Start-Ups

Energy heats up high tech

As oil prices rise, alternative energy technologies are looking more attractive, especially to venture capitalists.

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By Michael Kanellos
Staff Writer, CNET News.com

One of today's more promising growth engines could come from an industry that harks back to beanbag chairs and Jimmy Carter.

Companies promoting solar power and other alternative-energy concepts are rapidly attracting venture funding, research grants and, just as important, the interest of many of the tech industry's deep thinkers and influential figures.

"We have a huge energy issue in this century, and it will not be solved by policy. The only real solution is technology," said Jim Plummer, dean of Stanford University's School of Engineering. "The alternative is to shut down our economy."

U.S. concerns about energy are probably greater today than at any time since the Arab oil embargo of the 1970s. The future reliability of fuel and power supplies has been increasingly clouded by such issues as rising oil prices, conflicts in the Middle East, the threat of terrorism at domestic facilities and the kind of Enron-related "rolling blackouts" that California experienced a few years ago.

Still, history shows that crisis doesn't always lead to long-term change. In 1978, after the Arab oil embargo, the U.S. Energy Department invested $250 million in photovoltaic, or solar-energy, technology. But the funding dropped to $35 million by 1983, according to Terry Peterson, a consultant with the .

The more immediate drivers for the interest in alternative energy today are technological improvements and declining costs—in other words, qualities that appeal to the venture capitalists of Silicon Valley and others looking for new opportunities.

Lowell, Mass.-based , for instance, has raised $32 million from, among others, ExxonMobil, utility company Electricite de France and venture capital firm Draper Fisher Jurvetson. Konarka, which counts Nobel Prize winner Alan Heeger as a founder, says it will deliver solar cells made of thin layers of plastic to its customers—large manufacturers—by the end of the year.

In Silicon Valley, of Palo Alto is working with Matsushita on sprayable solar coatings for roofs. Meanwhile, , which was founded by William Miller, CEO emeritus of SRI International, hopes to produce cleaner, cheaper catalytic converters. Other companies with alternative-energy ideas include (wave power); Clarke Energy (natural gas from landfills); and Bowman Power (microturbines).

Additionally, fuel cell and battery companies such as , and are finding markets for their products.

"It does appear that there has been an increased interest in the sector over the last year," said Sean Brownlee, an executive at British venture capital firm . He estimated that, worldwide, six companies received $64 million in venture capital in 1999; 22 companies received $114 million in 2001, and 26 companies received $277 million in 2003.

At Stanford's engineering school, one of three primary research areas is fossil fuel alternatives, or "clean" technology. ExxonMobil, Toyota, Schlumberger and General Electric together are expected to invest $225 million in the university's .

As Plummer points out, the world's energy structure is facing huge problems. Production of easily extractable oil will likely peak—and subsequently decline—between 2016 and 2040, according to statistics compiled by . That situation will force petroleum companies to raise prices and look for oil from unconventional sources, such as tar sands. At the same time, the environmental and health problems caused by fossil fuels are also rousing critics and adding to cleanup and insurance costs.

A modern space race
"Going to the moon was the great Sputnik challenge. Today, I think the challenges we face are a little bit different, and I would think it would have something to do with the energy environment that we have," Craig Barrett, chief executive of chipmaking giant Intel, said in a recent .

One of the alternative-energy areas drawing the most interest is a technology known as thin-film solar cells.

Traditional solar cells—the hardware used for solar energy in decades past—are rigid silicon chips that must be built in expensive fabrication facilities and eventually get installed in somewhat ungainly roof racks. With thin films, manufacturers use ink-jet nozzles to spray photovoltaic materials onto sheets of plastic or roof tiles in precise patterns. Not only does this cut costs, but the electricity-generating materials are unobtrusive as well.

"You could even have photovoltaic paint," said Martin Lagod, a managing director at Firelake Capital, a venture firm formed in 2002 that specializes in energy. "The biggest opportunity over the next five to seven years and beyond is in energy and materials."

Government subsidies are also encouraging development of energy technologies. Japan, Germany and California have been the three largest solar markets to date because of subsidies that rebate about half of the cost of a solar installation. Even individual households that use solar technology can sell excess electricity back to their utilities for higher-than-market prices.

Similar programs have since been implemented in Illinois, New Jersey and New York, as well as in Italy, Luxembourg and Spain, among other areas, said Subhendu Guha, president of , a Michigan-based specialist in thin-film solar technology.

Without subsidies, electricity from a solar installation can cost 30 cents or more per kilowatt hour, far higher than the 6 cents to 15 cents per kilowatt hour for electricity generated by traditional means, such as hydroelectric dams. With a subsidy, the overall cost of solar-generated electricity can drop to 25 cents per kilowatt hour or less.

