Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Smart Grid Apps: Six Trends That Will Shape Grid Evolution
• Key technologies for the smart city
• Green IT Q1: Cleantech Breaking Out — and Bracing for Hard Times

The winning bid beat out Johnson Control’s bid to acquire A123′s automotive division. Johnson Controls previously had offered to buy the automotive division and two factories for $125 million.

One of the reasons Wanxiang’s offer to buy up A123 had been controversial was because A123 had some U.S. military contracts, which critics didn’t want to see in the hands of a Chinese company. But A123 decided to sell off its government business, including all its U.S. military contracts, to Illinois-based company Navitas Systems, for $2.25 million. Wanxiang acquired the rest of the assets including the grid storage business.

We’ll see if that move silences politician critics like U.S. Sens. John Thune (R-S.D.) and Charles E. Grassley (R-Iowa). The deal still has to be approved by the bankruptcy court as well as the Committee for Foreign Investment in the United States (CIFIUS).

If approved, the future of A123 System’s lithium ion battery tech will fittingly be owned by a Chinese auto giant, as China is increasingly becoming one of the most important markets for electric vehicles. Money from Chinese investors, conglomerates, cities and the government, continues to drive a significant amount of the future of next-generation electric car technology.

The deal also provides a future for A123′s technology, which had a promising beginning, but had suffered a series of setbacks in 2012. Venture-backed A123 held the largest IPO in 2009, raising some $371 million, and was trading at over $20 per share when it started trading. A123 also raised more than $350 million from private investors when it was still a startup.

Yet in recent months, it suffered from manufacturing problems, and also had only a handful of customers for its premium batteries. The company had been losing boat loads of money for years.

The Wanxiang deal still won’t make back enough to cover its debts. A123 says:

Because the total purchase price for A123’s assets would be less than the total amount owed to creditors, the Company does not anticipate any recoveries for its current shareholders and believes its stock to have no value.

Now that the A123 bankruptcy is moving forward, it will be interesting to see what Fisker Automotive, one of A123′s prime customers, will do. Fisker had told the media that it is waiting for the results of the A123 auction before it starts back up assembling its Karma cars.

This isn’t Wanxiang’s first cleantech and clean energy acquisition — it’s actually its fifth in 2012, says the company in a release. Wanxiang has been aggressively acquiring under valued American cleantech and clean energy companies.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Opportunities for the future of batteries
• Smart Grid Apps: Six Trends That Will Shape Grid Evolution
• Report: Cleantech’s Third-Quarter Growing Pains

The past two weeks have seen some depressing news on the cleantech front: inverter manufacturer Satcon Systems declared bankruptcy, PV module manufacturer JA Solar got a delisting letter from Nasdaq and Sunpower shut most of its Philippines factories. But the worst news came with two particular announcements: Better Place, the ambitious Israeli electric vehicle start-up, pushed out its CEO and evangelist-in-chief Shai Agassi, while A123 Systems, the Massachusetts-based battery manufacturer which was once the darling of the advanced battery industry, announced bankruptcy.

Is this the long-awaited cleantech apocalypse, or will some of these fighters rise from the mat? The short answer is this: those with effective business models (i.e. Better Place) have excellent prospects; those who don’t have a viable product to sell in the marketplace (i.e. A123 Systems) won’t be rising from anywhere.

All the news of the past few weeks certainly hasn’t helped cleantech, as an investing concept, to gain any respect. The fundamental problem with cleantech is that the name itself is a useful fiction: any company with a technology that might somehow be labelled environmentally positive can affix itself with the cleantech label and start selling shares. That leads to a bucket filled with a variety of companies with no real relationship to each other: from natural gas drillers to solar module manufacturers to high-tech laundromats.

In addition, most of the sectors that these companies play in are very hard to disrupt, such as energy and transportation. For a new company to compete, long lead times and many years prior to cash-flow positivity are to be expected. Meanwhile the Silicon Valley venture capitalists who backed such enterprises are quick to head for the exits when their expected 10x returns didn’t materialize within two years.

Thus cleantech as a whole was doomed to fail simply because it was a square peg of a marketing term that could never have fit into the round hole of expectations. That doesn’t mean that every cleantech investment will be a failure. The acid test for success will be the business model that the company is betting on. Many of them are still relevant and filled with value, even in the age of dropping PV and battery prices. Others are just plain bad bets.

