The Haiku of Finance for 09/11/17

Nonprofit solar
Scale for wide local impact
Link green site data

How to Scale Social Impact Investing Into Solar Energy

Social impact investing is undeniably becoming a major force in finance. It drives capital into triple bottom line projects that make investors' wallets fatter and ordinary people's lives better. It's time to drive more of this capital into alternative energy, particularly the solar power sector. We can do this right here in San Francisco.

The big hurdle in getting the nonprofit sector into the solar sector's pipeline is its inability to use the tax credits that for-profit companies use to buy solar power. Nonprofits trying to buy a solar installation would need a cost of capital close to zero. There are ways to get this done. RE-volv uses crowdfunded donations to purchase solar equipment for non-profits, enabling donors to realize the tax savings that are denied to non-profits. Angaza offers pay-as-you-go financing for solar installers in emerging markets.

I can think of some additional approaches to move adoption along. Any social impact outreach to emerging markets should include mobile payments, particularly mPeza in Africa. The UNFCCC Secretariat recognizes that vertically integrated solar providers using pay-as-you-go financing have an advantage in building off-grid energy systems.

The federal government does its part to help nonprofits afford solar energy. The NREL community solar policy analysis and downloadable scenario tool are useful for communities weighing their financial options. The DOE SunShot initiative now incorporates community and shared solar resources. The EPA's RE-Powering initiative designates repurposed sites a nonprofit can use for generation, and its Green Power Communities are obvious growth markets for solar power. Linking all of these data sources into a coherent business plan should be an imperative for any nonprofit pushing a solar energy installation.

The nonprofit sector is still a largely untapped market for renewable energy. Creative subsidies that push social capital into this sector expand the potential customer base for utilities and others seeking to build out distributed generation. A more resilient power grid is a very desirable goal for policymakers. Impact investing brings that goal closer.

Alfidi Capital at Intersolar ees SEMICON West 2017

I attended the mighty tripartite conference of Intersolar North America, ees North America, and SEMICON West 2017 at San Francisco's Moscone Center. The south hall of the convention center is undergoing a massive renovation, so the SEMICON folks had to cram into the west building with Intersolar. The reduced expo floor area was tolerable given the action-packed schedule. It's action-packed from my perspective, because I love sitting through long seminars and briefings that lesser mortals lack the fortitude to endure.

The Intersolar opening ceremony is always the first shin-dig on my calendar for this colossal conference. The main Intersolar conference has lots of finance seminars on the first day but I am too cheap to pay. These people had better invite me to speak someday. Anyway, CALSEIA and NREL celebrate their 40th anniversaries this year. I did not see any cake but that's okay, we all need to stick to our diets. Expect to hear more about behind-the-meter consumer-driven storage, because that's the industry term for how building owners are installing their own systems on-site. Everything in capitalism is of course consumer-driven, but the twist in renewable energy is that smaller storage systems give customers a lot more options than utilities have ever provided before. I wanted to hear from California politicians about how the state's proposed Energy Storage Initiative would affect the market but the usual big shots were not on hand. Maybe our mayor and governor had something better to do than promote solar energy, one of the Golden State's biggest growth industries.

It's the Alfidi Capital badge for Intersolar, ees, and SEMICON West 2017.

The opening ceremony left me with more questions than usual. Do solar energy companies really have thin profit margins (compared to, say, fossil fuel energy generators)? If PV costs keep dropping and PV panel volume GW installation keeps rising, why would solar companies have thinner margins than the broader energy sector? Will the solar sector shrink if the federal government cuts spending on solar R+D? If the energy grid evolves past net-metering to accommodate location-based price signals, will this drive demand for beacons and other IoT devices in the grid? Can blockchain tech really enable both on-grid energy trading and PPA investments? I mulled these questions while I was chomping on free food after the opening ceremony. They served roast beef this year, a step up from the usual turkey.

The SEMICON West welcome keynotes and opening ceremonies were next on my hit list. The hits just keep on coming. The assumed CAGR of 5-7% for the semiconductor sector through 2057 is a long forecast, but it seems reasonable if IoT adds to a mature sector. Anyone who thinks IoT won't drive the next wave of semiconductor volume growth needs to read everything I've ever blogged about both IoT and semiconductors. I keep hearing predictions about AI making the singularity either a decade or two away, but there's no consensus among gurus. We all get to learn some new buzz phrases: edge computing (now with IoT and AR/VR) and fog computing (I've heard that one before). The progression goes from edge to fog to cloud, and into your brain at some point once we hit that singularity. One brilliant executive shared his insights into "Neumann and Neuromorphic" innovation to create intelligence that reminded me of Transhumanism.

I came away from SEMICON's opening presentations with a few original insights. I would post them on SemiWiki but I don't work in the sector. I think that when gross payroll grows faster than headcount at semiconductor enterprises funded as public/private partnerships, it shows the creation of high-income, value-added jobs. The semiconductor sector now uses more elements of the periodic table than ever, so materials sourcing will soon become a crucial "table stakes" factor. The entire tech sector needs to take supply chain security seriously, and that means not taking single sources in the developing world for granted, especially if those sources rely upon transportation links that will be at risk during geopolitical instability. Check out the South China Sea tensions for a glimpse of near-term supply chain insecurity.

The ees people gave us a look at their market, regulatory environment, and some business policies. I would like them to explain why they don't capitalize themselves as EES, but I don't run their part of the show. It's their world of batteries and I just live in it. There should be little concern about backsliding if one speaker is correct about state governments doing 80% of the policy work in renewable energy. I just wonder how they measure that impact, and whether the remaining 20% is crucial stuff like the DOE SunShot Initiative. There is no policy initiative imaginable that will force solar power into the baseload category, because it is physically impossible for the sun to shine at night. Policies favoring storage linked to solar and wind power do not change nature. Power grid management with distributed storage will require revisions to the standard installed capacity (ICAP) the ISOs calculate for their markets. Adding BIPV and and other new tech to generation reduces the ICAP demand-related charges, thus adding value to a property owner's business model.

I want to throw some more red meat buzzwords out there to show the ees people that I paid attention. Electric energy storage used for load leveling is "energy arbitrage," using time shifting to make stored energy available during higher demand periods. Its corollary is "peak shaving," encouraging reduced energy consumption during high-demand periods. California and New York are among the states pushing "distributed resource tariffs" that enable utilities to install more generating capacity on their customers' sites. Virtual power plants will aggregate these distributed generation resources into a cloud-based management model. Anyone making or selling distributed generation or storage solutions must know the NERC critical infrastructure protection (CIP) standards and FERC guidance for CIP implementation. The US Midwest's wind corridor is an underserved market for storage solutions and grid connectivity. Cogeneration (CHP) and trigeneration (CCHP) present a wide array of product choices that storage solutions vendors can adapt into sales pitches.

The ees finance and bankability sessions built on the above policy topics. Vendors who get on a project finance company's pre-approved list of trustworthy service providers have a big leg up in getting customer referrals. Refer to my blog articles on previous Intersolar conferences for PACE explanations, and know that PACE applies to both residential (RPACE) and commercial (CPACE) properties. Storage systems with a useful life less than the typical PACE payback period are probably not worth selling. The bottom line from banks authorizing loans and leases for energy products is a provable revenue stream; no stream means the project developer must seek equity investors rather than issuing debt. Energy storage is now considered a "front of meter" function requiring new metrics for assessing charges, compared to "behind the meter" generation's demand charges.

One dude from a leading semiconductor equipment supplier had a free e-book for those of us attending his talk. I didn't sign up for his e-book because I have way too much stuff to read through already. Early concern among SEMI manufacturers that Moore's Law would stop at one micron no longer applies. He shared a few platitudes on good management and organizational culture. The dude needs to go work at Uber where those factors are deficient. SEMI held their annual awards presentation afterwards and someone mentioned the Hybrid Memory Cube Consortium pushing the next big thing in DRAM design. I'll have more to say about that consortium if they have events offering free food.

The SEMICON keynotes tend to be slick sales pitches from major sponsors, but once in a while some worthy tidbits appear. Leading IoT and cloud providers have latched onto autonomous vehicles as their next big cash cow target because those cars generate continuous large data streams. Expect services and advertising focused on consumers sitting passively in self-driving cars for hours. I expect these cars to converge with the sharing economy, whose consumers are too poor to own their own cars. Most ads they will see will probably be for other sharing services, like grocery coupons. You heard it here first at Alfidi Capital.

