The World's #1 Renewable Energy Network for News, Information, and Companies.

Silicon Valley Investors Shifting to Power Grid After Solar Sours

Silicon Valley Investors Shifting to Power Grid After Solar Sours

Silicon Valley investors that helped build the solar industry are shifting cash into electricity-grid technology and energy-storage developers after bets on panel manufacturers failed to pay off.

Companies including VantagePoint Capital Partners and Khosla Ventures are stepping up funding for systems to manage electricity, which are typically less capital intensive than solar-panel factories. Venture capital and private-equity financing for renewables dropped to its lowest in at least six years in 2012, according to data compiled by Bloomberg.

Competition for the best investments from Blackstone Group LP to Warren Buffett along with a plunge in profit from the solar and wind industries prompted the shift. It pushed Silicon Valley into taking smaller stakes in emerging technologies that help squeeze efficiency and flexibility from power supplies.

"We are going through a repositioning of cleantech," said Wal van Lierop, founder of Chrysalix Energy Venture Capital, which is based in Vancouver. "The big sectors -- solar, wind and LEDs -- are in the process of being consolidated. They're maturing, so they fall out of the cleantech opportunity basket. We now are trying to find the next hot spots."

Investment flowing from private equity and venture capital firms into renewable energy fell 34 percent to $5.75 billion last year, according to Bloomberg New Energy Finance, the lowest since at least 2006. That accounted for 2.2 percent of the $268.7 billion invested in the clean energy industry, down from as much as 6.5 percent in 2008.

Grid Technology

Chrysalix invested in the energy-management providers Enbala Power Networks and AlertMe Ltd. Khosla funded LightSail Energy Inc., which is developing energy storage devices.

"Our specialty is with large technology risk, where if the technology works there's a big economic breakthrough," Vinod Khosla, the billionaire founder of Khosla Ventures in Menlo Park, California, said in an interview. "That's what we keep looking for in all areas."

Alan Salzman, chief executive officer of VantagePoint Capital Partners, said systems that allow energy to be used more efficiently and help the grid cope with variable supplies from wind and solar plants represent the richest new areas.

Energy storage is "an essential component" for renewable energy to thrive, Salzman said. "That's an area that has been hugely underserved historically that we think remains hugely interesting," he said.

Energy Efficiency

VantagePoint, based in San Bruno, California, backed Next Step Living Inc. and Tendril Networks Inc., which developed energy-efficiency software to reduce power consumption.

"One of the disappointments in the U.S. is that our utility smart-grid deployments have really slowed," Salzman said. Deployments have "shifted overseas right now, away from the U.S., because of our regulatory environment," he said. "It doesn't mean that our archaic system -- see Hurricane Sandy -- isn't ripe for updating."

So-called energy smart technologies including efficiency products and equipment for the electricity grid amounted to $2.2 billion of the clean energy investment from venture capital and private equity tracked last year by New Energy Finance. The category accounted for 38 percent of VC/PE funding for clean energy last year, up from 15 percent in 2008.

Renewables Dwindling

Profits have drained away from renewable energy in the past three years as manufacturing capacity surged quicker than demand. Solar cell prices plunged 74 percent since the end of 2010 to 40 cents from $1.46 for each watt of capacity. The cost of installing wind turbines on land fell 15 percent to $81.44 per megawatt of capacity since mid-2009, according to Bloomberg New Energy Finance estimates.

That reduced the industry's attractiveness for venture capital companies. With solar, now that the technology is proven, the industry's biggest challenge is driving down costs, said Raj Prabhu, managing partner at Mercom Capital Group in Austin, Texas.

Solyndra LLC got more than $1.2 billion in venture capital funding. Then it liquidated after competition from Chinese manufacturers priced its tubular solar modules out of the market. Panel maker MiaSole Inc. was sold in January to Hanergy Holding Group Ltd. for about $30 million. That's a fraction of the $494.4 million poured into it by Kleiner, Vantage Point and Firelake Capital, according to Mercom Capital Group.

VC Misfires

Another misfire for the VC investors was A123 Systems Inc., a provider of batteries for electric cars. It filed for bankruptcy in October as sales of the vehicles failed to meet expectations. It got at least $278 million from VC firms including North Bridge Venture Partners LP and CMEA Ventures.

