Big Asian manufacturers are scooping up next-generation U.S. solar technology on the cheap, but face a long slog to turn these start-ups into serious competitors for the Chinese panel makers that now dominate the market.
Earlier this month, China's Hanergy Holding Group Ltd became the latest Asian manufacturer to make a bet on a U.S. maker of solar panels that use copper indium gallium selenide technology, or CIGS, when it agreed to buy Silicon Valley startup Miasole.
Other recent CIGS deals include South Korean conglomerate SK Group's stake in Austin, Texas-based HelioVolt, Chinese-Singaporean joint venture TFG Radiant Group's interest in Colorado's Ascent Solar Technologies Inc, and Taiwan Semiconductor Manufacturing Co Ltd's stake in San Jose, California-based Stion, which also received a strategic investment from Korean solar equipment maker Avaco.
Many of the acquirers have said they will invest further in developing the companies' technologies in order to ramp up manufacturing, with some planning to build significant factories in Asia. But industry experts said it will take years, and tens of millions of dollars, for the new players in CIGS to build plants, tweak manufacturing processes and get new technologies to the market at competitive prices.
"If their expectation is that they are going to come off the blocks selling large volumes for a profit, I'm not sure that's going to be the case," said Ralph Romero, head of the photovoltaic solar bankability practice at engineering and construction firm Black & Veatch. "If the expectation is I'm going to invest in the technology and be able to develop it into a next-generation product, then that's a different story."
Despite some CIGS players having raised large sums of money from private investors (Miasole, for instance, has raised roughly $500 million since 2006), many have yet to demonstrate that they can replicate the complex process of combining all four CIGS materials on a large scale.
Stion, HelioVolt, Ascent and Miasole are producing solar panels in the United States, but at very small volumes. TFG plans to set up factories using Ascent's technology in Asia, and Stion plans to open a plant in Korea with Avaco.
An SK spokesman said HelioVolt will consider opening a commercial plant once certain targets are achieved.
The best hope for CIGS, some believe, is in specialty products that can command a premium price. CIGS materials can be integrated with glass, tiles or shingles, for instance.
"There is a differentiated intellectual property and it's going to take execution to make it work commercially. But they figure it's a very small investment," Raymond James analyst Pavel Molchanov said of the Asian buyers of CIGS companies.
Hanergy, for instance, agreed to pay $30 million for Miasole, sources said, a price that would generate a return of pennies on the dollar for investors like Kleiner Perkins Caulfield & Byers and VantagePoint Capital Partners. Hanergy, Kleiner Perkins and VantagePoint would not comment.
VENTURE CAPITALISTS PULL BACK
Over the last decade, U.S. venture capitalists poured hundreds of millions of dollars into CIGS. The idea was that they would be cheaper to make than traditional panels, which were made from high-priced polysilicon.
But a few years later the price of polysilicon has fallen from nearly $500 a kilogram to under $20 as large amounts of manufacturing were added in China, dragging down the cost of traditional panels and undermining CIGS' promise of becoming the cheapest solar technology. CIGS is also less efficient than silicon at transforming sunlight into electricity.
CIGS manufacturers have said they could get their costs down to between 50 and 60 cents a watt, according to Molchanov. Now, however, he said the costs of some traditional panel manufacturers will be below 60 cents by the end of this year.
"What are the advantages of CIGS? The answer to that question is not obvious," said Romero. "I don't see any reason to anticipate that the cost of silicon would go back to the levels where it once made sense to look at alternatives."
With little to show for their big bets on CIGS, many venture investors have shied away from industries that need expensive factories and returned to their bread-and-butter business of funding capital-efficient software or internet companies.
Venture capital investment in the CIGS industry has dropped from a peak of $953 million in 2008 to $95 million so far in 2012, according to GTM Research.
U.S. CIGS players once considered hot IPO prospects have languished in venture capital portfolios. Some, like Solyndra, are bankrupt. Others, like AQT Solar, are up for sale.
Research firm NanoMarkets calculates there were about 40 CIGS makers early this year, with 12 in North America, 13 in Asia and the rest in Europe. Within five years, Nanomarkets expects there to be no more than five in North America, up to six in Europe and up to 10 in Asia, which has rapidly become the global leader in solar manufacturing.
BIG BALANCE SHEETS
Perhaps the biggest thing Hanergy and other acquirers can offer is clout in the marketplace. Not only will they be able to guarantee the 25-year warranty on CIGS panels, which have far less of a track record than rival solar technologies, but they can leverage their balance sheets to help secure financing.
"If you couple CIGS with a big balance sheet, they have the potential to be very successful technologies," said Martin Lagod, co-founder of Firelake Capital, which invested in CIGS startups Miasole and Nanosolar.
Cases in point are No. 1 CIGS maker Solar Frontier, which is owned by energy company Showa Shell Sekiyu K.K. and has rapidly ramped up production in Japan, and Dow Chemical Co's solar shingles, which became available in parts of Colorado, California and Texas this year and use technology from CIGS player Global Solar Energy Inc of Tucson, Arizona.
"You really can buy it, and it's Dow," said NanoMarkets analyst Lawrence Gasman. "It's not like this is two guys and a dog who are trying to be the next Apple."
(Reporting By Nichola Groom; Editing by Patricia Kranz and Tim Dobbyn)