluster.nrw.de/)

Autocluster, NRW (http://autocluster.nrw.de/)

We wrote about the need to direct further money into research for energy storage and continue to see this as one of the most important research and investment themes for any serious cleantech venture investor. It is interesting that governments can play a significant role in kick-starting a debate as well as put money into the area with a targeted approach. Autocluster.NRW gives a strong, systematic approach how to create a new hub/ cluster that can concentrate core capabilities in a region. We would like to draw readers of the report to page 58ff (‘Screening of R&D project in NRW’). It highlights the efforts of various academic institutions and how their co-ordinate their efforts to maximize their combined research capabilities. The report highlighs efforts currently made by industry to drive battery technology forward. ‘According to the German government, the number of electric vehicles on the road will be 1 million by 2020’ and ‘[a]ccordingly, the resultant higher electricity needs for 1 million vehicles in 2020 must be addressed’. The authors deduct that this would require some 5 power plant blocks of 600 megawatts each (~total need about 3TWh).

To contrast the recent UK initiative of a Green Investment Bank, Autocluster’s core competence building based on a regional level sounds proactive, constructive and combines both a coordinated effort made by governments and the private sector. Can the UK mirror the effort and come up with a strategy that is as visible? Bob Wigley, good luck!

Incandescent lights to start dimming

Posted on by brettalan

On the continued theme of the superior value of efficiency plays, news breaks out just this week that Toshiba will halt production of their incandescent lighting business, a product they have sold since 1890. The company will now focus on LED lights instead. For reasons of: consumer preferences, government legislation and frankly, common sense, the incandescent light bulb is being replaced by both CFL lights and eventually LED. See Toshiba’s own sales chart of incandescents and CFLs here:

Toshiba Light Sales (Credit: Toshiba & CNET News)

Select Govt Incandescent laws:

US: A 30% increase in efficiency in selected light bulbs which is an effective phase out of incandescents from 2012-2014.
UK: Ban, beginning 1/1/2011
Canada: Ban, beginning 1/1/2012
European Union: Ban, beginning 1/1/2010
Argentina: Ban, beginning 1/1/2011.
Australia: Ban, beginning 1/1/2010.
Others include: Philippines, Malaysia, Ireland, New Zealand, Venezuela & Cuba.

Lumens Produced per each Watt of electricity:
Incandescent: 10-18 lumens
CFL: 35-60 lumens
LED (cool white, 5000k): 47-64 lumens

Thus, for equal lighting needs we can see an instant 2-4x reduction in electricity consumption when using advanced light technologies.

Challenges: Like many clean tech products, consumer acceptance is a key challenge. Convincing consumers of another generation that advanced lighting will produce the same amount of light and justify a small upfront premium is a challenge I experienced personally when family helped me move to a new house this month. Additionally, finding CFL light bulbs that will fit into your “dimmer” light sockets is very difficult at the moment which can leave consumers with only an incandescent option (until selection improves.) Other, specialized lighting needs are also difficult to satisfy with the current CFL/LED selection in stores however this flaw is expected to improve. CFL lights contain a small amount of mercury. Care is needed should a CFL break, or you can purchase this CFL with a safety skin.

Advanced Light Firms: Toshiba, GE, Phillips plus many start up firms likely with goals to be purchased by one of the larger OEMs such as: ClearLite, Luminus Devices, YLX, Cree, Neo-Neon, & Seoul Semiconductor.

Fun Fact: “Toshiba estimates that switching 60 percent of the world’s incandescent lights with LED lights would reduce greenhouse gas emissions by 125.5 million tons in 2025, compared to 2000.”

Porsche 918 Spyder vs Tesla Motors

Posted on by S Klamp

Source: Porsche, Spiegel.de

Source: Porsche, Spiegel.de

Lets be humble: the Porsche 918 Spyder is a sexy car. Don’t get me wrong, we have favoured Tesla for a long time due to its economics and IPO outlook.

