FYI,

"VCs Bet on Solar, Biofuel Money-Losers in Green Energy Frenzy"
Bloomberg
http://www.bloomberg.com/apps/news?
pid=20601109&sid=a9wBJqPgMUT8&refer=home

: SolFocus sounds like a typical Silicon Valley startup: Eight
: employees, big ideas -- and zero profit. Yet in mid-May, the
: phones at the eight-month-old company wouldn't stop ringing.

: The callers were venture capitalists, and they were dangling
: millions of dollars in front of the Palo Alto, California-based
: solar panel maker. Ty Jagerson, vice president of business
: development, says as soon as he'd start talking to one VC, another
: would call offering money.

: ``It was completely insane,'' Jagerson, 35, says.

: Up and down Sand Hill Road, the venture capital hub south of San
: Francisco, the financiers who bankrolled the technology boom of
: the 1990s are chasing their next big thing: alternative forms of
: energy.

: As oil and natural gas prices climb, venture capitalists are
: investing hundreds of millions of dollars in young, often money-
: losing companies that hope to harness the power of the sun or the
: heat inside the Earth.

: In all, U.S. VC funds invested a record $739 million in renewable
: energy in 2005, up 36 percent from 2004, according to Cleantech
: Venture Network LLC, a research group based in Ann Arbor,
: Michigan.

: VCs haven't buzzed like this since the Internet captured
: investors' imaginations in the 1990s. Alternative energy stocks
: have surged the way dot-com shares did in 1999 -- before the
: bottom fell out of the Nasdaq Stock Market.

: Investors Rush In

: The 40-stock WilderHill Clean Energy Index has rocketed since its
: August 2004 debut, rising 90 percent to a record 251.17 on May 5.
: Since then, the index has fallen 23 percent to trade at 194.21 on
: June 28.

: As they did in the late 1990s, stock investors are baying after
: companies that have yet to turn a profit.

: Erik Straser, 36, a partner at nearby Mohr Davidow Ventures who
: once worked at the top-secret Los Alamos National Laboratory in
: New Mexico, says the cure to our energy ills is right over our
: heads. New solar-power cells may one day reshape the global
: electricity industry, he says.

: ``A lot of VCs have woken up to the sheer magnitude of opportunity
: in the energy markets,'' says Ira Ehrenpreis, a partner at
: Technology Partners, a Palo Alto-based VC firm.

: Venture capitalists could use a winner. Many of them are still
: nursing losses from the Nasdaq bust. After that rout,
: institutional investors pulled back, and VCs' money dried up.

: Investment flows into venture funds plunged to $4 billion in 2002
: from a record $106 billion in 2000, according to the Washington-
: based National Venture Capital Association. VC funds posted a
: negative return of 6.8 percent from 1999 to 2005.

: People have dreamed of finding cheap, clean sources of energy
: since the oil-price shock of the 1970s. So far, the hopes for
: alternative energy have far outstripped the reality.

: Green power is expensive. Even now, after oil and natural gas
: prices have surged to record highs, it's still usually cheaper to
: generate electricity by burning fossil fuels than it is by using
: solar panels, wind turbines or underground steam.

: In May, Rosemead, California-based Southern California Edison
: agreed to pay 6.15 cents per kilowatt-hour for electricity from
: renewable sources, plus an additional, undisclosed rate to ensure
: energy would be available during peak hours.

: Power produced by natural gas-fired plants costs 4 to 6 cents per
: kilowatt-hour. Solar power costs U.S. homeowners as much as
: 30 cents per kilowatt-hour -- double or even triple the price of
: gas- or coal-generated electricity, according to Jefferies & Co.,
: a Los Angeles-based investment bank.

: Subsidies

: Strip out state and federal incentives designed to promote
: renewable power -- subsidies that might disappear when the
: political winds shift -- and the economics of green look even
: worse.

: Because it's relatively expensive, green power has never really
: caught on. In 2005, wind turbines, solar panels and other
: alternatives to fossil fuels generated about 357 billion kilowatt-
: hours of electricity, or 9.4 percent of the juice used in the
: U.S., according to the U.S. Department of Energy. That's down from
: 11 percent in 1989.

: `Just Around the Corner'

: ``Alternative energy has been just around the corner for
: 20 years,'' says J. Stephan Dolezalek, a partner at San Bruno,
: California-based VantagePoint Venture Partners. Once a green-
: power doubter, Dolezalek is now backing clean-energy startups.

: Institutional investors that invest in VC funds are warming to
: clean energy, too. The $130 billion California State Teachers'
: Retirement System, for example, is investing $250 million in
: alternative energy through VC and private equity funds.

: ``We're not head over heels in love with this sector, but we're
: moving prudently to invest in it,'' says Margot Wirth, a money
: manager at the teachers' pension fund.