I went back to the ees stage to see what tech advancements are maximizing ROI. Track the GTM US Energy Storage Monitor for the latest industry developments. I mentioned peak shaving above, and storage capacity determines its flexibility. The industry claims that storage manufacturing costs have fallen in recent years, similar to PV manufacturers' cost trajectories, as delivered units have risen. Utility tariff structures and time of use (TOU) policies determine use cases that demonstrate demand charge management that storage system vendors can offer. Most states allow net metering of solar but not storage, so using storage means time shifting, peak shaving, and load balancing to manage power costs. Residential HVAC activation and EV charging are primary drivers of daily household power use spikes. It is clear to me that distributed generation and storage will severely threaten the business models of utilities that do not rapidly move to adapt. Utilities that survive should evolve to finance, install, and manage residential generation and storage, just to capture part of those revenue streams.

I enjoyed attending the Intersolar Orange Button Software Launch, and not just because they had free coffee. The SunSpec Alliance Open Solar Data Exchange (SunSpec oSDX) sponsored the launch because it is part of DOE's Orange Button initiative for standardizing solar bankability data. Getting Alfidi Capital into this program is a bonanza for name recognition. I don't offer financing or provide any other client services to program participants. My interests include knowing which tools programmers must use to be compatible with Orange Button APIs.

The SEMICON West Bulls and Bears Industry Outlook was something I could not miss. I would be perfectly willing to present my own sector views at this forum someday. I just don't want other analysts stealing my work. Gartner and other research purveyors still forecast semiconductor sector growth. There's a widespread expectation that IoT will be part of that growth; you know, maybe these analysts have been stealing that insight from me since I've blogged it for years. I believe the IoT automotive apps driving chip demand are also enabling other value-adding services like fleet management and stolen vehicle recovery (tied to insurance coverage). The semiconductor content in AI is hard to predict, with analysts uncertain about higher CAGR forecasts, and they have no idea which processing architecture will win AI. Hey analysts, I'll do you a favor and point you in the direction of the Hybrid Memory Cube Consortium I mentioned above. Now that I've said it, I will fight any lazy analysts who try to steal it. Fighting begins at a time and place of my choosing.

The last major conference event for me was the Joint Forces for Solar 16th PV Briefing. I learned a ton of stuff at past events thank to heavy participation from industry association leaders and DOE subject matter experts. This year was disappointing due to their absence. The solar market's dynamics show tons of solar installed here in California, not including municipal utilities. I asked a question about how geospatial analysis tools would be good sales prospect generators for installers, especially when used together with Orange Button financing data. Whoever answered me said that utilities are indeed building such tools to show customers where they can install distributed generation assets. I thus contributed some massive genius to the briefing that day. One final insight I gleaned from a presenter is that good accountants specializing in solar policies and incentives can add value to business customers installing large energy assets through off-balance sheet financing.

I did prowl all of the expo floors but I did not have time to query enough exhibitors on their business pain points. I did score an armload of free reading material, a handful of free candy, and a brain dump of interactive tech experiences. I even met a local steampunk enthusiast working for one of the exhibitors. Those folks must be all over the tech sector. They go into hibernation when they're not at the Maker Faire or big hackathons.

Intersolar and SEMICON West are always winners for me. I also like ees, and I would like them even more if they adopt proper capitalization. I shall return next year to see if that happens.

Mastering The Cleantech Open Global Forum 2015

I have attended the Cleantech Open's events for three years now and I always come back for more. I had to jump into the CTO's Global Forum 2015 last week to see what this year's class of startups had done. Badge selfies are my bona fides because they prove I am not some AI bot randomly generating blog content.

Driving down to the CTO's home at GSVlabs is always worth my time. The co-working trend is now a serious thing. Startups eschew privacy and security by taking open-space collaboration to an extreme. I think the next trend could be co-working outdoors, where startups can plot their huge markets on picnic tables. Nah, just kidding. I wouldn't want to do office work outside because wild animals like bears and coyotes run around out there looking for people to eat. Smart VCs won't fund a startup where the founders risk getting devoured by packs of wild beasts.

The Investor Connect speed-dating round had a table reserved for yours truly, the CEO of Alfidi Capital. Someday I'll be #1 but this time I was at the #2 table. I am usually the #1 genius on hand wherever I go in life. Most normal people recognize this as soon as they meet me. Serious VCs and angel investors were at the other tables and I had the chance to interact with a few of them during breaks between meeting startups. Sharing insights helps me understand how much startups learn during their early phases.

I will share what I learned from the startups I met at my table. These are general impressions that cover many verticals. Addressing a scalable market means going after a big demographic whose price points and buying power are easily understood. Going after boutique markets with fragmented demographics (like organic farmers, for example) means a startup's marketing channels will be less efficient. Lowered efficiency in anything, especially finding a marketing channel, means a startup needs a longer runway to profitability. Proprietary technology must be difficult to duplicate. A simple device with common components is easy for a competitor to reverse engineer.

I also attended the CTO's Celebration Day in San Francisco's Herbst Theatre. It was my first visit to the Herbst since the Veterans Building's renovation. The drinking fountains on multiple floors actually work now after several years of inactivity. The downstairs bar looks pretty snazzy. Dag-nabbit, I should have taken photos.

The winners and finalists ran the gamut of tech. I heard pitches from startups doing biomass gasification, carbon nanotubes, pollution tracking, and SaaS analytics. I can't connect with businesses outside the United States because my personal prerogative is to only work with companies located in the US that American citizens own. I'm sure there are plenty of those to find.

Famed VC Ira Ehrenpreis gave his keynote that doubled as a highlight reel of his favorite investments. I'm pretty sure I heard him give this talk before at a conference down in Silicon Valley at least a year ago because I recognized many of the slides and themes. He told us that the best time for tech investing is right after a sector bursts its bubble, because the final survivors are in the best position to be long-term winners. I think the solar sector is still in the middle of its shakeout, so anyone making panels or modules after the last low-quality Chinese producer goes bankrupt will be in a sweet spot. I also think solar suppliers that adhere to all of the DOE EERE SunShot Initiative's standards will have an easier time convincing developers to include them in supply chains. Ira also mentioned the "second bottom line" importance of ESG criteria, another set of guidelines our aspiring startups must adopt if they want to attract impact investors.

I noted one concluding quote with interest: "There's no such thing as a bad contact, but there is such a thing as a bad way to follow up on a contact." Well, I had plenty of bad contacts when I worked in sales, and plenty more when I was between jobs trying to make a career for myself. There really are tons of bad people in the world and they succeed in spite of themselves. I avoid those types because I'd rather meet the ambitious folks populating the cleantech sector. If I get rich after investing in one of these startups, then I could finally afford to be a big-shot sponsor of the Cleantech Open.

The Haiku of Finance for 11/14/15

Solar project help
Free financing resources
SunShot knows the cost

Solar Project Finance Brief Notes Q4 2015

I absorb tons of renewable energy news every year, even when Intersolar North America is not in session. There's no stopping the growth of solar power. Every apartment rooftop and parking lot in America is untapped real estate for PV panel projects. Getting the basics right matters. Here come some brief notes for developers wondering about financing a solar project.

Engineering, procurement, and construction (EPC) costs are hard to estimate. Changing a major supplier for racks, mounts, or converters means recalculating part of the project's cost estimate. The shakeout in commoditized solar module providers has not ended. The future bankruptcy of some mount maker means replacement parts will not be available after a localized system failure. The cost of procuring some potentially incompatible mount that requires further customization is a variable adding potential cost to a project's out-years.

One large solar tech provider, who shall remain nameless, argues that cost of capital is a major factor in solar's levelized cost of electricity (LCOE). I think that was true up until the 2008 financial crisis when the Federal Reserve lowered its interest rate target to less than 0.25% and kept it there. I also think developers in a low-rate era should concern themselves more with how soft costs detract from a solar project's bankability. Developers who apply the DOE EERE SunShot Initiative's soft cost best practices have a leg up in getting those estimates under control. Of course, if the Fed raises rates or loses control of the yield curve during hyperinflation, then capital costs will matter once again. Solar developers with long-term supply contracts will progressively reduce their inventory costs during a hyperinflationary period.

Free public resources help developers learn about project finance. The DOE EIA Annual Energy Outlook Documentation and Assumptions section has an excellent reference for estimating LCOE. Developers need good references to make robust estimates. The DOE's NREL Renewable Energy Project Finance site is loaded with tips on securitization and credit enhancements. The Solar Energy Industry Association (SEIA) policy page keeps developers current on tax credits and other incentives that mitigate project costs. Solar Industry Magazine's October 2013 edition had an excellent primer on preparing project finance. The article's coverage of the PPA's relationship with site details and off-taker financial strength is noteworthy.