But now, Porsche is putting its cards on the table. Yes, the Spyder still uses a 3.4litre V8 engine with some 500bhp so it may not be entirely ‘fair’ to compare the two.  But take this: the two electric engines contribute some 218bhp. The Lithium-Ion batteries have 5.1kwh capacity; and the battery pack weighs less than 100kg. With the total car weight of less than 1500kg, the power-to-weight ratio is impressive.

Using the car as a plug-in hybrid only is probably not advisable as the batteries would only last for about 25km. However, Porsche promises the car will use 3.0 liters/100km or only 70g/CO2. The acceleration from a standstill to 100 km/h the Porsche does in just under 3.2 seconds, with top speed of 320 km/h (198 mph).

We wrote about energy storage previously. With the sports car industry making a move into the electric vehicle/plug-in hybrid market, it is only a matter of time before the application will become mass market. In a previous post we asked the question whether the time for batteries is now?

Whatever the race: both Tesla and Porsche are likely to compete in the affluent segment of the market. With Porsche’s dealer network and global Brand, we think that Tesla has to step up to the plate and we question whether the support from the US Government and a looming IPO are enough to put the firm head-to-head with a giant like Porsche. The financial backing of Porsche, now essentially being a Volkswagen brand, allows it to roll-out quickly and enter ‘mass’ production. Let’s not forget that Porsche has prominent manufacturing capabilities which may be enough to take market share in this new segment.

The question is whether the race may become a competition essentially between two major automotive manufactures? Daimler is heavily invested and committed to Tesla and has shared part of its ownership with its own major investor: Aabar Investments PJSC. The Venture community has been extremely supportive of the Tesla technology. We wrote about Draper Fisher Jurvetson’s portfolio previously. Other investors in Tesla include The Westly Group (Steve Westly), Technology Partners (Ira Ehrenpreis), Valor Equity Partners, and DBL.

Start Ups vs. Large OEMs

Posted on by brettalan

Before one can invest in a technology or firm, an investor must first believe in the relevant sector. If this prerequisite is satisfied to a high degree, the next logical step is to decide how to best capture the upside of the sector. In Clean Technology many start up firms hope to be bought out by larger, more established firms. Very few firms will be lucky enough to IPO and establish themselves as an independent player in the market, while many other start ups will unfortunately die a slow, financial bleeding death.

Several years ago I spoke to a Senior Executive for Exxon Corporation. The gentleman I spoke with, while agreeing with much of what I said about the need for Exxon to hedge its position in oil with at least a few of the upcoming alternatives told me that Exxon, in 2003 anyways, had absolutely no desire nor immediate plans to get involved with Clean Technology. After an awkward pause on the call he said, “Why should we risk money and waste time developing something when we have enough cash to just buy whatever we want once it becomes established?” Wow, how could I argue with that- he did have a valid point. Which brings us to 2010:

This blog often profiles technology developments from the investor’s perspective. Many of the VC firms we discuss invest in small start ups in sectors like biofuels, solar, wind and energy storage. But there’s another way to capture these sectors if you want to participate- investing in the large OEM. In fact, Exxon later on did invest $600MM in a biofuel firm called Synthetic Genomics and is “prepared to invest billions more to scale up the technology.”

While we won’t perform an individual investment analysis of each sector and firm here, we can highlight some key options as well as investment pros and risks.

Investing in the large, diversified OEM Pros:
Limited Downside, Economies of Scale/Faster route to mass market, more established vertical infrastructure and brand name recognition
Cons: Limited Upside/No IPO potential, less nimble & dynamic management team & the fact that you are also investing in many other sectors or technologies you may like/dislike.

Flip all of the above pros/cons when investing in the Start Up Firm. Now- a brief look at investment options:

The Start Up vs. the Large, Diversified OEMs!

