Where Einstein Meets Edison

Entrepreneurship Trends in Solar Energy & the MIT Perspective

Entrepreneurship Trends in Solar Energy & the MIT Perspective

Sep 14, 2010

Shortly after taking office as MIT’s 16th president in late 2004, Dr. Susan Hockfield announced the MIT Energy Initiative (MITEI) — a major new strategy that could forge a significant part of her legacy. MITEI’s aim is “to help transform the global energy system to meet the needs of the future and to help build a bridge to that future by improving today’s energy systems.” [1] Its core mission is to thrust the Institute to the forefront of research and development of renewable energy sources by focusing MIT’s vast resources across departments and disciplines on wind, nuclear, hydrodynamic, and solar research. This consortium promotes collaboration between MIT faculty, research scientists, postdocs, graduate students, and major players in the public and private sectors. The objective is to create the critical mass of scientists, policy planners, and capital necessary for spurring rapid innovation in an industry projected to undergo massive growth. Hockfield’s bold, forward-thinking stroke was meant to reposition MIT as a leader for emerging energy sectors, emulating the phenomenal contributions of Stanford and Berkeley to the rise of Silicon Valley on the West Coast. Whatever the reason, President Hockfield’s prescient initiation of the MITEI has coincided with flourishing interest in renewable energy, and MIT is now widely recognized for its exemplary alternative energy research.

Excitement over renewable energy research has been inextricably coupled with the price of oil. For example, when oil reached an all-time, inflation-adjusted, peak price of $147/barrel in the summer of 2008 [2], widespread enthusiasm over renewable energy soon followed. The availability of venture funding, governmental research grants, the growing concern over dependence on foreign petroleum, and concerns over climate change all created an environment from which energy startups have emerged. A similar motif was sounded in the wake of the 1973 Arab Oil Embargo that drove up the price of goods and services, resulting in double digit inflation, wage and price fixing, and widespread fuel shortages. The pendulum is now swinging in the other direction as the financial crisis of September 2008 and the ensuing protracted recession have radically transformed the market. Oil is now currently trading at around $80; the tremendous slow-down of business activity (China notwithstanding) has reduced the demand for petroleum worldwide. Debt-laden, cash-strapped governments everywhere have eliminated subsidies to volatile sectors, notably wind and solar, and with this has come the collapse of these once-nascent industries [3].

President Obama’s pledge of billions of federal stimulus dollars for renewable energy has cast some light onto the sector. Obama made a notable remark in his 2010 State of the Union Address that “the nation that leads the clean energy economy will be the nation that leads the global economy” [4]. This clarified the administration’s priorities for governmental involvement in driving innovation through tax breaks and direct investment. He reiterated these comments during a special trip to the MIT campus in late 2009. President Hockfield could hardly hide her excitement as she stood alongside Obama at a Spring 2009 White House news conference, trumpeting plans to dramatically increase funding for energy research in the federal budget [5].

The field of renewable energy research with the greatest potential to realize such lofty ambitions is photovoltaics. Photovoltaics offer opportunities for achieving renewable energy at a price point comparable with utility-scale power. The amount of sunlight that falls on the Earth in one hour is enough to provide the energy needs of humanity for one year. This tantalizing fact is the dominant driver for industrial and academic research in PVs.

I interviewed Dr. Peter Bermel, a postdoctoral fellow at the Research Laboratory of Electronics and MIT alumni (PhD in physics, 2007), regarding his outlook for the solar industry.  Dr. Bermel provided technical guidance for the startup StarSolar, founded in 2007, based on research he conducted as a graduate student on improving the efficiency of thin-film solar cells using novel light-trapping mechanisms. Much solar energy, particularly at longer wavelengths, is not absorbed by crystalline silicon thin-film PVs due to insufficient material thicknesses. StarSolar’s core technology involved replacing conventional back reflectors with photonic crystals, man-made materials that can be designed to reflect and diffract light very strongly over a range of wavelengths.[6] They can theoretically enhance light path lengths in silicon up to a factor of 100 for red and near-infrared wavelengths, thereby greatly enhancing the likelihood that the PV absorbs these photons.  The net effect is predicted to increase the overall power conversion efficiency of commercially-available thin-film silicon solar cells by 35%.  Buoyed by these promising theoretical results, Dr. Bermel and collaborators have drafted patents, written grants, and tested these results experimentally.

AO: In light of the recent financial downturn, what have been some of the major consequences on venture capital backing of renewable energy startups?

PB: Venture investment has really experienced a sea change recently. It primarily stems from the recent, sharp decline of global equity markets, which hit high-tech companies especially hard.  This has given rise to negative inflation-adjusted venture capital returns over the last five and ten years up through the third quarter of 2009, as reported by the National Venture Capital Association This has led to a cascade of consequences including attempts by limited partners (e.g., university investment funds) to exit their capital commitments to poorly performing funds and investments; failed attempts by known players in the industry to raise new VC funds; decreased valuations for new and existing start-ups; and declines in cash investment amounts per deal. It has even led to wholesale changes in the products and business models of many existing startups, which in some cases has amounted to failure and liquidation, although in some cases the changes have been much less drastic.  Just to be clear, the VC industry should continue to exist, and new startups will continue to be funded, but not nearly as lavishly as a few years ago.

AO: What are some key technological trends driving innovation in photovoltaics?