Solar project finance help is as close as a Web search. You can all thank me later. I'll take my bow right now for keeping the best solar financing references out in the public eye.

Synopsis Of Intersolar North America And SEMICON West 2015

I attended Intersolar North America and SEMICON West once again.  These shows are shaping up to be my favorite mega conference every year and they delivered the goods in 2015.  Other meetings took me away from some of the symposia but I had the main events covered.

The Intersolar Opening Ceremony only had one politician this year.  The local politicos couldn't make it so a New York state legislator talked about the Empire State's energy programs.  No one can touch California, folks, so I don't know why these other states even try.  They may as well just throw in the towel.  I was shocked to hear one of the lead presenters state that multi-junction solar cells are now getting 46% conversion rates.  That is about three times the long-term historical sunlight conversion rate that PV panels typically yielded for decades.  Solar's levelized cost of electricity (LCOE) is also getting more competitive.  In case anyone is curious, EIA describes LCOE for 2015 and NREL provides an LCOE calculator.

Tesla Motors' CTO and co-founder tied the Gigafactory's Li-ion battery tech to the pending launch of Tesla Energy.  I believe cheap lithium producers will have a major advantage if materials costs truly have the storage sector concerned.  Tesla's full rollout targets both home storage for Tesla car owners and microgrid buildouts for demand clusters in emerging markets.  One big concern among Opening Ceremony attendees like CALSEIA is the continuance of pro-solar policies like net metering, the federal solar investment tax credit (ITC), and Renewable Portfolio Standards (RPS).  Absorbing all that urgency was enough to give me an appetite for the free food at the Opening Ceremony's reception.  I always get my fill of grilled turkey and vegetables.

SEMICON West held their opening press conference and analysts like yours truly are sure to be there.  I grabbed my coffee and listened to SEMI's market outlook.  Gartner and other sector analysts are lowering their revenue forecasts for the semiconductor industry.  I noted how a weaker euro and yen are reducing billings reported in US dollars.  SEMI is still forecasting decent growth in both material cycles and equipment.

The SEMICON keynote on sub-14nm manufacturing was pretty technical but I tried to follow it for investment insights.  Physics allows innovation to march on and fixing bugs always means lots of manual work.  I am not clear on the relationship between lower voltage and higher efficiency, especially if huge efficiency improvements are needed to get HPC capabilities into smaller form factors.  I am much more clear on the need for databases to communicate in the same language.

The session on EES storage and large-scale grid integration reminded me of something I probably forgot from a previous Intersolar, namely that batteries are less efficient in high-temperature climates.  Li-ion batteries have high efficiency and will charge for a large number of cycles, but they also have a higher cost per kWh than other storage technologies.  They also have a safety disadvantage of "thermal runaway" if overcharged or crushed.  The CAISO duck curve and NREL volatility chart show how storage adds to the capacity of PV systems.  Feel free to look those up yourselves, as I suspect their URLs will change.

I went over to SEMICON's Silicon Innovation Forum (SIF) investor panel to learn that the National Science Foundation's (NSF) Industrial Innovation and Partnerships (IIP) office has SBIR funds available for startups.  The investors had major takeaways for those of us who track these things.  Corporate VCs have discovered they must provide more capital to semicon startups that need cleanroom work or data development.  Huge capital requirements for new ventures will eventually deter startups from entering semicon.  VCs' recent focus on unicorns further deters interest in startups that can more reliably deliver smaller returns for strategic investors.  The corporate VCs would rather hit lots of singles and doubles than invest in one big successful home run.

GTM Research debuted their white paper on solar and the storage market.  I like conferences that give me free stuff to read.  Less than 0.1% of US solar assets have associated storage capacity, implying there's room for growth.  Okay, I've been hearing about storage's huge potential for growth for three years now.  It still hasn't grown.  I guess Tesla Energy has its work cut out.  Good luck selling storage with Tesla cars as a total package given Tesla's tiny share of the auto market.  I guess utility incentives will have to drive home storage adoption; EVs can't move the needle until they become much cheaper.  Combined savings in commercial costs over a storage product's lifetime are supposed to greatly exceed the initial investment outlay, but I wonder whether that factors in any periodic maintenance cost or insurance cost for the storage unit.  One big claim for storage is that it should add a revenue stream to a household by feeding excess energy back to the grid for sale.  I will review the sector's numbers to see how that works, and how storage adds value to a solar power purchase agreement (PPA).  I also would like to find out whether solar and storage growth curves differ by regions covered by different independent system operators (ISOs).

The US Commercial Service was on hand to talk trade promotion.  I have heard them talk before in Silicon Valley so I don't think I need to rehash their many services here.  I do expect Congress to eventually reauthorize the Ex-Im Bank, because a big plank of our foreign policy depends on trade finance tied to development in emerging markets.  Using "soft power" wisely means keeping US development commitments to Africa that will counter China's influence.  The US should probably merge its Trade and Development Agency with its International Trade Administration so businesses have one less block to check when planning foreign trade partnerships.  Kudos to the Obama Administration for using StopFakes to support American intellectual property.

One SEMICON keynote from Intel connected IoT to the next 50 years of Moore's Law.  You just have to love corporate sponsorship for a keynote.  I would do it too if I thought it would make me serious money.  Intel is betting that its new module's IoT applications will solve problems in four megatrends:  aging populations, carbon footprints in the environment, urbanization booms, and feeding the planet.  I would tell any semicon startup to study the standards of the Industrial Internet Consortium and the Open Interconnect Consortium to ensure their IoT solutions are compatible with emerging norms.

I missed the SEMICON "Bulls and Bears" panel due to a schedule conflict, which is unfortunate because other financial firms track the semicon sector more closely than me.  I will have to study the sector's capex, inventory, capacity utilization, supply chain, and technical challenges on my own.

The Joint Forces for Solar forum is always the highlight of Intersolar for me.  The New York state politician was at it again, making good points about his state's energy market.  I like the idea of a state Green Bank, and I wonder whether some of the state's models will work elsewhere.  The California PV market review was more relevant to my interests.  Rate differentials for high-end and low-end users will get more complex with the addition of a Super User Electricity (SUE) surcharge as a third rate tier.  Net metering will be uncapped and unlimited.  California's RPS goals don't include rooftop solar, which is just too darn bad.  The sector lobby needs to fix that and push for its inclusion.

The final SEMICON SIF keynote was all about transformational innovation and market readiness.  I literally did a "whoa" at the academic speaker dude's career history full of hundreds of patents and scientific articles.  I take geniuses very seriously.  He reminded his audience that there are no shortcuts to building a company and each day brings a "dragon" threat to be slain.  I concur with his endorsement of a "sustainable innovation ecosystem" that successfully engage academics in commercializing their university research.  Academics deserve better royalties and recognition when they do something entrepreneurial.  The decline in US government research spending and the erosion of the US manufacturing base are not coincidences.  I agree with our SIF speaker that US industry has a hard time tapping the leadership skills of government and military leaders if the public sector is isolated from industry.  Well, duh, really?  The finance sector sure kept my military expertise isolated by refusing to hire me and treating me badly.  Anyway, our expert said he expects the electronics industry to consolidate as the end of Moore's Law approaches in a decade, but the coming quantum and optics tech will change the sector's economics all over again.  He also expects entrepreneurs to lead this newly fragmented next-gen industry, with government and university research playing a critical role.  I like that he ended with those optimistic predictions.  I also liked the reception afterwards, with plenty of shrimp kabobs and cheeseburger sliders.

Intersolar and SEMICON West always blow my mind.  I came away this year with plenty of data sources to use when mentoring startups.  I even noted another incubator, the Silicon Catalyst, whose startups will likely need my wisdom.  Startup founders who read the Alfidi Capital Blog have a natural advantage when building businesses in solar energy and semiconductors.  The genius-level knowledge here literally flies off the page.

Pain Points in the Semiconductor and Solar Sectors

I mentioned in my report from Intersolar / SEMICON 2014 that the semiconductor and solar sectors have some unmapped pain points.  I took it upon myself to identify those pain points in brief CustDev interviews with vendors on the expo floors.  I was not there to sell them anything, so I had more credibility than a vendor.  That's how I obtained the insights I'll share below.