Energy Storage
A123, Ener1, EEStor, PowerGenix Panasonic Sanyo, Bosch, Samsung, LG Chem

Wind
Vestas, FloDesign, Ramco GE Wind, Samsung, FPL

Water
Statkraft, Saltworks, Pentair, Israeli Start Ups Zenon (GE Water)

Biofuels
Joule, Cereplast Exxon, BP, Shell

The Great, Fake Lithium Supply Scare

Posted on by brettalan

“But there’s not enough lithium for all those batteries- and now you’ll switch dependency to a few lithium supplier countries!” That is the claim less informed journalists and hacks often make when they need a counter point to balance their first article on the emerging, electrified transportation sector. Why do we care? Because if true would significantly affect the battery, transportation, grid storage and electronic appliance sectors. Let’s try a fact check:

1) Claim: Dependency on 2-3 countries for lithium (similar to oil dependency)
Fact: False. This table from the USGS best answers this claim:

Country Reserves (000’s ton Li) Reserves Base(000’s ton Li)
Argentina 2,000 2,000
Australia 170 220
Bolivia NA 5,400
Brazil 190 910
Canada 180 360
Chile 3,000 3,000
China 540 1,100
Portugal NA NA
USA 38 410
Zimbabwe 23 27

Plus, ore deposits in these plus other countries bring the total to over 17.1 million tons of reserves.

2) Claim: Lithium is the sole material these sectors must have to advance.
Fact: Yes and no. Shorter term most known batteries for next gen autos and electronics will use lithium (bar the also popular nickel metal hydrides.) Longer term- let us not ignore 15 start ups that are readying ultracapacitor break throughs, 27 manufacturers and 29 other companies that have recently developed ultracapacitor technologies plus 52 research institutions working on advancing ultracapacitor technology. We do concede however that lithium will play by far the largest role for at least the next 15 years.

3) Claim: All of the suppliers in the world won’t be able to keep pace with demand & thus prices will skyrocket.
Fact: There are an estimated 17.1 million tons of contained Li in reserves worldwide. In 2008, total global demand was 100,000 tons and of course projected to grow significantly. Lithium can be recycled. Do the math with your own assumptions and it appears we have a few years before supply concerns arise. One may even want to account for new, future reserves of Li to be discovered.

Additionally- advances in nanotechnology as noted here, here and here are making the current battery chemistries that do incorporate lithium much more powerful, economic and robust.

Let’s make money: 77% of lithium carbonate currently comes from 3 companies which are SQM of Chile, Germany’s Chemetall and FMC of the USA. Talison Minerals, a private Australian firm, is the largest spodumene producer and accounts for about 23% of global contained lithium. However, only 15% of this production is sold into the lithium chemical markets via Chinese lithium carbonate converters. (Special thanks to Dundee Capital Markets for the above research, “Lithium- Hype or Substance?” October, 2009. )

Conclusion: If you are bullish on the technology advancing, you likely believe the improved economics offered by advanced lithium batteries will enable stronger investments in the related sectors of grid storage, consumer electronics, military applications and of course transportation. The sky is falling claims should not play a role in any related investment decisions.

Breaking new wind

Posted on by brettalan

An expert in the aeronautics industry during World War 2 probably could be forgiven if they believed that fighters such as the P-51 Mustang or an RAF Spitfire were close to being the fastest and most advanced planes technologically possible. That is, until the Luftwaffe introduced the world to the jet engine turbine system. Similarly for Wind Energy- how else can the basic 3 blade turbine be engineered to improve on cost and performance? Isn’t there only so much you can do to a technology that is relatively basic?

Well- much like the WW2 Fighter plane analogy- wind energy is now entering the jet engine age.  Welcome FloDesign Wind Turbine. The Massachusetts based start up firm has recently emerged onto the public eye with their patented technology that allegedly is 3-4 times more efficient than traditional wind turbines. See informational video here:

Traditional blades tend to push wind away and cause a complex turbulence condition- which consequently demands strict attention to the layout of any wind farm. Alternatively, the FloDesign wind turbine uses a shroud around the turbine blades to funnel wind into the turbine. See above video for best explanation and illustration.