As the cost of solar declines with improving technology and as the cost of traditional electricity rises, solar becomes attractive. On an installed system, Guha said, "you can get payback in five to eight years."

And business is growing. United Solar Ovonic's revenue for its most recent fiscal year, which ended June 30, came to $35 million—a 90 percent increase from the previous year. Revenue is expected to climb 110 percent this year.

Notable installations include the Coca-Cola building in Los Angeles and a system for the Beijing New Capital Museum that will crank out 360,000 kilowatt hours of electricity a year. Like most solar installations, these buildings remain connected to the electricity grid, but they only tap it when solar power is weak or unavailable.

How it works
At present, the art of turning light into electricity remains an imperfect science. Light, in the form of photons, strikes the solar cell, which can be made of rigid, crystalline semiconductors or a pattern of sprayed-on flexible semiconductors. The light excites an electron and prompts it to split with its corresponding "hole," or positive charge.

The electron and hole get drawn toward different electrodes, with the negatively charged electron providing power to a building, battery charger or some other device. If the electron and hole reunite, or if the electron goes into the ground, the electricity is lost.

Each company promotes a different technological solution to this problem. Konarka has developed a dye injected into titanium oxide that can absorb light and organize itself into patterns. Nanosys takes a similar approach, but with a different designer molecule.

Both companies are working with manufacturers that in turn will incorporate solar power into their products. Konarka's first solar cells will likely appear in a foldable pads that can recharge cell phones, said Daniel McGahn, the company's executive vice president. The military is considering applications such as tents that can generate solar energy, and home-roofing tiles may start to appear in 2006 or 2007.

and United apply amorphous silicon onto spools of plastic. The technology is less exotic, but both companies say that's an advantage because the manufacturing process and the photovoltaic properties of silicon are better understood. Before going solar in October 2002, Miasole sold coating equipment to optical-networking companies.

"We're basically coating new materials," Miasole CEO David Pearce said, adding that samples of its photovoltaic materials will come out in 90 days, and volume production will begin next year. United already sells product.

Other companies are developing chlorophyll-like molecules that can convert sunlight into energy, said Josh Wolfe, a principal at Lux Capital, a nanotechnology venture firm.

Right now, the efficiency rate—the amount of sunlight that gets turned into electricity—ranges from 3 percent to nearly 12 percent for various nanoparticles in different lab experiments. That could grow to 20 percent, said Michael McGehee, an assistant professor at Stanford in materials science and engineering. McGehee currently is conducting research on organic photovoltaic nanoparticles.

Although this means that 80 percent of the sunlight will never get converted to electricity, the low cost of thin-film solar cells would make such a system far more economically viable than current solar cells—and more competitive with traditional electricity.

"It costs $300 per square meter now for crystalline solar cells. We think we can get this down to $30 a square meter," he said. Michael McGehee, an assistant professor at Stanford in materials science and engineering

Preaching to the unconverted
Alternative-energy specialists acknowledge that skepticism runs rampant. "The general perception even in the high-tech community is that solar was a good idea, but it was born in the '70s and died in the '70s," Konarka's McGahn said.

Still, as Firelake's Lagod said, a lot has changed in the decades since. Desktop computers and modeling software, which didn't exist back then, are being used to improve emissions performance in cars and create the materials, semiconductors, molecules and other elements that energy start-ups are promoting today.

Contrary to conventional wisdom, proponents say, energy prices and concerns will prompt consumers to flock to new brands and technologies.

"The '70s oil shock introduced Americans to fuel efficient cars from Japan," Lagod said. "Nobody knew what Toyota was. Now they have the dominant market share."

Circumstances may be ripe for alternatives. In 1990, the United States imported 46 percent of its oil. In 2000, the figure jumped to 57 percent. Cash-strapped governments also continue to subsidize traditional electricity and water purification.

Pinpointing when a crossover to new technologies could occur is tough to gauge. Because thin film barely exists as an industry, it is much more expensive than regular electricity. Improved technology and a larger manufacturing base could mean acceptable parity as soon as 2006 or 2008, but the calculation isn't easy to establish.

Other alternative forms of energy face tricky evaluations as well. Wind power works, but it will likely remain a European phenomenon, Brownlee said.

Generating electricity from the ocean holds promise because, unlike wind or sunlight, waves never cease. The problem? It involves sinking equipment into rough seas. Similarly, hydrogen looks great on paper, but the experimental results have been inconsistent, and the infrastructure—storage systems, gaskets and the like—doesn't exist.

Despite the challenges, it appears that the inspirational light bulb is going off a lot more often now—solar-powered or otherwise.

"Nano is hot right now, and people are looking for a good application for nanotech," McGehee said. "I never thought I'd see this in Silicon Valley, but they are realizing that the energy market dwarfs the computer market."

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