PB: It’s a very dynamic and sometimes unpredictable market.  For a while, demand for photovoltaic (PV) modules was ramping up so quickly it was hard to meet it, due to shortages of high-quality polysilicon, among other things, so the industry was focusing on fast deployment of projects of unprecedented scale.  With equity and debt markets as well as selling prices having noticeably tightened now, the focus is currently much more on cost-effectiveness.  Many manufacturers have been focusing on incremental technologies building upon existing capacity in traditional platforms like crystalline silicon and making it cost a few less pennies per watt.  One example would be substituting cheaper silicon feedstocks, like upgraded metallurgical grade silicon, for polysilicon.  In the long term, I’d expect twin drivers of photovoltaic industry growth to be cost-cutting and efficiency.  While cost-cutting is the dominant paradigm now, I expect increases in power conversion efficiency will be absolutely essential in order to generate enough value for customers, and thus enough profits for the industry to reinvest in further growth and innovation.

AO: A recent article in the New York Times described the collapse of the once thriving solar industry in Puertollano, Spain after the government eliminated its subsidies. Could such a phenomenon happen in the United States?

PB: Spain’s subsidies for solar power in 2008 were so lucrative that it made their market jump almost a factor of three in just one year — and suddenly become the world’s largest.  It had the unfortunate side effect of costing the government far more than initially projected, which, coupled with an economic collapse, forced an abrupt about-face and sudden end to the original subsidy regime.  This could theoretically happen in any region that decided to provide significant subsidies for solar power – in the US, it could potentially happen at the federal, state or municipal level.  My hope is that all governments going forward can learn from the Spanish example, and carefully plan their subsidy regimes more like the Germany’s program in order to achieve the following goals:

  • Setting an initial subsidy level consistent with a reasonable rate of market growth
  • Allowing the subsidy to gradually decline, in order to encourage innovation and support a gradually increasing volume of installations
  • Creating predictable policies many years in advance to provide certainty for financiers and end users

AO: Many trends show the cost per watt of generating electricity from solar radiation dropping significantly year after year, even though the fraction of solar energy as part of the entire US energy spectrum has remained fairly stagnant for decades now. How can we explain this?

PB: First of all, solar is still significantly more expensive than most fossil fuel-based energy on an unsubsidized basis.  As such, it depends strongly on government incentives to achieve widespread adoption.  The US provides some incentives at the federal level but they are not as generous as many other places.  However, California, New Jersey, Colorado, and a few other states have additional incentive programs, which coupled with the federal programs, have driven an increasing installation base.  As a result, my understanding is that the installed base of photovoltaic cells is growing at a significant pace in the US now.  The total installed base of solar grew 17% in 2008 alone, according to the Solar Energy Industries Association, in spite of the recession and financial crisis of that year.  The numbers for 2009 should be coming out soon, and hopefully will be equally positive.

AO: What are your thoughts on the Obama administration’s inclusion of stimulus money in the Recovery Act for high-risk research in renewables? Are there other ways to spur innovation in this area?

PB: Obviously, this program is a huge boon to research universities like MIT, and I’m glad that the Department of Energy decided to invest in our work here.  I think it has two benefits for the economy: in the short term, it drives demand for the capital equipment necessary for research, such as computers, fabrication tools, and characterization tools, which benefits the companies making these products.  In the long term, some of the research may find its way into actual products, which increase the availability of cheap renewable energy.  There are of course many other ways to spur renewable R&D, but certainly providing a market for the end products is of critical importance.

AO: Given that the economics of the solar industry favor economies of scale and mass production, is there a place for individual entrepreneurs to have impact?

PB: Yes, certainly!  New ideas that can have a positive impact on the solar business are always needed.  However, as mentioned in the first question, there have been some dramatic changes in the business models of many existing startups.  Thus, logically, any new startup will have to be adapted in this changed environment.  Startups designed to leverage existing products and/or production capacity will be looked upon favorably.  For example, one promising startup emerging on the West Coast is called eSolar, and offers both hardware and software solutions for concentrating solar light.  This isn’t necessarily highly capital intensive, but is a product in demand that already found one licensing deal (with Sundrop) and is looking for others. Furthermore, it’s based on fundamental mechanical and software engineering principles as well as creative thinking about how to apply them, two areas in which MIT people have the capacity to excel.

Another example is maximum power point tracking.  Every installed PV module is subject to a changing lighting environment, and a voltage setting that’s ideal for noontime, for example, may yield suboptimal performance at 4 pm, or when a bird passes overhead.  Thus, you can use a feedback control system to track the performance and dynamically adjust the electrical characteristics in order to track the so-called ‘maximum power point’.

A third example out of MIT is 1366 Technologies, in which Prof. Emanuel Sachs from Mechanical Engineering designed a light capturing busbar.  Busbars generally run along the front of a solar module and conduct electrical current to where it can be used, but also block some of the incoming light.  Prof. Sachs’ simple but clever idea was to redesign the front of the busbar to reflect 80% of the light back into the module, yielding a small efficiency boost for a very low cost.  His business approach was to license the technology to busbar manufacturers, thus side-stepping any large investments in busbar-making machines, managers, or workers.

Finally, a caveat to all of this is that any aspiring entrepreneur should try hard to quantify his or her expected investments in cash and time.  Since there are no guarantees in business, particularly startups, he or she should have a backup plan of what to do if the venture looks unlikely to succeed.

 

[1] http://web.mit.edu/mitei/about/index.html

[2] http://en.wikipedia.org/wiki/Peak_oil

[3] http://www.nytimes.com/2010/03/09/business/energy-environment/09solar.html

[4] http://www.nytimes.com/2010/01/28/us/politics/28obama.text.html?pagewanted=print

[5] http://web.mit.edu/hockfield/speeches/2009-clean-energy.html

[6] http://www.technologyreview.com/Energy/18415

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