Wind Cost Curve (cents/kWH) from NREL

The cost curve to the right shows why this technology is such a disruptive technology. Clearly advancements in wind energy are improving yet at a decreasing rate (a negative double derivative). Thus- the jump to jet engine design turbines could push wind costs in cents/kWH down much further than anticipated by most experts analyzing traditional wind. What this implies is wind energy that is competitive or cheaper than fossil fuels in many more locations than previously available.

On the business side, FloDesign recently secured $34.5MM of funding from investors led by Kleiner Perkins and joined by Technology Partners and VantagePoint Venture Partners. Additionally, Lars Andersen, former President of Vestas China, signed on as CEO. The funding is intended to begin commercial production of the turbines. IPO in 3-4 years?

FloDesign Turbine, Courtesy Mass. Clean Energy Center

Ok so what is the Achilles heel of the FloDesign? It’s ugly! (Zoning challenges) Personally I find traditional wind turbines to be beautiful- especially when you consider it is providing clean and renewable energy and replacing a fossil fuel generator. Fans of wind energy realize not every land owner shares these views and some find the light humming noise and gentle roll of the blades to be very unsightly. Well- if folks object to a beautiful, white, 3-bladed turbine- how would they ever accept essentially a jet engine hanging out by itself somewhere? Somehow I am skeptical the FloDesign turbine could dot the countryside and farming communities as well as a giant 1.5MW turbine. Perhaps the FloDesign turbine could find greater acceptance in industrial zones atop existing buildings or nearby towers. Or, maybe FloDesign will design a more aesthetically appealing cover that does not affect turbine performance.   Debates on appearance aside- the company truly has a remarkable, ground breaking technology which no doubt will help foster a giant leap forward for the wind sector.

Which way, Toyota?

Posted on by brettalan

If everything goes according to plan, Toyota will make hydrogen fuel cell vehicles available to private buyers within six years. The company that pioneered the hybrid, made it popular, economical and sexy- is now moving forward with fuel cell vehicles as well as a plug in version of the Prius. Is Toyota now advancing from their comfortable lead with hybrids to the next level? A closer look at comments by Toyota executives may show another story:

Koei Saga, managing officer of the Toyota Motor Corporation said in January, 2010: All-electric vehicles (EVs) are best as “very small commuter-type vehicles” and that long-range EVs are only possible “if we forget about battery life and if we forget about the cost incurred for replacement of those batteries. In my personal view, I think we will never abandon the internal-combustion engine.”

Ok, but Toyota is planning a plug in version of the popular Prius within the next few years. Plug-ins are of course a close family member of the EV.   The plug in Prius will be the first and ONLY of the Toyota family (including Lexus) to use lithium and not the less efficient, less powerful nickel metal hydride battery. While other companies in the market charge full speed ahead with lithium ion technology (Fisker, Tesla, Nissan, Volvo & more) Toyota has been very reluctant to embrace lithium ion technology expressing doubts about reliability.

But Toyota’s core competency in next generation automobiles is the traditional hybrid. And just this month Toyota announced it will increase production from 500,000 hybrids/year in 2009 to over 1,000,000 by 2011. “Toyota plans to add about 10 new hybrid models in the next few years to its existing lineup and to increase the number of sites where it can assemble hybrid models, the Nikkei said without citing sources. For the foreseeable future, the focus of Toyota’s (low-emission car) strategy will be on hybrids, not electric or fuel-cell cars, said Yoshihiko Tabei, chief analyst at Kazaka Securities, adding the production volume reported by the Nikkei was in line with his expectations.”