: To green-energy skeptics, VCs have a familiar reply: This time,
: things are different. The economic, environmental and cultural
: stars have finally aligned for a new era of alternative power,
: they say.

: `Birkenstock Set'

: ``Something has really changed,'' says Floyd of Nth Power, which
: has invested solely in alternative energy since 1997. ``This
: industry isn't just for the Birkenstock set anymore; it's got
: serious capital behind it now.''

: That includes corporate cash. General Electric Co. has made wind
: turbines since 2002 and solar systems since 2004. Now, its GE
: Energy Financial Services arm plans to triple its renewable energy
: fund to $3 billion by 2008.

: ``The growth opportunity is so apparent, so we're going after
: it,'' says Kevin Walsh, managing director of GE Financial's
: renewable energy unit.

: `Move the Cost Needle Down'

: At a restaurant near his office, Straser pushes aside his stir-fry
: and grabs a pencil to diagram how rising energy costs are pressing
: companies to seek alternatives like solar power.

: ``Solar is all about cost performance now, and those companies
: that can move the cost needle down, that's the only goal that
: matters,'' Straser says, scribbling on the butcher paper covering
: the tabletop.

: In early 2005, Straser met with Martin Roscheisen, 37, a fellow
: Stanford-trained engineer, who'd assembled a team of
: 30 Ph.D.- level scientists and engineers in an office park in Palo
: Alto. They were developing a new type of solar technology that
: cost less to produce than typical silicon panels. Google
: co-founders Sergey Brin and Larry Page were early investors in the
: company, called Nanosolar Inc.

: A few months later, Mohr Davidow led a $10.5 million round of
: financing for Nanosolar, which included Benchmark Capital, the
: Sand Hill Road VC firm that funded EBay Inc.

: Nanotechnology

: ``Given that we invested in the company before the product was
: developed, there was a technical risk,'' Straser says of
: Nanosolar. ``But we dove in deep on the technology, and we could
: see how a breakthrough manufacturing process could unlock a huge
: economic advantage.''

: For 30 years, solar cells have been fashioned from silicon wafers
: similar to the ones that semiconductor manufacturers like Intel
: Corp. use to manufacture computer chips. The rigid, delicate
: panels are expensive to make, costing customers about $5.40 per
: watt, and must be mounted in modules on rooftops or other exposed
: surfaces.

: Using nanotechnology, the science of building microscopic
: materials from single atoms and molecules, Nanosolar's scientists
: created a ``photovoltaic ink'' that converts sunlight into
: electricity. The ink is coated onto flexible, foil-like strips
: that wind through roll presses similar to those that print
: newspapers.

: The thin film of ink, which is 1/100th the thickness of a silicon-
: based solar cell, can be attached to walls or any other flat
: surface or integrated into roofing material. Roscheisen says this
: process will enable Nanosolar to make solar cells for as little as
: a 10th of the cost of silicon panels.

: Bay Area Factory

: Roscheisen says he doesn't aspire to replace existing electricity
: sources with his PowerSheet-brand solar cells.

: ``Solar is fundamentally about peak power availability and
: value,'' Roscheisen says.

: Growing Pains

: Right now, many solar companies are feeling growing pains.
: Worldwide sales of solar panels more than doubled to $11.2 billion
: in 2005 from $4.7 billion in 2003, according to Clean Edge Inc., a
: Portland, Oregon-based research firm. Solar cell makers that can't
: buy the silicon they need face backlogs of as long as two years,
: says Jeffrey Bencik, an analyst at Jefferies in New York.

: Nanosolar confronts commodity risks of its own. The company uses
: copper and indium, both of which have undergone volatile price
: swings during the past year. Indium, a metal as scarce as silver,
: swung from $950 a kilogram in June 2005 to $1,035 in September, to
: $797.50 on June 5.

: An even bigger challenge is that Nanosolar's ``thin-film cells''
: are less efficient than conventional solar panels. They convert
: 14 percent of the sunlight that strikes them into electricity,
: whereas silicon cells convert about 20 percent.

: Then President Jimmy Carter jump-started the renewable power
: industry with tax credits. Floyd was hooked.

: ``There were a lot of new technologies coming on line, and there
: weren't many entrepreneurs, so it was a market where you could
: really make a mark,'' she says.

: ``These are huge issues that have to be grappled with,'' he says.
: ``We're talking about a transformation of the global energy
: infrastructure over the next few decades.''

: Time moves fast in Silicon Valley. In 1999, VCs were the heroes of
: the New Economy. By 2002, many of them looked like goats. What
: many investors seemed to forget during those dark, post-bubble
: years is that, sometimes, the dreamers are right.

: In less than a decade, a seemingly quixotic startup with a goofy
: name -- Google -- has become one of the most valuable companies in
: the world. VCs who can find a Google or Amazon or EBay of green
: power will make a fortune. And if they happen to save the world
: along the way, well, that's fine, too.

Mark Reiff