December 22, 2005
Venture Capital Flows Into Solar Power Companies

Venture capital for solar energy has more than doubled in the last year.

In the first three quarters of this year, U.S. venture-capital firms funneled $67.7 million into the solar-energy sector, up from $31.4 million for all of 2004, according to the National Venture Capital Association, an Arlington, Va., trade group.

That's more than 30 times the amount invested 10 years ago and presents more evidence that record-high energy prices have incited a monumental push for cheaper forms of energy.

The NVCA says solar investments for the first three quarters of 2005 represented more than a third of the $194.6 million invested by venture-capital firms in the entire U.S. energy industry.

The article also reports revenues for solar energy sales have grown 50% in the last year. However, a venture capitalist quoted in the article says few solar start-ups are near to getting new products to market and most start-ups are basically doing science projects hoping for a breakthrough. So while the higher oil and natural gas prices have stimulated demand for solar equipment no big price breakthroughs resulting from technological advances are in sight.

I expect the price of oil to stay high enough in future years to maintain higher levels of investments in alternative energy technologies. But one can only guess when investments will finally pay off with price competititve alternatives to fossil fuels.

While solar electric gets the bulk of the attention in the popular press it remains too costly while solar heating has a rapid return on investment.

The cost of solar repels many homeowners. Solar panels, storage batteries and installation start at about $20,000 for modest dwellings, and $25,000 to $30,000 for three-bedroom homes. Itís more depending on the direction the house faces and the duration of sunshine in winter months, and the battery systems require monthly monitoring and maintenance.

The first step is making homes more energy-efficient with extra insulation and fluorescent lighting, Deri said.

Deri also recommends systems that only supplement existing systems - solar water heaters, or solar air systems - which cost from $1,500 to $5,000.

"They pay for themselves in three to six years," he said.

The biomass story is similar to the solar story: Biomass and solar are both more competitive for heating than they are for electric generation or transportation. Yet electricity and cars get more attention than space heating. A pity that. A lot more people ought to be using corn and solar to heat their houses and commercial buildings.

Share |      Randall Parker, 2005 December 22 10:33 PM  Energy Policy


Comments
PacRim Jim said at December 22, 2005 11:50 PM:

Since the 1970s, the solar power folks have been promising that, once efficiency is improved 15% more, solar cells will be competitive with oil. They still say the same thing. Will solar cells ever be more than a technology of the future?

Mike Anderson said at December 23, 2005 4:20 AM:

presents more evidence that record-high energy prices have incited a monumental push for cheaper forms of energy.

This may not be the case. Right now the financial community is flooded with cash, and looking everywhere for investments. A rising tide floats all boats. Still, it can't hurt.

Nick said at December 23, 2005 7:43 AM:

"Since the 1970s, the solar power folks have been promising that, once efficiency is improved 15% more, solar cells will be competitive with oil."

Um, not really. I still have a seminal Scientific American article from 25 years ago: it said solar cells had to come down by a factor of about 10, if I remember correctly. Certainly not something small, like 15%.

Now the general consensus is that they're competitive in reasonably large niches (at peak times, where other sources are expensive, like Japan, and when you include all the costs, like pollution and reliability), and have to come down by a factor of about 3 to be generally competitive.

odograph said at December 23, 2005 10:20 AM:

The price curve for photovoltaics is pretty interesting (from this page). I use that now and again as I attempt to school economists on the true relationship between "incentive" and "innovation."

Factors that I consider important:

- no funding equals no progress
- new fields have lots of "low hanging fruit."
- research, like anything, suffers from diminishing returns
- but progress in field B may suddenly impact field A

(the last is a sort of James Burke "connections" angle.)

I think we do have an opportunity here, as new funding allows exploration of new "field B" imports (thin film, nano), but it's really a question of what progress is possible in 2005? What is ripe? It would be nice if we were ripe for a 2x improvement in efficiency ... but as the graph shows, it's been a while since we've had that.

Engineer-Poet said at December 23, 2005 10:43 AM:

Curious that the price graph doesn't mention if it is in nominal or constant dollars.

PV prices are still hovering around $5/watt, while inflation continues.  That will eventually make PV competitive with just about everything else.

Hugh Angell said at December 23, 2005 4:15 PM:

I see Honda or one of the big Japanese multinationals has decided to go into solar in a big
way. Japanese companies don't do this sort of thing for public relations. They expect to
make money on it.