I'll start with the semiconductor ecosystem.  The SEMICON exhibitors were all kinds of trinket makers that large semiconductor manufacturers would find in their supply chains.  The most frequently mentioned pain point for them was production cost.  Equipment makers don't always know what drives the cost of producing a complex product, which in turn determines price.  They don't even know if the problems reside in their designs or their supply chains, even after analysis.  Longer lead times add costs and customers don't always forecast their needs very well.

Other pain points in semiconductors seem to be hostage to production costs.  Addressing marketing channels is complicated by tight resources (making it difficult to address a changing market segment) and the difficulty of getting product release information into the hands of the appropriate technical audiences with purchasing authority.  One frequently mentioned pain point was the gripe that human resources were a recurring irritant.  Hiring the right people was always difficult and many of the company leaders I interviewed said "people cause problems."  They never said what kind of problems; I suspect those problems are really from lack of knowledge about how to solve marketing and production problems.

I have concluded that the relationship between production costs and marketing costs is a strong source of pain for the upstream parts of the semiconductor sector.  The mismatch between market knowledge and the ability to adjust capacity is costing the sector money.  This is an underexplored area that is fertile ground for solutions in codifying manufacturing knowledge, material costs, and business process maps.  I believe that startups can deliver disruption in this market by deploying enterprise Big Data analytics solutions addressing those knowledge gaps.  There is money to be made in solving manufacturing problems.

I'll continue with the solar sector.  Three very different pain points emerged under the broad topics of regulation, project knowledge, and financing.  Regulation poses unexpected problems for installers unfamiliar with local fire codes or national safety regulations.  This is particularly costly for inverters that must manage fault detections and shutdowns.

Project knowledge is a challenge for solar installers.  Project developers often ignore monitoring until the end of a sales cycle, and this is not weighted in system design until after funds are spent.  Each solar project is unique to a specific architecture and geography.  Developers stumble when they ignore the costs of grid access where transmission lines are inadequate.  I had a hard time believing some solar component manufacturers have difficulty sourcing basic materials like steel and silicon, so perhaps I spoke to at least one operator who was incompetent.

One very knowledgeable solar person made my day by addressing the cost of a typical installation.  Soft costs are a big factor in residential PV.  The expected lifetime of durable modules in commercial PV are still too much of an unknown.  These random costs make the perfect segue from project knowledge to financing, because uncertainty in estimating project cost means financing must be flexible.  The ease of obtaining customer financing would sell more solar PV systems.

I have concluded that the challenges facing the solar sector are more diverse than those facing the semiconductor sector.  Entrepreneurs can't solve the regulatory pain point, but utilities may be an untapped source of support in pushing reform.  There may be a market for apps that help installers navigate local, state, and national regulatory mazes.  DOE has made strides in reducing soft costs and making project planning more transparent.  Solving the project knowledge pain point is an open field for startups developing Hadoop-based knowledge sharing architectures.  Finally, the financing pain point has a plethora of solutions at the federal and state level but consumers may not know about all of the tax incentives they can use.  Yield cos and tax equity are financial solutions for commercial projects but offer little relief for single-unit residential installation.  Once again, apps may help the real estate sector arrange financing for home improvements that incorporate solar, wind, and storage installations as home improvements.

I only had time to hit up a few dozen vendors so my impressions are not as robust as what a startup would need for an actionable marketing plan.  Oh yeah, the funniest part of my CustDev exploration was when I asked one SEMICON guy to name his biggest pain point.  He rolled his eyes and said, "People like YOU!"  I knew when to back off but I was not deterred from gathering anecdotes.  I make it my mission to understand how to make money from disruption.  Someday a startup will catch my eye because it can solve the problems I identified here in bold type.  I'll be ready to commit my knowledge as sweat equity.  

Alfidi Capital Examines Intersolar North America / SEMICON West 2014

I made my annual presence known last week at the joint meeting of Intersolar North America and SEMICON West in San Francisco for 2014.  I absolutely cannot miss the latest and greatest developments in solar power and semiconductors.  Go search Google if you want to see what I discovered in previous conferences.  You've already read my impressions of the Intersolar opening ceremony this year.  The rest of the joint conference was even more fun.  Those of you who are pressed for time can focus on my trenchant original observations in bold text.  I make being a genius so easy.

The opening keynote from Micron set the right tone.  Once I got past the corporate rah-rah about new tech converging with smartphones, I heard the news about evolving computing models requiring more power and reliability to knit logic and storage together.  I can't wait to see who emerges on top of the next wave of semiconductor sector consolidation.  I also can't wait for the quantum computing revolution.  SEMICON speakers on my agenda didn't mention quantum computing, but they should if Micron's estimate of the end of lithography walls means ordinary tech can't scale up power and speed anymore.  Micron has also caught the innovation bug I keep seeing in the startup sector, if they're serious about chip fabricators seeking partnerships in other verticals like packaging and assembly.

The DOE SunShot Initiative presenter reiterated their awesome multifaceted program.  DOE's EERE is funding the reduction of solar's cost per kWh and they even incubate startups.  I think EERE's Funding Opportunity Exchange might be a decent source of non-dilutive funding for startups if they can pivot to government's needs.  Here's a hint for aspiring solar entrepreneurs . . . basic color properties matter.  Black solar cells absorb more sunlight than other colors like blue.  That's so simple that everyone in solar should know it.  I was particularly impressed with the presentation from Bandgap Engineering, one of SunShot's incubated startups.

I kept busy in between presentations by browsing the expo floor.  Booth babes made rare appearances compared with 2013.  Shoals Technologies Group had the best babes by far at their Intersolar display.

I must have been distracted by something at their coffee bar.  Perhaps it was the soft pretzels they were giving away.  I should have grabbed a pretzel before they ran out.  I never turn down free food if I can help it.

You can see that I have my hands full with these babes.  They were just as soft as the pretzels and probably just as tasty.  Feast your eyes on the incontrovertible proof that gorgeous women cannot resist yours truly, Anthony J. Alfidi, CEO of Alfidi Capital.  

SEMICON's Silicon Innovation Forum featured Dr. Robert Metcalfe as keynote speaker.  This brilliant guy has created enormous value in multiple verticals and I was privileged to hear his insights.  I will add his mention of the Doriot Ecology and Christensen Disruption to my latticework of mental models (nod to Charles Munger here).  I learned a new acronym from Dr. Metcalfe:  FOCACA = Freedom of Choice Among Competing Alternatives, i.e. the state of affairs in a free market when consumers don't have to live with tech monopolies.  His formula for a successful startup in a Doriot Ecology combines an academic professor and talented students working with laboratory tech, a scaling entrepreneur who provides adult supervision, and venture capital.  I note with interest his preference for tech developed in university labs with government agency sponsorship, rather than tech from government-run labs.  Dr. Metcalfe thinks universities that compete with each other are more productive than federal labs, which show poor research output per dollar spent.  That throws cold water on my hopes for commercializing the federal government's science.  IMHO the missing ingredient from the government's commercialization efforts is competition that will sharpen the federal labs' abilities.  Analysts tracking tech innovation need more laws in their mental latticeworks . . . Shockley, Grosch, Moore, Rock, Cooper, Metcalfe, and maybe others I heard for the first time from Dr. Metcalfe.  He plugged NSF's US Ignite project to seek killer apps for the Gigabit Internet.  Hey entrepreneurs, there's your big hint about what's coming next after the social / mobile / Big Data convergence, and venture funding will follow a hot trend.  Dr. Metcalfe closed with some cautionary observations for would-be entrepreneurs.  He said Solyndra was a classic scaling mistake where a political commitment to job creation drove failure, and their tech had everything but silicon (uh, yeah, that would be pretty crucial to have in solar).

The Silicon Innovation Forum continued with a venture investing panel.  They were refreshingly candid, unlike some of the self-serving blather I tend to hear from VC panels.  They see very few good opportunities now but are looking for IoT to impact sensors and MEMS.  I believe any startup that can push back the limits of Moore's Law and Dr. Metcalfe's other laws above would be compelling.  I was pleased to hear these VCs say they look at a startup's supply chain when scaling it up to see where bottlenecks will appear.  I hope they apply that perspective to the IoT applications they claim to like in precision agriculture, because a farmer's subscribed sensor arrays assessing moisture and temperature all need power sources of some sort.  I wonder if a farm drone could power the sensors with wireless transmission of electricity at the same time it makes a recon overflight . . . hmmm.  They would all tie in together to optimize pesticide spraying and hydrology.  "Sustainable differentiation" was a common buzz phrase from this panel.  I don't think they mean that in the cleantech sense of sustainability, but in a scaling sense.