Now- seeing this hybrid strategy- take a look at these 2 quotes from Bill Reinert- the Toyota manager of advanced technology in the US:

1) “I think you’ll see that for the next 10 to 20 years that a hybrid … is probably about as green as you can get. I would say within 10 years, that hybrids might be at 10-per-cent market share. Plug-ins are a very small subset of that. Electric vehicles are a smaller subset of the subset.”

2) “One hundred miles covers most daily trips but not all,” he says. “How many people can afford a specialized car that can’t be used on vacation?”

Reinert is referring to the Nissan Leaf- which will be released as early as December 2010 in Japan and the US. Nissan’s director of product planning, Mark Perry, sees an ulterior motive in Reinert’s skepticism. “Our friends at Toyota have invested in hybrids,” he said “and they want to get a return on that hybrid investment.”

“Still- Reinert says EVs could experience a five-year bubble, like solar panels during President Carter’s term in the late 1970s. If budget cuts force governments to end subsidies, only a handful of EVs could be left standing in the market. Ghosn says competitors are trailing Nissan in EVs, so naturally they’re going to play down the technology’s prospects. They cannot say, ‘we’re forecasting a 10 percent market share for EVs and, by the way, we have nothing, he says.”

Is Toyota disparaging plug ins and full electric vehicles to further promote the brand that has helped the firm gain additional market share? Perhaps Toyota sees their rival Nissan attempting to leap frog the hybrid market and skip forward to full electrics. What about the Prius plug in program and the fuel cells? Are these real programs or merely demonstration projects?

The modern hybrid is a technological innovation that many consumers love. It however is not perfect and offers modest efficiency with room for improvement. The hybrid is also widely considered a “bridge” technology to the holy grail which is an efficient, economic full electric vehicle.

Driving 100 miles/charge, as the Leaf and Tesla Roadster offer, is not the best an EV will ever offer. The Tesla Model S will cost just under $50,000 and travel up to 300 miles on a charge but is also $50k and yet to be released. However while the battery issues are well known, and well discussed, most expect these to improve over time in large part to the economies of scale first created by hybrids. Perhaps Toyota is hoping this bridge technology lasts a little longer than do their competitors who are now about to pass them up in the fast lane. It’s unclear what their intentions are, but as the industry aggressively tackles EVs and Plug Ins, Toyota may want to take a clear stance beyond hybrids and show commitment.

CleanTech Investing in 2009 & 2010

Posted on by brettalan

356 investments in CleanTech occurred in 2009, a new high. However the dollar amount is down to $4.85B from $7.6B in 2008 over 350 deals comparatively, according to a new report from GreenTech Media. The downward trend over more deals may reflect the global capital markets as much as it does the CleanTech sector itself. Or, the optimist could point out that overall investment was nearly $5 billion in spite of the global economic crisis!

According to several VC firms spoken to on a recent trip to Silicon Valley by the staff of this blog, investors are seeking less capital intensive opportunities while seeing an influx of opportunities. Partnering with firms that have smaller capital needs, VCs may play a more significant role in their management and development, while lessening the potential for large, future capital re-investments. This trend may in part be a result of the challenge to raise capital most funds are facing as well as their preference to maintain control.

Source: GreenTech Media

The solar sector is generally viewed as capital intensive, but despite this was the largest sector accounted for in 2009 investments with 84 deals over $1.4B. Biofuels was second, and energy storage, smart grid and automotive rounded up the top CleanTech sectors. Water now is on the radar with $130MM over 33 deals.

Things to look for in 2010:

1) Codexis IPO? Tesla Motors IPO? Solyndra IPO? (all 3 have reportedly filed)
2) Will oil price fluctuations help CleanTech?
3) Will a recovery of the capital markets occur to help encourage the flow of seed money?
4) Introduction of more electrified automobiles effect on energy storage and transportation (many new models expected this year)
5) And much more! (water, smart grid, government mandates, materials and infrastructure)

(CMEA Ventures invested in A123, and is also invested in Codexis and Solyndra- a nice, potential 3 firm IPO streak for 2009-2010!)