Where will investors find their pot of gold in 2013?

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2012 can hardly be described as a banner year for solar. But is 2013 likely to be any better?

As far as investments in new companies and technologies go, the numbers are down. Recent figures from the Cleantech Group, which has just merged with GreenOrder consultancy, show that investment interest in solar has suffered a meteoric decline since 2008 (see slide). Energy efficiency, biofuels and transportation now all eclipse this once-hot clean tech sector. Solar still came a respectable second in terms of the number of deals (79), but that's a 33.1% drop from 2011.

“In 2008, solar was 60% of our totals,” said CEO Sheeraz Haji. “But in 2012 solar was just 11.8% of our total. It is quite difficult to raise money for a solar start-up.”

Haji hailed SolarCity's IPO as a “significant milestone” and perhaps a sign that the market has bottomed out and better is to come in 2013.

It's true that SolarCity's IPO made its investors a very decent profit, particularly for Elon Musk (see slide). But that ship has now sailed, along with almost the entire fleet, and investors are staying on land now, watching to see whether their dollars will sink into the sunset or return with coffers of gold.

SolarCity also had the advantage of a business model that relied on the largesse of taxpayers through the Investment Tax Credit. This is not the case for upstream start-ups.

In 2007, Silevo was a start-up backed by Silicon Valley investors and established by two former executives from Applied Materials. Silevo came out of stealth mode in 2011 to announce its N-type-based “tunnelling junction” cell architecture.

It started out with a modest US$6.86 million, raised another $40 million in growth equity and raised series B funding of $33 million. Last summer, Silevo established a 32MW line, with less than 10MW delivered, and early this year it will launch a roadshow to ramping up to a 200MW expansion facility.

But the road to success in solar – especially in the “making things” part of the industry – is fraught with dangers and unforeseen developments lurking around the corner.

Silevo's Executive Vice-President Chris Beitel claims the company can make the numbers add up, unlike other companies such as MiaSole.

“Where we play, there's a flight to quality and a flight to innovation that we see is going to happen here over the next 12-18 months. We bring a new technology that promises a significant amount of cost reduction as well as performance to improve the overall economics.

“We stayed very quiet on purpose. Many of the solar start-ups that were in Silicon Valley would go out and make large claims in terms of their promise – Nanosolar, MiaSole – and how they had the next great widget. But unfortunately, they were not able to execute on that.”

It helped that the company's founders, Zheng Xu and Jianming Fu, made a punt that silicon prices would come down.

“What was different about Silevo, and many of the other start-ups that were started around 2007, is that the founders believed that the industry trend of reduced silicon costs was going to be a reality. Flashback to 2007, polysilicon prices were $400 a kilo and reached their peak – $500 a kilo – in early 2008. Many of the other start-ups that were founded in that time period were all about finding alternatives such as thin-film techs such as CIGS, CdTe and amorphous silicon.”

“If you look at 2012 and take the top 10 manufacturers for solar modules, every one of them has taken huge losses in terms of operating market. Clearly, the correction started last year financially and we'll see how it turns out moving forward.”

With so much plain vanilla PV on the market, developers in the utility, commercial and residential segments will start to differentiate between products, largely based on performance, he said. But more than this, buyers will be wary of the long-term prospects of companies.

“2013 is really going to be a question about consolidation and partnership,” said Beitel. “There are many installers, distributors, developers that are sourcing technology and there's a real question whether the technology or the partner will be in existence in six to 12 months. Even though our company is at a small scale, we are seeing very strong interest from these customers because they understand the opportunity that Silevo brings to the table.”

Silevo is going to have a hard task of success – especially when the likes of Hanwha SolarOne can drum up a line of credit of $475 million from the Bank of Beijing.

Elsewhere, parts of the industry had a good – albeit Darwinian – year in 2012, according to Mike Dooley, Vice President of Marketing with AE Solar Energy, manufacturers of commercial and utility PV inverters.

“The past year can be characterised by one word: growth,” he said. “The solar industry matured a lot in 2012 as the low cost of capital, balance-of-system innovation and module oversupply increased the cost competitiveness of solar as an energy source. Furthermore, it was a year when successful businesses got stronger and gained market share, while less successful businesses were acquired or closed down operations.”

Dooley and Beitel would agree that subsidies have helped boost growth. But the industry is still dogged by the uncertainty of short-term incentives.

Dooley said: “One change overall that is needed is for policies and incentives to last more than a few years. Project financiers hate uncertainty, for good reason, and any incentive that can be guaranteed over a longer term will help assuage those fears, and therefore generate more capital for projects.

“This will be another critical year in the development of solar as a mainstream part of the domestic and global energy mix. The industry changes we saw in 2012, even in the face of record US adoption, have left the industry stronger than ever before. We're left with bankable solar technologies that deliver real returns to project developers, owners and off-takers. Hopefully with the elections over and solar no longer in the limelight as a political football, that business and technical strength, and continued growth, will be the focal point over the next 12 months.” 

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