"VCs are really good at finding new technologies but not so good at manufacturing," Prabhu said. "They've learned that they need to stick to picking technology winners, not building factories. The new money is going downstream to help build markets. The industry is now mainstream."

As venture capital moves away from traditional renewables, mainstream investors are starting to move in. Buffett's MidAmerican Energy Holdings Co. decided in January to spend as much as $2.5 billion on two large solar farms, after forming a unit dedicated to wind and solar holdings last year.

The private equity company Blackstone Group LP in September bought Vivint Inc. for $2 billion, giving it access to a home-security and energy-management provider with more than 670,000 North American customers. Vivint says the networks that manage these services complement its growing residential solar systems by smoothing the flow of solar power onto the electricity grid and into homes.

Solar's Gleam

A few parts of the solar industry remain attractive for investors, even after the slump in the costs of panels. Elon Musk's SolarCity Corp. has more than doubled since its initial public offering on Dec. 12. It develops rooftop solar systems, which are more economical to install since the price of cells plunged.

Technology to store and conserve energy also is gaining attention among VC investors. Utilities are taking more of their power from renewables. Wind turbines produce power when there's a breeze, and solar only when the sun is up. Integrating those power flows into distribution grids used to coping with steady supplies from coal and nuclear plants requires new systems that give engineers more flexibility.

Black Coral

In December, Next Step Living, a residential energy-efficiency company, raised $18.2 million from VantagePoint, Black Coral Capital and the Massachusetts Green Energy Fund LP.

The month before, billionaire Peter Thiel led a $37.3 million fundraising for LightSail Energy Inc. It's developing storage systems that compress air in tanks and generate power when the air is released, backed by Khosla and Microsoft Inc. founder Bill Gates.

Gates and Khosla also joined French oil company Total SA in May for a $15 million second round for Liquid Metal Battery Corp., now called Ambri Inc., which is building batteries for the power grid that were developed by Massachusetts Institute of Technology Professor Donal Sadoway.

"We continue to push energy efficiency, which is less capital intensive and allows a company to get into a very big market by improving existing infrastructure rather than having to build a new way of delivering power," said Neil Suslak, a managing partner at Braemar Energy Ventures. "Efficiency and capital-light deals are the flavor of the month."

Copyright 2013 Bloomberg

Lead image: Grid of houses made from US $100 bills, via Shutterstock


The Big Question: What Is the Most Frustrating Part about Working in Renewable Energy?

Renewable Energy World Editors

Every industry has its challenges and misunderstandings. Sometimes the obstacles we face in simply trying to do our jobs can be very frustrating.

ViZn Flow Batteries

ViZn Turns to Jabil to Meet Growing Demand for Flow Batteries

Andrew Burger, Correspondent Energy storage startup ViZn, developer of advanced zinc-iron flow battery technology, is scaling up the size and scope of its operations as it works to meet growing demand from a variety of customers both in the U.S. and a...
Norway and Sweden flags

Nordic Renewables Boom Set to Exceed Wind Energy Target

Jesper Starn, Bloomberg

Sweden and Norway will probably exceed a joint target for renewable energy production by the end of the decade, industry consultant Nena AS said.

Renewable energy community

State and Metro Governments, Consumer Actions Drive Dramatic Shift in US Energy Landscape

Ron Pernick, Clean Edge The United States is experiencing a significant shift in its energy landscape. Last year, utility-scale wind and solar power combined for 47 percent of new generation capacity in the U.S. Based on this expansion, 11 states...


Volume 18, Issue 3


To register for our free
e-Newsletters, subscribe today:



PV-401: Advanced Field Training

Real world on the job solar installation, training, and experience is th...

PV-301: Advanced PV Design & Installation

This highly desirable and advanced course is intended for the profession...

PV-201: Introduction to PV Design & Installation

PV 201 Introduction to PV Design & Installation is simply the best i...


Solar Tracking – A Key Technology for Unlocking the Full Potential ...

Quotes for very large solar photovoltaic projects in sunny parts of the ...

Meteorological Technology International Magazine - SENSORS AND SENS...

Over the past 10 years, these sensing technologies have spread tre...

What is Distributed Energy and Why Does It Matter to Solar?

Distributed energy has become a hot topic of conversation in energy circ...


Tweet the Editors! @megcichon @jennrunyon


Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now