In many areas of the country solar hot water heating and even electricity make more and
more economic sense. Down in Florida I've heard the big problem is there aren't enough
qualified technicians to put the stuff in people's homes. As Florida, like California gets
an increasing proportion of its electricity from gas fired plants the future does not auger
well for utility supplied electricity prices. This winter the real impact of higher gas
prices will not be fully apparent as utilities hedged to some extent so if gas prices
remain above $10/mcf next summer lookout!

Then there is the problem of instability. Two weeks ago a pipeline in Venezuela was bombed
that supplied some 400,000 b/d to a big refinery down there. This week over in Nigeria
another bomb shut in some 180,000 b/d in production. Terrorists and insurgents seem to be
on a learning curve. Blowing up a hotel, embassy or train might kill a lot of people and
get loads of publicity but it doesn't threaten governments and, in countries with more
spine than Spain, be counterproductive. However attacking energy facilities can do more
than cause a tragedy for a few hundred or thousand families. It has the potential to topple
governments and paralyze millions. Ras Tanura and the Ghawan oil fields over in Saudi may
be well defended but a successful bombing there and we are talking millions of barrels/day
being shut in. If oil goes to a $100+ a barrel you can bet every dual fuel boiler in
America is going to be flipped over to gas and gas prices will quickly rise to equilibrium.

This is why I say every watt, every gallon of alternative energy we can produce must be
brought on line. It is only a matter of time before the roof caves in on imported fossil
fuels. A political collapse in any of the major oil exporters or a group of terrorists
making a successful attack on the oil terminals or pipeline facilities of those nations
and we are going to think current oil and gas prices a bargain!

Bob Jenkins said at December 23, 2005 4:37 PM:

There's a reason to be more interested in cars than in space heating. We're going to run short of oil any year now, but we have plenty of coal for the next few decades. 60% of oil (in the US at least) goes to transportation. So we've got to do something quick about cars, and airplanes, but there's no particular rush with space heating.

Steve Paige said at December 23, 2005 7:04 PM:

I have been quietly building Passive Solar Homes and installing Batch Solar Water heaters for 25 years in Central California. Why anyone would pay money to heat their water and homes in California is beyond me. the Carter administration had a great tax rebate program way back before the republicians stuck their head in the energy sand. Solar homes are a mold solution too.

jimcrack said at December 23, 2005 7:42 PM:

Bob, we'd better be more interested in space heating than cars, at the moment. The American Chemical Society suggests that the chemical industry may not survive on US soil at all, when natural gas in Europe and China is 50 to 30% what it is in the US. They complain only one chemical refinery was built in the US vs. 50 in China during the equivalent period. This does not bode well for capital development in America: the analogy is with the UK post WWII, a case of industrial and financial stagnation, rather than with the "energy crunch" of the 70's, which posed more immediate problems but quicker remedies (Ie. Reaganomics and the collapse of energy prices)

Solar in my mind means aggressive building standards, to anticipate pure passive HVAC at some date. Space heating may never again be the highest and best use of natural gas

Dr. M. Faur said at December 23, 2005 8:45 PM:

"However, a venture capitalist quoted in the article says few solar start-ups are near to getting new products to market and most start-ups are basically doing science projects hoping for a breakthrough."

My start-up company, SPECMAT, Inc. (http://www.specmat.com/), has developed a patented proprietary silicon solar cell design, and low-cost fabrication technology (info not yet included into the web site) that increases the relative cell efficiency (peak power) by as much as 50% compared to conventional cell designs and technologies. Although the R&D is already behind us, and all that remains to be done is to prove it works in a manufacturing environment, getting any venture capital investment still proves to be very difficult.

Nick is right: "no funding equals no progress."

Randall Parker said at December 23, 2005 9:29 PM:

Bob Jenkins,

Jimcrack makes an important point. Natural gas has several uses including:

- Space heating and water heating.
- Chemical industry (including fertilizer production).
- Electric generation.

To the extent that we reduce the need for natural gas for space heating by using solar heating and better insulation we lower the cost of natural gas for those other uses. This lowers the cost of electricity, fertilizer, chemical feedstocks, and lots of other products.

Money spent building really expensive photovoltaics panels is money that would be better spent on improving building insulation and in putting in solar heating systems. The ratio of dollars saved per dollars spent is higher for solar heating and insulation than for photovoltaics.

Engineer-Poet said at December 24, 2005 7:18 AM:

Ditto with cogeneration.  We need big impacts, and we need them fast.

Fortunately, the inefficiency of our current modus operandi has left lots of low-hanging fruit.

Aaron said at December 27, 2005 12:09 AM:

Who says solar is not competitive with oil?

http://www.stirlingenergy.com/

carl said at December 27, 2005 1:04 PM:

Aaron, where exactly do you get the idea that this company is providing technology that is competitive with oil?

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