Wellington Partners Venture Capital

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{ 19 NOVEMBER 2008 }

On the way to grid parity

Higher prices for oil and gas, on the one hand, and lower costs for renewable energies, on the other, are paving the way for the growth of green energies in the years to come. New technologies will assure clean energy production at competitive cost – even in the solar arena, which is still highly subsidized today.

Sunny California will get there sooner than Germany and large-scale solar thermal power plants will be ahead of their photovoltaic counterparts, but one thing is now clear: Solar energy is on its way toward achieving grid parity. This Cleantech mantra stands for the point at which solar energy production will be competitive with conventional grid-supplied electricity. Depending upon the current energy mix for peak-load power, as well as taxes and subsidies, this parameter presently ranges between €0.15 and €0.25 per kWh – and the trend is rising. The price for solar energy is currently still higher at up to €0.30 in cloudy Germany – but this, too, is falling rapidly as production ramps up.

Climbing costs for conventional energy and decreasing costs for solar energy are highlighting the development toward grid parity. In recent years, the price of oil, a scarce resource, has nearly doubled. At the same time, climate change is forcing governments to establish CO₂ cap and trade policies, thereby increasing the price of fossil-based energy. In some countries, new green taxes and subsidies have helped to push the price levels of oil, gas and coal even higher.

Solar industry making
significant progress

Meanwhile, the solar industry has been making significant progress in improving its technologies and lowering the costs of production and of installing new capacities. Productivity gains have been aided by a dramatic growth in demand – the size of the installed photovoltaic base has doubled since 2005. The lion’s share of the market still belongs to silicon-based crystalline photovoltaics. But the supply chain scarcity of the raw material that goes into the process has forced the industry to look for alternatives. One of the developments is to use silicon that is less than 100% pure, so-called upgraded metallurgical silicon, which is much cheaper to produce and might be able to cover 10 to 20% of worldwide demand by as early as 2010.

Another development is the introduction of thin-film technologies at an ever-faster pace. These new technologies are capable of converting sunlight into electricity with the help of thin PV layers applied to a substrate; initially glass, but potentially flexible substrates later on – requiring only a much lower percentage of silicon or other compound semiconductors. Since their efficiency is still lower than conventional photovoltaics today, deployment tends to focus on solar parks, where space is not the biggest constraint, versus rooftops, where polycrystalline technologies dominate the market. Companies like Dresden-based Heliatek have their sights set on taking the thin-film promise a step further by developing the next generation of thin-film cells: Organic solar cells. The trick is to build large-scale modules on cheap, flexible substrates, using a roll-to-roll production process. This technology will afford higher efficiency at much lower cost, and will be a milestone in achieving grid parity. This patented technology convinced Wellington Partners to invest in the company in 2007 together with German industry giants BASF and Bosch.

Heliatek is engaged in the development and production of organic solar cells, the next generation of photovoltaic technology. Founded in 2006, the joint spin-off of the University of Dresden and the University of Ulm is working on a technology to build large-scale modules on cheap, flexible substrates.

www.heliatek.com

Orecon Limited is a wave energy device developer. After six years of developing their technology, the company, based in the south west of the UK, now builds and deploys a full-scale device and has begun commercial roll-out of its devices. The strength of Orecon’s technology proposition has drawn together a strong syndicate of international VCs, UK-based Advent Ventures, US-based Venrock (Apple, Intel) and Scandinavian-based Northzone Ventures, to participate in the first financing round alongside Wellington Partners.

www.orecon.com

Entrepreneurs like Bala Padmakumar from Californian Netcrystal, in which Wellington invested together with Siemens in early 2008, are aiming at what is expected to be the largest part of the market in the foreseeable future: High-efficiency Crystalline PV. Using an innovative non-tracking, low-concentration technology, Netcrystal technology can eliminate the need for a large percentage of the silicon that is needed, enabling solar cells to be produced at costs that are on a par with or even lower than those projected for thin-film technologies.

Other renewable energies
with huge potential

Lower costs and rising demand will allow the solar industry to gradually reach grid parity. At the same time, there are a number of other renewable energy sources that are coming to the forefront; one of the ones that has big future potential is wave power. UK wave energy device developer Orecon, for example, is industrializing its technology, which allows energy to be produced in hostile offshore environments. It utilizes multiple wave chambers of differing drafts that are integrated into a single buoy to produce a highly efficient device with a rated power output of 1.5 MW. Up and running, these kinds of wave energy devices will be capable of producing energy at costs per kWh that rival those of offshore wind – and without any CO₂ emissions or resource consumption.

"Clean energy is one of the fastest growing sectors all over the globe. In the coming decade, we will be seeing multiple cost and efficiency breakthroughs across a broad technology spectrum."

Christian Reitberger
Wellington Venture Partner, Q-Cells board member since 2004, Private Cleantech investor

The global need for these kinds of technologies will enable a further generation of start-ups to enter the market for producing, storing and distributing renewable energies. And in doing so, they will all be contributing to the inevitable transformation from fossil-based, finite energy sources to CO₂-neutral, renewable energy sources.