The game-changing startup success stories from Silicon Innovation Forum were mostly products of NSF SBIR funding.  Such early non-dilutive funding proves something to future funders by underwriting early research.  Competitive manufacturing costs and capital efficiency matter.

I missed the Center for Sustainable Energy talk on their Self-Generation Incentive Program (SGIP).  Solar entrepreneurs should give it a serious look.  It helps a solar sales pitch as long as it's fully funded.  CPUC is on board with SGIP.

Intersolar allowed me to attend their press breakfast on the second day because they recognize the value I bring as a sector analyst.  My reputation must be seriously growing if this very important conference series has let me into the tent.  I got some insights into the segmentation of the grid-connected storage market and the very versatile modularity of battery tech.  DOE's Global Energy Storage Database links regulatory policies to notable projects.  The National Alliance for Advanced Technology Batteries (NATTBatt) noted that batteries allow the solar sector to sell more product of higher quality by bundling storage solutions with solar production, and I wish I had attended their separate talk on strategies to reduce storage costs.  The California Energy Storage Alliance, California ISO Energy Storage Roadmap, and EPRI advocate public policies that will make the storage sector even more complementary to solar.  They need to address costs, especially since the economic losses of short-term outages make storage a compelling mitigation tool.  Storage factors of response range and speed enable storage solutions to be scaled and customized for local markets.  The battery sector can make its case effectively by linking storage costs to the range of battery materials that deliver different gravimetric and volumetric energy densities.

The next SEMICON keynote from Microsoft was the expected commingling of value chains and supply chains in connected networks.  I thought ERP was supposed to have solved that already.  Does any big strategic investor like Microsoft, Cisco, IBM, and others still believe that the mobile / social / cloud / Big Data fusion will drive value?!  That train left the station in 2013.  There's little room left for disruption in retail users' verticals.  Let's move on to IoT and M2M already.  I still hear too many business intelligence solutions sales pitches disguised as these multi-sector fusion case studies.  Microsoft does recognize the importance of enterprise security but I'm not sure where it resides in Azure or their other offerings.

One other product pitch mentioned NREL's calculations of site survey costs for solar installations.  I couldn't find the data on NREL's Open PV Project but a Google search reveals tons of data from NREL and others on soft costs.  Geographically precise data helps with lead generation and prospect qualification, especially when an integrated solar installer shows cost advantages from policy, taxes, storage integration, and soft cost savings.

The highlight of my Intersolar experience is always the Joint Forces for Solar series of presentations.  CALSEIA was first up discussing the West Coast market.  The California Solar Initiative (CSI) will end soon and it would be a shame to lose access to the valuable California Solar Statistics it generated.  A statistical void makes the market less transparent and homeowners will be inhibited from comparing pricing.  I liked the "duck curve" chart showing the daily production ramp that utilities want to moderate with storage.  I asked the presenter about the typical salvage value and recycling cost of a solar system at the end of its useful life, but I should probably look that up on my own.

I was all over the Joint Forces for Solar section on solar PV financing opportunities.  Chadbourne and Parke's Project Finance Newswire covers plenty of good info on financial innovation.  Securitization has come a long way since solar investors first started weighing the tax equity of a project.  The yield co model does for solar what MLPs do for hydrocarbon and pipeline projects.  Yield cos remind me of REITs but the difference is their securitization of cash flows from solar leases, not the physical system assets themselves.  Watch the Alfidi Capital blog for a whole separate article on how yield cos compare to other instruments, and how they can theoretically commingle with tax equity via inverted lease structures.  Property owners in special tax districts can still use property assessed clean energy (PACE) payments for solar upgrades.  I was delighted to hear that NREL data on solar performance can validate the credit default risk of solar securities.  I want to consider whether NREL's RReDC data can evaluate credit risk for yield cos in any renewable sector besides solar, and whether NREL's Solar APIs can adapt to publishing that data in formats usable to the finance sector.  I am intrigued by NREL's backing of Sunspec Alliance's Open Solar Performance and Reliability Clearinghouse (oSPARC), which may fill the immediate market need for solar performance data.  Anyway, the presenter for this session did mention that state-chartered green banks are emerging, along with green bonds and holding company loans as additional vehicles.  I searched around the Web for insights on those subjects.  The Coalition for Green Capital is pushing for more green banks.  The World Bank knows something about green bonds.  I haven't addressed these topics in a while but rest assured they are fodder for my future blog articles.  If NREL's Renewable Energy Project Finance site doesn't cover it, just watch for it from Alfidi Capital.

I left Joint Forces for Solar early to catch the SEMICON Bulls and Bears session.  Splitting my time between two sessions oriented to the finance sector is how I optimize Alfidi Capital coverage of major developments.  Anyway, the bull and bear analysts from major investment banks presented their thinking on cost and competition in the semiconductor sector.  Slowing demand all around was a major theme.  I can easily summarize everything they said.  Leverage points in a production process determine where semiconductor manufacturers have a competitive advantage.  Simple, low-cost supply chains matter.  The ability to continually make incremental improvements in a production process matters.  The Alfidi Capital official definition of the one thing that matters most is a durable competitive advantage (a la Warren Buffett) that generates the surplus earnings funding a constant search for the things that matter!  I suspect that such an advantage comes down to a mix of advanced material science and the ability to match chips to form factor changes.  I don't follow semiconductors as closely as I follow renewable energy, so I'll just have to wonder.  I also wonder why so many people attending the SEMICON Bulls and Bears session looked like total douchebags.  Maybe they were all Wall Street investment bankers looking for someone else's work to pass off as their own.  That happens in the bulge bracket all the time.

I sat in on a sponsor's breakfast forum on the final day of SEMICON West.  All I needed to know is that material science places the same limits on chip and circuit capacity as it does for energy storage capacity in batteries.  The cost factors of chips and their dies seem to multiply each other, especially as die area scales.  Mobile computing makes chip design complex because mobile sensors (like modems) are always turned on and processors for graphics and video have high workloads.

I switched back to the Intersolar track to hear a very attractive German woman present on the German storage market.  It should not surprise anyone that solar PV systems with a storage component offer a higher NPV for investment that stand-alone PV systems, regardless of feed-in tariffs.  Obviously, storage allows energy use in non-peak hours without any additional demand on the grid.  It also seems like installer scale matters if big players offer more added NPV.  More installers making proactive offers to add storage with their PV installation should expect more market penetration and more profitability.  That IMHO is the key for those solar installers who want to survive industry consolidation.  This technique should work in the US as well as Germany.  The big problem is that battery life is still too short for many household needs.

I went back to SEMICON for their expo floor panel on the 3D printing revolution.  You know something, I had mentioned 3D printing in passing to several exhibitors last year and they really didn't see it coming.  Now it has arrived.  Adapt or die.  If 3D printing is at the same maturity stage now as PCs were in the 1970s, then the sector needs a consumer product as elegantly simple to use as Apple's Macintosh.  The inevitable game-change is obvious . . Apple should launch a 3D printer!  The best part of this 3D maker panel was the presence of 3D engineering goddess Sandra Madrigal.  Oh wow, she was one hot babe.  She showed an image of a 3D printed version of her head she made as an experiment.  I'd like to see more 3D printed versions of her, if you know what I mean.  I say the 3D printing sector could jump start its growth by encouraging 3D printed molds of unclad female figure studies.  This gal really got me thinking.  I could have studied the LLNL material selection chart on the stiffness versus density tradeoff, but after watching Sandra Madrigal I was developing a mental tradeoff of my own.  Okay, let's get serious here.  I think alloying in 3D is solvable with some elegant nanotech.  It probably means using airstreams to bring metal particles down into a melt pool, or using electrolysis plates to to attract them into a honeycombed grid where they can be heated and set.  The first desktop device that does that will own the home market for cheap customization.  I suspect very few financial analysts follow the 3D printing sector.  That's why Alfidi Capital stands out.

I circled back to Intersolar for one last presentation.  NABCEP discussed licenses and certifications for solar system installers.  I recalled much of the material from past years at this show.  The key takeaways for the financial sector are clear.  Financial incentive programs for renewables support accredited contractors.  NREL's Solar Access to Public Capital (SAPC) standards make that clear.

