Solar PV investment Risk vs expense

In a workshop on renewable energy venture development at the Renewable Energy World/Photovoltaics World Conference, instructors Sumesh Arora and Tony Jeff from the Mississippi Technology Alliance covered risk readiness and growth, market, and established business risks. A key difference between traditional entrepreneurial ventures and renewable energy/solar PV ventures is the cost/expense gap.

March 8, 2011 — In a pre-conference workshop on renewable energy venture development at the Renewable Energy World/Photovoltaics World Conference & Expo in Tampa, FL, instructors Sumesh Arora and Tony Jeff from the Mississippi Technology Alliance told attendees what projects do not get funded: ideas, products, hobbies (i.e., if you haven’t quit your day job to work on the venture full-time, it’s merely a “hobby”), patents, and lifestyle companies or family businesses. The workshop covered risk readiness, growth risks, market risks, established business risks, among other topics.

In a follow-up podcast interview with Debra Vogler (Download (iPod/iPhone) or Play Now ), senior technical editor, Arora explains that solar energy is getting attention for large-scale deployments (concentrated solar power [CSP] in particular in the Western US), and for solar photovoltaics’s (PV’s) push toward low-cost panel manufacturing taking some technology risk out of the equation. Bankers can somewhat easily understand and visualize the basic technology concepts of a solar panel or a wind turbine (as opposed to, say, a biomass gasifier.) One area that Arora thinks hasn’t got the investor attention it deserves: solar thermal. Despite its efficiency, there just aren’t massive deployments for hot-water heating, he says.

A key difference between traditional entrepreneurial ventures and renewable energy/solar PV ventures is the cost/expense gap. There’s a period in the early life of a startup colloquially called the “valley of death” — when a startup needs to invest in R&D but isn’t actually making any money and is burning through cash. Compared with a stereotypical IT startup, e.g. a software company born in a dorm room and in a couple years ramping to millions of dollars in sales, “you just can’t achieve that kind of scale in the energy business that quickly,” he said. Solar PV technology requires fairly intensive cash requirements for deployment, so “the scale-up in terms of the value of debt is much deeper and longer.”

“The typical stages of concept to prototype to early-stage production prototype are so much more expensive in this [renewable energy] space” compared with other areas that have benefited from significant price reductions, e.g. IT, added Jeff. “People can’t prototype something and show it off very cheaply like they can in other investor spaces.” And given a choice between two investments and similar risk profiles, investors are more likely to go with the cheaper ones.

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