Which brings to mind A123 Systems. I first became aware of the importance of the company’s technology when talking to model plane hobbyists. They were willing to pay a lot of money to get their hands on the first batch of production batteries from the company because they offered something unique: increased density at lower rate. The A123 battery, I realized, had a chance to disrupt the entire transportation sector.

Unfortunately, so did every other battery manufacturer. And there in lie the weakness in betting on A123′s: they were competing against dozens of other battery companies, most of whom had deeper pockets and access to cheap, government-subsidized capital. Thus LG Chem, AESC and Panasonic won the first round of the transportation battery wars. And A123 ran out of cash before they could even get to the second round.

The good news for the car and grid storage industries is that even if A123 won’t be able to compete anymore, its ghost certainly will. That’s because the factories in Massachusetts and Michigan have been acquired Johnson Controls, a company with pockets even deeper than LG’s and Panasonic’s. Thus the equipment and manufacturing spaces that once belonged to A123 will continue to crank out advanced batteries, albeit under a different logo. Johnson Control’s next generation chemistry, based on a Nickel Cadmium Aluminum cathode, will be even more energy dense and safer than A123′s iron phosphate chemistry and will have a shot at being a transformative battery technology for both the grid storage space and for the vehicle industry.

The Better Place situation is very different from A123′s. Better Place planned on launching a network of battery switching stations that would allow subscribers to their system limitless driving range. The idea was that Better Place would bring the wireless communications business model to personal transportation. They opened the first network in Israel and, lo-and-behold, the subscribers didn’t show up. Yet.

The problem with writing an obituary for Better Place is that the underlying business model is still very sound. I’ve spend a lot of time examining that model and various iterations of it. It makes sense. And it makes money. The problem, unfortunately, has been in the execution of the marketing plan. The Israeli car market is held hostage by a small oligarchy of leasing firms. Better Place chose to thread the needle by having those leasing firms be their distributors while at the same time not sharing enough profits with them. The leasing companies balked at becoming a middle-man, and froze Better Place out of the market.

The solution to the impasse is for Better Place to either re-mold its Israel operations as a head-on competitor to the leasing companies or to renegotiate its contracts with them. That’s a relatively simple fix. It will lead to a much higher market penetration and a flood of sales. It is my opinion that Better Place will eventually succeed in the market and will quickly thereafter be faced with EV network competitors. The company still has quite a bit of cash on hand to restructure its Israel operations and then can worry about international expansion.

Here are two companies that were both looking to disrupt the transportation industry with their respective products. One couldn’t compete with the large Asian behemoths. The other stumbled in the details of a specific local market. Both are being buried by the cleantech punditocracy. A123 Systems is definitely down for the count, although its tools will be put to be good use by Johnson Controls, which purchased them. Better Place, on the other hand, has a lot of fight in it and could mount a spectacular, albeit bruising, comeback.

This article originally appeared on IDC Energy Insights.

IDC Energy Insights provides research-based advisory and consulting services focused on market and technology developments in the energy and utility industries. IDC Energy Insights serves a diverse global client base, including electric, gas and water utilities, IT vendors, independent power producers, retail energy providers, oil and gas companies, equipment manufacturers, government agencies, financial institutions, and professional services firms. IDC is a subsidiary of IDG, the world’s leading technology media, research, and events company.

Images courtesy of Better Place, A123 Systems.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Green IT Q1: Cleantech Breaking Out — and Bracing for Hard Times
• Green IT’s Q4 Winners: Wind Power, Solar Power, Smart Energy
• Green IT Overview, Q2 2010

Johnson Controls will also provide A123 Systems with $72.5 million to continue its operations at these factories, which will continue to produce batteries. The Department of Energy is already on top of the story, and sent me points stating that “A123 has only used $132 million of its 2009 grant (in addition to the $6 million from the Bush Administration.)” The bankruptcy will be sure to be controversial, and perhaps we’ll even hear about it in the second round of presidential debates tonight.

I’m not exactly sure what the status of A123 System’s deal with Wanxiang is at this point. The Chinese conglomerate announced a deal in August that said it planned to invest up to $450 million in A123, for an 80 percent ownership of the firm, if certain conditions were met. I’ve emailed Wanxiang to see if that deal has been abandoned. Seems like the deal would be off if Johnson Controls is buying up much of the assets.

Bloomberg notes that A123 has listed assets of $459.8 million and debt of $376 million as of Aug. 31 in its Chapter 11 documents filed in U.S. Bankruptcy Court. A123′s stock plummeted this morning by 73.50 percent to 6 cents. A123 went public in 2009, with its shares opening at $17 per share and closing at $20.29 per share on the first day of trading.