I did make the rounds of the entire expo floors of both conferences as is my annual habit.  Nothing can stop me from cramming as much discovery into my schedule as possible.  John Perlin's book Let It Shine got special mention at Intersolar's opening ceremony and he sold copies on the expo floor.  TeamCalifornia supported the presence of California Go-Biz, SFCED, the East Bay EDA, and other regional advocacy groups at Intersolar.  My round trip of all the exhibitors scored me tons of market insights and plenty of free candy.  I informally surveyed some exhibitors on their most significant pain points.  The unscientific results of my exploration will be the subject of another future blog post.  Like I said above, you need to watch this space.

Intersolar and SEMICON West are always worth my time.  I don't attend merely for free candy and photos with booth babes, although those are certainly nice perks.  Entrepreneurs and venture investors need analysis of meta trends at the intersection of renewable energy and component manufacturing.  I may not be the only person on the planet who sees these connections but I'm definitely having the most fun doing it.  I'll see you all in 2015 for the next round of these combined trade shows.  

Alfidi Capital Witnesses Intersolar Opening Ceremony 2014

Alrighty, here comes my first impression of Intersolar North America 2014.  I normally roll up my observations of the entire conference in one long blog post, but this year I'm giving the opening ceremony its own special treatment.  Politicians were the stars of this particular show.

The Governor of the Golden State spoke about his ancestral acreage filled with wildlife.  It had nothing to do with solar energy.  In fact, nothing he said had anything to do with much of anything at all.  He seemed to lose his train of thought in places, but recovered when he realized he didn't have much to say.  He could have addressed the State of California's energy policy, which has a detailed clean energy implementation plan.  He could have mentioned the important partnerships working for California's Clean Energy Future.  He could have mentioned Go Solar California's roots in the previous Governor's Million Solar Roofs program.  I did not hear any details of these success stories.  Career politicians have a knack for connecting with people who feel rather than think.  This gentlemen excels at his chosen career.  He is indeed a man for our times.

The Mayor of The City was a study in contrasts.  He was distinctly proud of his effort to extend the PACE financing of GreenFinanceSF to residential developments.  He briefly mentioned a tax exclusion for clean technology companies, which I believe is the Clean Technology Payroll Expense Tax Exclusion for businesses in the San Francisco Green Business Program.  The man's background as a city planner is a huge plus.  He knows how public policy makes life better.

Some state senator from the Empire State got up and spewed pure ignorance.  It was painful to watch but the morons in the crowd, presumably locals, loved the performance.  He stumbled over prepared text and made several factual errors.  Citing specious claims of drowned polar bears did not help his case for induced climate change.  He failed to articulate the full name of the National Oceanic and Atmospheric Administration (NOAA), and then laughed it off to the audience's delight.  His selective use of annual temperature data would have been more credible had he mentioned it in the context of NOAA's NCDC US Climate Extremes Index (CEI) and the periodic adjustments NOAA has made to its data.  This Telegraph UK article is exemplary of news media efforts to question NOAA's constant data adjustments.  I am dismayed to think the US government's scientific data is as unreliable as its economic data.  This state senator's only positive contribution to the climate change debate was his mention of Harvard University's "Climate Extremes" report, funded by the CIA.  Keep that connection in mind; it will come in handy later.

The CALSEIA official was a class act after the state senator's jackass act.  She had data to back up her ideas.  Environment America's "Shining Cities" report from April 2014 is a good foundation for solar energy development's role in urban renewal.  She mentioned CPUC's net energy metering (NEM) program and noted that CPUC has adopted very favorable treatment of solar installations; this blog post from Renewable Energy World has a good summary of CPUC's decision crediting solar production.

I want to touch on a point related to my blog article from earlier today about climate change as a stalking horse for a new green religion.  Recall my note above about the CIA's interest in funding climate change research that justifies continued national security planning.  Religious fervor motivates behavior.  If waving a monotheistic standard is an insufficient motivator for power projection, then another supernatural justification must take its place.  A growing body of strategic thinking now supports American intervention for humanitarian and environmental reasons.  Americans like to think of themselves as the world's generous saviors.  Deploying to save the children and the rainforests is a much easier sales pitch to urban elites than deploying to preserve access to mineral resources.

I'll conclude by saying that I am not disappointed at all to hear career politicians play emotional themes or mangle facts.  The ones who talk that way are not really in charge and they probably know it.  They like their careers because they love the limelight.  The rare politicians who talk sensibly know who benefits from good public policy: voters maybe, businesses probably, deep state elites certainly.  I am totally in favor of cultural programming that employs innovative memes to direct public enthusiasm for elite management of civilization.  I am totally on board with ruling class direction of public policy.  I totally understand the role public leaders play in propagating pre-approved themes.  It's a fun game to watch and even more fun to play.  

Alfidi Capital Checks Out SEMICON West and Intersolar North America 2013

I spent this past week hanging out at SEMICON West / Intersolar North America 2013 here in San Francisco.  I had a whole bunch of fun at this combined show in 2012 and I couldn't wait to go again.  Engineers and other nerd types probably went all gaga at the acres of gadgetry on display.  I'm a lapsed nerd who never got far enough into tech to make it a career, so I stick to the business-oriented panels and workshops at these types of events.

I only got the free expo pass but that's good enough for my needs.  The technical panels that required paid tickets were for industry practitioners.  I missed the opening day Intersolar welcome addresses from Gov. Jerry Brown and Mayor Ed Lee due to a previous commitment but I did hit up the welcome reception at the InterContinental San Francisco.  Man, that was some juicy turkey they carved up with my free drink.

The opening SEMICON West keynote was all about foundry-driven innovation in the mobility era.  I was impressed that the keynoter polled the audience and updated his poll result slide in real time as people were voting via texts.  I guess if anyone could pull that off, it would be a bunch of tech executives.  It was interesting to learn that the mobile market is driving increases in silicon consumption now that the PC market is flattening.  I attended Mobile Commerce World 2013 a couple of weeks ago.  I think the semiconductor industry will be pleased to know that the entire retail sector is about to make multi-year investments in WiFi, smart sensors, POS terminals, and other things that will inundate every store with silicon.  I also sense that smartphone makers will be challenged by the power consumption requirements that are key to smartphones' data management ability and screen resolution.  I had heard others at this SEMICON mention the likelihood that Moore's Law will slowly lengthen in time as processors reach physical limits.  These folks must know that MIT's Technology Review posited a connection between Moore's Law and Koomey's Law for the amount of electric power that can power devices, subject to the limits of battery chemistry.  The keynoter also noted that semiconductor manufacturing capacity gets strained when a new demand node for semiconductors (i.e., smartphones) debuts.  The number of high-volume semiconductor manufacturers in the world is very small, and I presume they forecast demand fairly accurately.  The keynoter made an interesting point about how the longer life cycle time of more advanced technology drives the complexity and cost of semiconductor products, with risk increasing and product life cycles compressing faster than ever.  I think the solution to this trap lies in the application of less complex technology that scales out in any increment, small or large, mass or custom.  I'm referring specifically to the open-source standard known as Arduino, something I discovered when I visited Maker Faire 2013.  There are product functions where complexity adds diminishing marginal returns past some point and Arduino is ideally suited to fill gaps between simple products and hugely complex systems.  The keynoter's final points about the complexity of the ecosystem supporting foundry labs actually reinforces my own point.  Open-source DIY solutions will fill demand for semiconductor products that cannot be profitably made in complex foundries.

I had every intention of alternating between SEMICON and Intersolar presentations.  I had to check out the SolarTech talk on leveraging DOE's soft-cost reduction programs.  "Soft costs" are anything not attributed to hardware in a solar power system.  Clean Power Research has found that even after large drops in PV panel costs, soft costs are not decreasing.  Lawrence Berkeley National Laboratory's Electricity Markets and Policy Group has studied the impact of soft costs such as city-level permitting costs.  RMI and Georgia Tech are studying the soft cost differential between the US and Germany.  DOE's SunShot program has found that costs decline as the number of installed systems increases, but that decline is probably due to economies of scale in hardware rather than any soft cost improvements.  That's why DOE's Rooftop Solar Challenge is testing methods for reducing soft costs nationwide.  DOE is also backing the Solar Roadmap of local soft cost reduction methods.  The Solar Foundation has counted 119,000 jobs in the solar sector, providing justification for politicians who need "job creator" cover for solar-friendly policies.  The Interstate Renewable Energy Council has developed Model Interconnection Procedures that encourage utilities to standardize their rules for installing solar power connections.

