Saturday, July 19, 2014

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, CooperMetcalfe, 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 AllianceCalifornia 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.