A123 has been bleeding cash for months. One of the problems was that in March A123 announced that it would start replacing battery packs with defective cells made at its Livonia, Mich., factory. That mistake cost the company $51.6 million in warranty costs during the first quarter and another estimated $15.2 million for replacing defective batteries that were in its inventory. A123 had to replace these defective batteries in its electric car maker customer Fisker Automotive’s inaugural cars.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Smart Grid Apps: Six Trends That Will Shape Grid Evolution
• Report: Cleantech’s Third-Quarter Growing Pains
• Building energy management systems: overview and forecast

The Green Button initiative was first announced in January with the support of six utilities. While the project clearly has industry support, it was created to meet a call-to-action by the White House to provide consumers with easy-to-understand data about their energy use.

The new utilities on board include heavyweights like American Electric Power, Austin Energy, Baltimore Gas and Electric, CenterPoint Energy, Commonwealth Edison, NSTAR, PECO, Reliant, and Virginia Dominion Power. The new energy vendors on board include Silver Spring Networks, Oracle, and Itron. Previous utilities supporting the project include PG&E, San Diego Gas & Electric, Southern California Edison, Glendale Power & Light, Oncor and Pepco Holdings.

With the additional utilities, close to 30 million households live in the footprint of a utility that will be offering energy data via Green Button.

As I discussed in a conversation with Nick Sinai, White House Senior Advisor, and Alex Laskey, founder of Opower, at the Verge conference last week, Green Button is just a first step to try to liberate energy data and make it useful to consumers. However, it’s currently a somewhat inefficient process — consumers have to download the energy data and then take another step to use it in a third party app — so some utilities are building a sort of more automated next-gen Green Button 2.0 service.

But the first step of Green Button is a big one, and dozens of companies are sending out letters of support for the project including Google, BT, Intel, Verizon, The Climate Group, Johnson Controls, GE Energy, and Kleiner Perkins.

Image courtesy of Opower.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Report: Cleantech’s Third-Quarter Growing Pains
• Green IT’s Q4 Winners: Wind Power, Solar Power, Smart Energy
• Connected world: the consumer technology revolution

Image courtesy of Newtown Graffiti

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Green IT Q1: Cleantech Breaking Out — and Bracing for Hard Times
• Green IT’s Q4 Winners: Wind Power, Solar Power, Smart Energy
• Report: Cleantech’s Third-Quarter Growing Pains

First, Serious Energy does an energy audit of the building and figures out how much savings can be made through energy efficiency retrofits (installing gear from LED lighting to efficient boilers). Then, Serious brings in the financier, guarantees a lower utility bill to the building owner, and takes over the utility payment duty for the building owner. The building owner will no longer be writing a check to the utility each month, and instead writes a check to Serious in an amount that will be lower than the utility bill.

The idea is similar to the power purchase agreements that are becoming popular in promoting solar installations on the rooftops of homes and businesses. The idea is to make solar — and now energy efficiency retrofits — more affordable by spreading the cost over time. The concept has also been widely used for building modernization projects in general long before it started to take off for solar.

A serious plan

“They don’t have to put anything down. It takes off any risk a customer might perceive,” said Claire Broido Johnson, general manager of SeriousCapital. “Customers who don’t have the capital or [who] don’t want any extra debt on their balance sheet can just sign up for the services from us, and those services include an energy reduction.”

Serious makes its money off the deal in the difference between what Serious promises to the building owner and what the retrofit really delivers. Based on Serious’ own estimates, the split is 5 percent to Serious and 95 percent to the bank, Johnson said. In a typical scenario, Serious will guarantee a 10-percent savings when it believe the energy efficiency retrofit could yield a 25-percent savings, she added. Johnson declined to say which financial institutions will finance Serious’ projects.

Companies such as Honeywell and Johnson Controls have been offering similar building retrofit contracts and guarantees for a few decades now, but their customers have been mostly government agencies and schools. Governments and schools make good customers partly because their buildings tend to be large and filled with inefficient wiring, lighting and other equipment, making it possible to reap bigger energy savings with modern equipment. Public agencies also can float bonds to help pay for these upgrades.

Private businesses, on the other hand, tend to carry out smaller retrofits that they can finance themselves and expect a quicker payback for their investments.

Energy service contracts can be a great tool to popularize energy efficiency retrofits for commercial buildings, which are Serious’ targets. Serious has enlisted real estate company Grubb & Ellis, a more familiar face to building owners and managers in the country than Serious is, to help sell the retrofit package. Grubb & Ellis would get payments for lining up customers that actually sign up.