The SolarTech presenter mentioned that long timelines for "permission to operate" (PTO) mean that money committed to a purchasing power agreement (PPA) sits on a rooftop without generating energy.  I did some digging on PTO and found that some jurisdictions require a revised PTO application if the system configuration is changed.  An owner who wants to add panels needs a new application?!  Let's add wasted time to the soft cost of installation.  Third party ownership (TPO, not PTO folks) is changing the finance game by allowing investors to finance new solar systems independent of the properties where the systems reside.  Property owners can relax if another investor is responsible for submitting PTO applications and negotiating PPAs.  TPO isn't the only innovation in solar finance.  NREL's project finance team pushes a host of finance initiatives in credit enhancement and securitization.

My final note on the SolarTech keynote is that their Solar 3.0 program is alive and well but IMHO it won't be enough to push standardization of zoning, permitting, and connection rules.  The renewable energy sector needs to piggyback on the utility sector's smart grid movement if it wants to see standardization.  Smart grid adoption will drive harmonization of data transfer protocols that are crucial to energy metering.  Connectivity standards will follow naturally.  Renewable developers need a seat at the table when utilities make their push for smart grid adoption with municipalities.

I flipped the switch back to the SEMICON side of things and went to the Silicon Innovation Forum, with an awesome keynote from serial entrepreneur and semiconductor luminary Brad Mattson.  I can't find a link to the presentation he used so you'll just have to live with my recap.  Different parts of the silicon market are at different maturity stages.  I'm imagining executives at the silicon product makers plotting their BCG growth-share matrices with "mobile devices" in the Star box.  Innovation is hard in mature markets and a bi-modal corporate culture that splits creativity into a separate part of its structure is best able to handle the challenge.  Brad introduced the concept of a "design CEO" running an intrapreneurial research lab inside a big company, but IMHO startups will recognize it as an adaptation of the "scientific and technical founder" who developed the tech and then steps away from enterprise management.

Brad mentioned the tendency of VC money to travel in packs for economic reasons.  I don't know whether he meant they crowd into the same hot startups at once or just follow the same trends.  My new pet theory is that VCs chase similar deals because they also chase the same institutional pools as clients, and those institutions are themselves susceptible to falling for the same hot trends touted in popular media.  Too much money chasing a trendy but immature idea does not reduce risk, and Brad found that the best time to invest is during a sector's downturn to leverage a long gestation period for new tech.  He also contradicted something I had previously heard about VCs.  I had previously thought that VCs often replace a startup CEO with a COO to institute repeatable processes during a company's maturation.  Brad said VCs don't like to replace CEOs because it makes them look like they made a mistake.  Maybe it comes down to the reputation of some VC firms.  Some may like to bet on the jockey but fire him when the horse outgrows him, while others keep the match together.  Now I understand why startups with hot prospects are advised to "pick their VC" just as carefully as the VC picks them.  Those VCs that offer just the right "Goldilocks" combination of reputational capital and minimally dilutive investment must exist somewhere over the rainbow past Sand Hill Road.

The Silicon Innovation Forum expert panel had even more to say about VCs, from VCs themselves.  They think any potential slowdown in Moore's Law may be complicated by the semiconductor supply chain's inability to adapt and innovate.  Bottlenecks are opportunities to innovate; IMHO this cries out for startups who can carve out a disruptive niche.  VCs stick to their standard metrics of market size and amount of capital needed when they evaluate startups, but they also like a mix of strategic and financial investors who can collaborate to reduce risk.  I might as well introduce my own definitions here.  "Strategic VCs" invest because they want to harvest technology or product innovation; these are typically the venture arms of big corporations.  "Financial VCs" want pure play returns that fit their own expertise and deal history; these are the usual Sand Hill Road denizens.  Strategic VCs (according to the strategic VCs on this panel) tend to put more restrictions on the startup's outside partners to keep their tech away from competitors.

I didn't stick around for all of the startups in the Pitch Zone because I'm not professionally qualified to evaluate their prospects.  I'm a finance guy, not an engineer.  I'm also too cheap to pay for the Showcase and Reception, so if SEMICON wants my perspective in the room they should let me in for free.

Wednesday morning had me in the Business Continuity Planning seminar after a wonderful breakfast at the San Francisco Marriott Marquis.  I gotta tell ya, the Marriott Marquis has some really awesome breakfast sausages.  Anyway, the BCP folks touched on the triple bottom line that I've heard about lately.  IMHO the BCP function is an excellent candidate for a continual improvement process because the supply chain and environmental factors that affect it are dynamic.  Well, it just so happens that Alfidi Capital has a handy-dandy continual improvement process diagram that any C-suite can use for anything.

Okay, let's continue with the BCP workshop.  The pandemic and disease folks cited recent case studies to note travel restrictions, supply chain disruptions, and protocols for entering buildings that businesses will face.  They mentioned that little things such as handwashing and critical surface cleaning have high ROIs.  The environment, health, and safety (EHS) speaker advocated using a risk matrix to track those materials subject to increased regulation or outright bans.  Enterprises should monitor the EU REACH (Europe) and TSCA SNURS (US EPA) for changes in regulated chemicals.  Small businesses that outsource their supply chains can benefit from subscription services and trade associations to stay informed on what becomes prohibited.  The point is to make the supply chain robust by having a replacement strategy if some materials are unavailable.

The BCP critical materials speakers reinforced what I've been hearing at resource conferences about declining material grade discoveries worldwide; they further noted that exploration spending to offset resource depletion is well above historical averages.  Semiconductor material inputs are to small to bother primary producers; they need specialty firms for processing and quality control.  Recycling finished products is a more cost-effective method of metals extraction than mining.  It all makes me think back to my interview with the Gold Report in 2011 when I made a prediction about China's rare earth export policy that was proven correct in 2012.  I am a genius, but my readers already knew that.  The BCP workshop finished up with some case studies from companies with exemplary BCP programs in place.  I'll run down the good stuff in a checklist . . .

- Pre-designate members of a cross-functional crisis response team and hold rehearsals based on likely disruption scenarios.
- Have backup power and water supplies to keep production running.
- Collect damage and degradation reports from business units and cost centers, so the enterprise can prioritize its response if its resources are constrained.
- Assess the BCP annually in coordination with major suppliers.
- Have business units update their own BCPs that are nested within the enterprise's BCP.
- Have an automated messaging system for mass notification of employees.

This BCP panel wasn't done until we talked through some final hints.  One attendee said DHS has a federal regulation requiring self-identified "high-profile facilities" to have an anti-terrorist plan.  The only public source I could find for such a regulatory requirement is DHS's Chemical Facility Anti-Terrorism Standards (CFATS).  Another sharp player here mentioned the ISO's best practice, which I take to mean ISO 22301 on business continuity.  This stuff was extremely important and more people should have attended.  It was so important that I even learned a bunch of new acronyms . . .

Key enabling technologies (KET):  The EU's definition for really important tech.
Confidential business information (CBI):  The combination of IP and trade secrets that businesses may claim as exempt from reporting under the TSCA regime with EPA approval (not likely to get approval IMHO, but it's there just in case you get lucky).
Substance of very high concern (SVHC):  The EU's term for stuff they want to include in REACH control; i.e., the stuff you should plan to substitute in the BCP risk matrix you show your boss.

I headed back to Intersolar for the Joint Forces for Solar speakers and panels.  The PV energy market update was informative but the market for renewable energy certificates needs to be a lot larger if solar is going to grow. Some states have rolled out solar RECs specific to their RPS standards and DOE's Green Power Network has identified products and tracking systems to make the REC market viable.  SEIA and CALSEIA have plenty of data on how the market for solar is growing.  Take heed, solar installers.  If you want to boost your business, you need to connect to those two industry associations along with Joint Forces for Solar, and you need to review DOE's listing of REC products in your state.  One expert from the panel discussion had another hint for installers:  Hot climates seem to be good markets for parking lot solar panel farms.  I've seen quite a few of those even in the moderate climate of the San Francisco Bay Area.

The Joint Forces for Solar folks had a lot to say about finance, my favorite topic.  The cost of capital has now become the dominant cost of many PV systems because the prices of components have fallen so rapidly.  Private equity firms are now stepping in to fund projects that banks won't fund with loans.  More storage on the grid will mean more load-shifting capability from peak to non-peak hours, but the grid still needs upgrades to make it intelligent enough to handle bi-directional flows.  That means IMHO utilities and transmission line owners will need to spend massive capital just to keep up with growing demand for renewables.  The Edison Electric Institute has researched flaws in the traditional sales models of electric utilities, and private utilities are thus looking more closely into PPAs that get revenue from distributed generation.  The panel was concerned that scaling back "net metering" will threaten the business models of some solar producers.  I asked the panel about the impact of renewable energy MLPs and REITs once legislation makes them available, and the experts were in totally in favor of this development.  They told me MLPs and REITs will allow aggregation of multiple projects into a single portfolio.  The objective of securitization is to lower the cost of capital, which in turn will help enable more distributed generation.  I'd be remiss if I didn't mention a crowdfunding site called Mosaic that enables crowdfunded investments in solar projects.  This stuff is right up my alley.

