SunShot Shows How Much VC Investors Are Missing Out
Originally published on SolarWakeup.
By Yann Brandt
On a day when the Wall Street Journal sings the praise of how much capital is flowing to solar companies like SunRun and Sungevity, Minh Le, director of the Solar Energy Technologies Office, stands before a group of over 800 participants of the SunShot Summit. As the Department of Energy helps solar companies across the country cross the proverbial valley of death, the success rate is remarkably high. So high in fact, it appears that the data is showing venture capital that early stage solar makes financial sense.
$1.8 billion dollars of direct corporate investment for SunShot award winners is the statistic and that does not include the project finance capital used to invest in projects which brings the total to over $3 billion. Regardless of the success of SunShot, there is little doubt that investors are not doing early stage investing in the space. A fact clearly pointed out by Rob Day of Black Coral Capital in his recent piece. Rob knows what he is talking about; his twitter handle is @cleantechvc.
Let’s point out the reasons that SunShot is having success and why there is much more room for VCs to participate in this market. Having the private market replacing the Department of Energy is a reality that top brass at SunShot are hoping for, they do not, in fact, want SunShot to be the early stage investor in the space if the private market is willing to take over.
SunShot has a public goal of bringing solar costs to $0.06 per kWh, which according to the recent procurement by Austin Energy of $0.05 per kWh is already happening but not for the everyday market. The goal is listed as 60% accomplished and the outlined path includes many different parts of the market, creating investment opportunities for all types of venture capitalists.
Solar is a huge market, growing 10x since 2009. It also retains many inefficiencies in the soft cost side of the development structure. An important factor since many VCs look at solar as a sector where they took a beating in the past investing billions in big manufacturing plants. Soft cost inefficiencies are addressable by “3 founders and an iPhone app” according to one panelist at the summit, meaning it is not a capital intensive endeavor. The appetite for soft cost reduction is also there as companies continue to partner and acquire whenever possible.
Soft costs represent 64% of the cost structure according to the SunShot team and that is the opportunity the market with the help of venture capital could and should address. SunShot is accepting approximately 5% of applicants, lower than Harvard but higher than current VC investment in the space. With $1.8 billion in follow on investment, a SunShot syndicate portfolio would surely represent a healthy return to VC limited partners. In simple terms, SunShot says the private investment has been $18 for every $1 of their public investment. Let’s assume a conservative $3.6 billion in valuations (aggregate) and the return to a $100 million ‘fund’ would be quite impressive.
The success rate is proven by the SunShot experiment. Can the investment community look at solar, particularly very early stage, as a valley of opportunity instead of the proverbial valley of death. SunShot is doing its part to de-risk but we cannot expect that to last forever.
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Some suggestions on information flow for investing purposes. Solar and wind groups, SEIA and AWEA, collect data on installs and energy generation. Their deep data is closed to the public. They might want to open it up. Or walk over to the Energy Information Administration office and help out with its data entry. EIA is still on about 2008 or some year between the Bush/Obama transition for solar and wind.
The National Renewable Energy Lab (NREL) collects data on solar and wind – but the website is kind of, well, all-over-the-place. As much as I like to complain about EIA, they do a good job with data presentation. Data QA/QC is another issue. Maybe NREL can walk over to EIA office with SEIA and AWEA.
Blogs like Cleantech and interest groups like SEIA and AWEA are awesome and essential. But it usually takes the government to become arbiter of data. In spite of what the libertarians say. Who, by the way, peruse government data all the time. And no, it won’t become better if the private sector took it over. Just more expensive.
I would agree if SEIA and AWEA want to see the market change they should open up they data. The EIA makes nice charts, but you have to only look at data for the past. Nothing in the last, current, or future years. How many of you could have been so total wrong every year for the last 5 years and still have a job?