Solar Sell

The technology generates less power than the silicon-based solar photovoltaic cells that dominate the market. But it costs only a fraction of silicon cells to produce, and in 2001 a UK start-up G24i raised US$30 million to develop new products based on Grätzel’s work. Now though, the company needs around $40 million to build the capacity to mass-produce its products, and the second round of funding is proving elusive.

“The climate is not very good at the moment,” Grätzel says. “Investors have been frustrated by the performance of the silicon-based solar company stocks and they are hesitant to invest.”

G24i’s struggles echo those of many start-ups in Europe, and for solar power component makers, the ironies are stacking up. The European Union’s aggressive renewable energy goals have helped create an expanding market for photovoltaic cells that use the sun’s energy to create electricity, solar thermal technology that uses the sun’s heat to produce steam for warming, and concentrated solar power – large scale solar power plants that use mirrors to direct rays to a receiver.  

As a result of strong government incentives, Germany now generates nearly three quarters of the world’s photovoltaic electricity, producing 6,578 gigawatt hours in 2009, according to the Federal Ministry for Environment, Nature Conservation and Nuclear Safety.

Falling oil prices make renewables a harder sell

But this expansion has also generated competition: Low-cost Chinese manufacturers such as Baoding-based Yingli Green Energy Holding Co. Ltd are eroding the market share of veteran rivals from the US and Germany. And all solar companies are in competition with companies producing other forms of renewable energy. These producers benefited from an influx of investment, which peaked in 2008 when the crude oil price hit $145 a barrel. But oil prices plunged with worldwide recession, making the higher cost of renewables a harder sell.

Government backtracking has also chilled investment. Spain boasted the world’s biggest solar market in 2008, largely due to a generous feed-in-tariffs regime. Under the plan, utilities paid renewable generators as much as €440 per megawatt hour of power, or around 10 times more than power produced from conventional sources like gas or coal.

Power prices remained stable, however, and the government promised to reimburse the utilities the difference between their costs and power prices. But the bill for those subsidies has shot up to more than €15 billion. Faced with a growing deficit, Spain cut tariffs 10 per cent in 2008 and announced plans in August 2010 to reduce subsidies to new renewable power plants by 45 per cent.

Investors pull back

Feed-in-tariff regimes usually include planned gradual reductions in subsidies stretched over time until the cost of producing renewable power is roughly at parity with conventional energy forms. But in Germany the government cut tariffs more deeply than expected in May, to account for sharp falls in prices of solar cells. Coupled with Spain’s moves, the cuts gave investors a grim reminder of the solar market’s reliance on unpredictable government policies.

And investors have pulled back. The benchmark index, the Guggenheim exchange-traded solar energy fund, has fallen 7.3 per cent in the past year. Shares of US-based First Solar, one of the world’s biggest photovoltaic cell makers and fastest growing companies, have fallen 8.3 per cent.

With established publicly-traded companies suffering, newer companies are finding it particularly difficult to scale-up. “Large-scale projects need bank funding and most banks won’t invest unless there’s a track record,” says Jamie Richards, a partner in Foresight, a UK-based investment fund and asset manager.

Both Richards and Grätzel propose that governments create debt facilities that start-ups can tap to borrow the money needed to scale-up and generate enough revenue to make themselves attractive to banks and other large-scale lenders. The government could supply direct loans to businesses, similar to small-business loans in the US; or it could create some kind of loan guarantee programme to give banks some security on risky technologies.

Turning researchers’ ideas into patented products and licensing them to start-ups is now a common service of university technology transfer offices that team up with venture capital investors and banks to provide small amounts of start-up cash, office space and administrative and technical assistance.  

Grätzel is a professor at the Federal Polytechnic School of Lausanne, for example, which assists researchers in patenting their discoveries, developing business plans and closing deals with funders. The school also hands out around a half dozen “innogrants” each year to students and staff,to help them ready their innovations for the market. But few universities boast adequate and budgets to supply the deep grants needed for scale up.  

European governments fund renewable energy start-ups.

The European Commission has put €1.5 billion in grants into fifteen energy projects, including the installation of wind turbines and research into new technologies. But the money is devoted to research, not business development.

An early and consistent renewable-energy innovator, the German government finances innovative technology startups, and in the 2009-2010 financial year provided €1.5 billion for the research and development of renewable energy technologies, including projects aimed at improving the efficiency of photovoltaic solar cells.

The influential German research institute RWI and the International Energy Agency concluded back in 2008 that research and development funding would do more good for the production of energy-efficient solar cells than subsidising the price of solar power. “Given the widely-known low technological efficiencies of about 20 per cent for crystalline-silicon cells and 10 per cent for amorphous-silicon cells, funding R&D appears indeed to be a promising avenue to achieve substantial cost and, hence, price reductions,” says the influential 2008 RWI report “Germany's Solar Cell Promotion: Dark Clouds on the Horizon.”

No funds for business development

Grätzel, who won the 2010 Millennium Technology Award, and scientists from around the world are developing energy cells based on his original research. He is a member of the technology committee of a publicly-traded Australian company, Dyesol, which produces dye-sensitive cells he pioneered. The company has found a strategic partner to help finance scale-up, signing an agreement with the steel maker Corus Steel to manufacture solar roof panels with the cells.

Because they are lightweight and generate energy even in low-light conditions, the dye-sensitive cells are thought to be more adaptable to small-scale roof generation than to large-scale factory generation, at this stage in their development.

The UK start-up G24i is also testing the Grätzel cells against photovoltaic cells, to determine whether the less-costly dye-sensitive cells will be more efficient in different light and weather conditions. The company’s chief financial officer, Steve Burt, says the cells can power a wireless keyboard for an entire day. But G24i cannot mass-produce its cells quickly enough to supply large keyboard manufacturers. That’s why a scale-up fund would be useful, he says.

“You’ve still got the very early start-up funding and with all the push for revenue, but what you haven’t got access to funds in the middle,” of the business development cycle, Burt says.

In September the German government announced a package of new measures aimed at transforming 80 per cent of its energy use to renewables by 2050. The plan aims to slow the dramatic expansion in solar energy, for which may cost the government as much as €100 billion in feed-in-tariffs by 2020. But it also includes a ten-year plan to expand the country’s electricity grid so that it can collect and transmit power generated by renewable sources.

The plan has been criticised for dramatically increasing the cost of energy to consumers and industry, and potentially driving energy-consuming industries from the country.  The criticisms - and many other questions about the viability of solar energy development - stem the 2008 report by the German research institute RWI, with its questioning of the economic and employment benefits of subsidised tariffs for solar power.  

The author, physicist and economist Manuel Frondel, believes the German government would have more success supporting solar research and development than financing a special tariff.