Why don’t early-stage VCs invest in solar any more?

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A decade ago, entrepreneurs and investors alike believed that silicon wafer-based photovoltaics would soon be a relic. Tens of billions of venture and corporate dollars chased novel technologies that would surely replace silicon — this brittle, inefficient IC-industry material.

Back then, investors along Sand Hill Road, the VC capital of Silicon Valley, invested in the obvious thesis that covering rooftop acreage would best be done with a thin-film deposition, sputtering or plating process — rather than precisely sawing a silicon boule.

Back in the day, investor Vinod Khosla expected silicon vendors to “generally start declining rapidly by 2015 unless they reinvent silicon.” And he expected some “improbable pyro-nano-quantum-thingamajig technology” to emerge to challenge silicon and thin film.

Venture investors at Kleiner Perkins told this reporter that concentrated PV from Amonix would be cheaper than First Solar’s cadmium telluride thin-film panels.

Multi-gigawatt scale solar installations have been hyped by India and Northern Africa. Dozens of failing solar startups aimed for mass deployment of building-integrated PV. Folks in Australia hyped a solar updraft tower, capable of gigawatts of production.

None of this technology innovation happened.

What did occur was a VC-funded solar bloodbath.

Is technology disruption possible in solar power?

What’s the most significant innovation in solar technology or markets over the last year? Over the last ten years?

Thin-film PV? Other than First Solar (First Solar has shipped 25GWDC of PV modules since its founding) thin-film PV is a “rounding error” according to WoodMac Research Analyst, Xiaojing Sun. The long-incubated, thin-film debacle at Hanergy, MiaSole, Alta Devices and Global Solar would be enough to discourage most thin-film startups and financiers. A few thin-film stalwarts such as Solar Frontier continue to optimize thin-film material systems.

Concentrated Solar Power? VC-funded Brightsource Energy’s “power-tower” approach to Concentrated Solar Power (with no storage) resulted in a failed IPO from a company unable to compete on price with a natural-gas plant or a photovoltaic power plant.

There are some operating CSP plants in the U.S., but there’s little growth or innovation — and as the price of solar PV-plus-storage continues to drop, CSP will become even less competitive. Several CSP plants are being developed, operated and built in China in parabolic trough and molten salt tower architectures.

Still, a silicon PV wafer and panel factory manager from 15 years ago would recognize most every step and process of today’s production (along with some incremental improvements).

Despite the hundreds of gigawatts of PV panels produced, recent innovation in solar has been limited to monofacial PERC and bifacial panels.

That’s far from the “improbable pyro-nano-quantum-thingamajig technology” we were promised.

A few venture-funded solar successes

There were pockets of innovation in solar over the last decade, but it didn’t happen at the solar module-level.

VC-funded innovation happened in power electronics with SolarEdge’s optimizers and Enphase’s microinverters, which now claim a combined 80% U.S. residential market share. VC investors and early employees actually made money at the profitable and growing SolarEdge, while Enphase survived a near-death experience to reclaim market share and a presence in residential solar.

Financial innovation was a bright spot

Although leasing or third-party financing is not an actual new thing or even innovative, it was new for residential solar.

While some of the financial pioneers such as SunEdison or SolarCity are defunct or diminished, certainly Sunrun stands as a good example of VC-funded IPO success as a startup that controlled its growth and spending. Sunnova, another solar financier, also managed to make it through the IPO window.

VC funding solar in 2019

The biggest VC-funded solar deals in the first nine months of 2019 were the $300 million raised by ReNew Power, an Indian IPP; $144 million raised by Avaada Energy, another Indian IPP; $65 million secured by Yellow Door Energy; $50 million raised by BBOXX; $50 million raised by Spruce Finance; $41 million raised by Oxford Photovoltaics;$40 million raised by Solaria and $39 million raised by CleanMax Solar, according to Mercom Capital Group.

Although Mercom classifies these deals as “venture funding,” traditional VCs and Sand Hill Road-types have stayed far away from these solar founders. Most of these investors are corporates, incubators or development banks.

Here are a few other recently announced VC-funded solar startups.

Heliogen is a CSP startup funded by Bill Gates that is focused on heat for mining, cement and other industrial processes.

mPower Technology is a solar cell startup that raised $2.5 million in Series A funding from investors including Sun Mountain Capital. Its lighter weight and flexible silicon cell is aimed at the aerospace industry.

Sunfolding, a single-axis tracker builder, won $32 million in Round B financing from G2VP and Macquarie Capital.

Perovskite entrepreneurs are undeterred by the lack of success with other thin-film material systems. Tandem PV is funded by the Cyclotron Road incubator at Lawrence Berkeley National Lab and looks to deposit perovskite on solar panel glass, while Oxford Photovoltaics deposits perovskite on the silicon cell. Poland’s Saule Technology is researching inkjet-printed flexible perovskites.

Why don’t early-stage VCs invest in solar?

Despite the solar market’s size and long-term growth, it’s a commodity energy business and that’s not where VCs like to put their money.

While high-technology software and hardware firms can count on an ecosystem of high-reward acquirers such as Google, Facebook and Amazon, the solar industry has the utility and power industry as an exit, a far more conservative, parsimonious and regulated ecosystem of acquirers.