I stayed with Intersolar events on the final day because I wanted as much perspective on the sector as possible.  NABCEP held a certification workshop on the credentials they offer to solar installers.  It's important to note that their certifications represent mastery of best practices; they are not licenses to conduct trades.  Those licenses are granted by state and local governments.  Just for kicks, I did a Web search for "renewable energy finance certification" and nothing came up except links to RECs.  Finance experts like Yours Truly thus have no credential to hold out to the world as proof of expertise in green finance.  That cries out for remedy, given the proliferation of financial tools such as feed-in tariffs, RECs, and tax equity that are made just for the green sector.  Okay, back to the NABCEP workshop.  I asked the presenter why NABCEP offered a Small Wind Installer certification and he said it had been suspended for lack of demand.  They will continue to offer small wind subjects as an entry-level exam.  That is IMHO a good move.  Even the American Wind Energy Association recognizes that small wind turbines are best suited for rural sites.   I learned from personal involvement with a small wind company that wind turbines don't work in urban areas.

The next workshop was on product differentiation in a commodified market, presented by Albie Fong, co-editor of Project Development in the Solar Industry.  He cited Greentech Media's ranking of top solar panel producers by revenue, which is good to know for any company supplying components to this market. NREL has found that solar system prices and gross margins are dropping.   I was surprised to learn that reliability has overtaken price as a product choice criteria.  I guess all of the news on China taking solar market leadership as a low-cost producer doesn't tell the whole story.  Buyers now want modules that are compatible with other parts of their installations and are resilient in local environmental conditions.  Product differentiation by geographic environment has emerged as a value-adding strategy.  One example Albie cited was that customers near transportation nodes and routes want PV panels with anti-glare glass.  I can see how reflective glass could be a navigation hazard near an airport.  I came away from this presentation convinced that Customer Development matters in solar!  It's not just for tech startups anymore.  It's for solar manufacturers and installers too.

The one thing I got out of the panel on maximizing system output via inverters was the importance of bankability.  A manufacturer's warranty on inverters and modules does not translate into a financially viable PV system.  Only performance data verifying the viability of solar PV installation defines bankability.  This is especially relevant for large-scale solar project developers.  Third-party testing consultants can analyze components for short and long term light availability, exposure degradation, irradiance and temperature coefficients, microclimate effects, and much, much more.

I kept thinking about bankability through the next panel from SolarGIS touting their databases and online assessment tools.  Developers should verify the bankability of specific sites just as manufacturers seek to prove the bankability of their components.  Measuring a site's irradiance data helps project developers assess its viability.  Global horizontal irradiance (GHI) is influenced by altitude and latitude.  SolarGIS has free downloadable maps plotting GHI all over the world.  Wow, that's almost like hitting the "easy button" for assessing a site's bankability.  That's just the beginning.  NREL maintains a National Solar Radiation Data Base (NSRDB) showing changes in solar data.  The National Weather Service's GIS Data Portal has downloadable meteorological data that developers can overlay onto GHI coverage maps.  Mastering GIS means taking the guesswork out of solar site selection.

The final workshop I attended on successful solar business was presented by a guy from Quick Mount PV who also has a leading role in NABCEP.  You can get the workshop's awesome slides yourself from Quick Mount PV's download page.  LLNL has cool-looking flowcharts on US energy use that show room for growth in solar.  The solar market is segmented into residential, commercial, and utilities.  Once a servicer has picked a segment they must get the proper licenses, and IREC maps out the training they need.  I noticed the solar sector has become so specialized that solar brokerage businesses now offer third-party consulting to property owners looking to install solar systems.  The solar broker performs all non-installation services in TPO-leased systems.

The EIA Annual Energy Review shows the most viable geographic markets for solar and wind systems.  It's buried in there among pricing and consumption data but solar installers need to know how to pick the most viable markets.  The guru recommended small wind as a backup supply for a solar system; my readers know how I feel about small wind but it's okay in rural areas with good data on wind speed.  I will always remember that the height of the tower and the size of the fan's swept area are the two most important factors in a wind turbine's energy capability.  I had to learn that the hard way so my readers can avoid pain.  I got to ask this speaker about the viability of small-scale geothermal systems as complements to a solar-wind combination.  He said geothermal systems in the form of heat pumps can be very cost-effective but dry climates pose a challenge with long payback periods, and they work well where water is close to the surface.

The speaker noted that Solar Energy International has online training consistent with NABCEP standards.  I discovered that SEI has a free online course as an introduction to renewable energy.  He touched on system viability just enough to mention the enormous degradation that even a small amount of shade will have on a solar installation.  I'll refer my readers to what I said about bankability above when evaluating a site.  Solar businesses have plenty of tools to help assemble proposals.  Find Solar will calculate system size and financial incentives, and the California Solar Initiative Incentive Calculator provides additional estimates.  Go Solar California lists components approved for incentive programs.  NREL's PVWatts calculator helps estimate solar energy production for hypothetical installations.  Once the solar installer has data in hand, they use OnGrid Solar and Clean Power Finance to generate proposals showing customers how solar incentives reduce their costs.

Financing a project is crucial to the solar system sales cycle.  Property Assessed Clean Energy (PACE) bonds use property tax assessments to fund loans for energy retrofits.  DSIRE's Quantitative RPS Data Project maps out details on state-by-state standards.  This is all a ton of stuff for a solar entrepreneur to master.  The one final thing installers need to consider is the coming shakeout in the industry.  Some components makers are going to disappear, so buyers who watch warranties should stick with PV system makers who will be around another 25 years.  I would add that the solar sector has seen some very large component makers go bankrupt in recent years, so market share is not at all an indication of longevity for a company that is artificially sustained by subsidized loans.  This is where I come in as an analyst.  I need to take a serious look at the financial viability of leading solar manufacturers.  You'll see my commentary here on this blog as the solar industry evolves.

I didn't spend all of my time listening to expert panels and workshops.  I got out on the trade show floors to see vendors.  I spoke with some of the minor components manufacturers about their impressions of 3D printing.  Just as I suspected, many of them are complacent about the threat to their product lines from DIY parts makers.  I believe the first vendors to fall to 3D printed objects will be vendors of testing and diagnostic devices.  Those are not subject to the pressure and temperature stresses that delaminate printed objects and their performance parameters are well known in open sources.  Once the 3D sector solves that delamination problem, ceramic molded components will be the next subsector to fall.  I truly hope the SEMICON West organizers put some 3D printing demonstrations on their extreme tech stage in 2014.

I'm also endlessly fascinated by the small number of third-party service providers that always pop up.  There were no finance providers this year.  The leading inventory managers and asset liquidators were in their usual places.  I liken asset liquidators to the insects and microorganisms in an ecosystem that break down decaying plant and animal structures into soil nutrients.  They are absolutely vital to capitalism.  It's also vital to have competition in permit review, so along comes the Institute for Building Technology and Safety to fill the gap.  Those folks are going to get really busy if more developers go with building integrated PV (BIPV) materials. The one vendor that impressed me the most this year was the IEEE Xplore Digital Library, with a searchable database of technical articles.  The search function revealed long histories of published research, and I'm convinced this tool offers hi-tech entrepreneurs access to knowledge of manufacturing and quality control processes that will save them time and money.

My final impressions of this joint conference include surprise that some of the seminars and panels I attended were not at full capacity.  I suspect many attendees are purchasing managers looking for product or engineers looking for innovations, so they would gravitate to the tech demonstration stages.  The panels I found most useful addressed enterprise-wide factors that a solar business must manage.

I cam away from SEMICON West and Intersolar North America with even more market intelligence than I collected last year.  I also collected memories of which exhibitors had the most attractive women staffing their booths.  I would have no objection to exhibitors using attractive men to draw female visitors, but that begs the question of how to get more women interested in solar and semiconductor careers in the first place.  That's a question for trade show organizers to ponder.  My focus is to keep hitting up those booths offering booze, food, and babes in between free workshops.  Check me out next year as I prowl for more knowledge.