A hard sell

But reeling in those building owners and managers won’t be so easy. For one thing, they typically loathe to commit to a 10-year obligation of any kind. This mentality alone makes the energy service contract “a hard sell,” Johnson conceded.

The expectation of a quick payback period also presents a hurdle to energy service companies. Lawrence Berkeley National Laboratory has collected data on over 3,500 energy service projects spanning over 15 years, and it found that the median payback period for a private company project is three years, while for a government agency it stretches to eight years.

IDC Energy Insights has surveyed commercial building owners and managers and found they want the payback period to be no more than 12 months, said Sam Jaffe, a research manager at the market research firm. This expectation comes largely from an ingrained view that the value of a building lies in the value of the real estate, not in the efficiency and cost of operating a building, Jaffe said.

“It’s a very tough sell, and it’s mostly a cultural issue. When you describe the cost of savings and operations to them, it’s like they are deaf,” Jaffe said. Building owners also may not see an incentive to do retrofits and sign a long-term contract because they aren’t the ones to pay the utility bills, he added.

But Serious isn’t alone in marching into the commercial building market with energy service contract offers. San Francisco-based Metrus Energy, founded in 2009, is doing something similar and has completed work for defense contractor BAE Systems. The big players that have worked on energy efficiency projects for governments and schools will move in once they see a greater acceptance of the energy service model.

Serious Energy, by the way, has been offering energy auditing and monitoring software and energy-efficient windows before launching SeriousCapital.

Photos courtesy of Bosc D’Anjou via Flickr and Serious Energy

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Building energy management systems: overview and forecast
• Smart Grid Apps: Six Trends That Will Shape Grid Evolution
• Green IT Q1: Cleantech Breaking Out — and Bracing for Hard Times

Start-stop technology first emerged in Europe in 2007 in response to carbon reduction regulations. The technology can provide a 5 to 12 percent improvement in fuel economy — most often less than a hybrid or EV — and when combined with other fuel-efficient technology can provide 18-percent efficiency improvements, according to Johnson Controls.

Johnson Controls sells 3 million start-stop enabled batteries into Europe every year. According to industry estimates (from Johnson Controls and Pike Research) the global stop-start vehicle market could reach between 35 million units sold by 2015, according to Johnson Controls, and Pike’s stat is 37 million units by 2020 (Updated).

While a 5- to 12-percent improvement in fuel efficiency might not be a revolution, the benefits of start-stop tech is that it’s a whole lot cheaper than deploying EVs and can also be added onto a standard internal combustion car. Pike Research analyst John Gartner told me for a very basic start-stop system, it can cost as little as $300 extra for the automaker. It’s essentially the low-hanging fruit for standard cars, and can be even easier to implement than biofuels, given biofuels tend to need the additional fueling infrastructure.

Johnson Controls says it’s investing $420 million into stop-start technology between now and 2015 (not including these Chinese market). Compare that to Johnson Controls’ recent attempt to dissolve its joint venture with French battery maker Saft to sell lithium-ion batteries to the automotive sector. Johnson Controls feels the JV, which was only for the automotive market, was holding it back from entering the grid battery market, and the EV market is moving more slowly than expected, explained Alex Molinaroli, VP and president of power solutions for Johnson Controls, in an interview with me recently.

However as start-stop technology has started to take off in Europe, the U.S. has lagged behind because of a lack of carbon reduction regulations. As of early 2011, only three start-stop models were on sale in the U.S., compared to the more than two dozen available in Europe, according to Pike Research. By 2013, 6.8 million start-stop units are expected to be sold in the U.S., according to Johnson Controls.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Smart Grid Apps: Six Trends That Will Shape Grid Evolution
• Cleantech and investment in 2013
• Ups and downs for cleantech in Q1

In particular, Needham & Company write in their report, that Johnson Controls could pursue an expanded partnership, or even a new joint venture, with Hitachi, a company which Johnson Controls already has signed a memorandum of understanding with around energy storage applications. Needham & Company analysts support Johnson Controls action, as they say: “We believe the [Saft] JV terms and conditions have minimized the company’s efforts to develop a stationary storage market strategy, while competitors have been able to make headway into this large multi-billion opportunity.” The analysts also support a new JV with Hitachi:

The formation of a JV with Hitachi could enable Johnson to cover more bases in the evolving lithium-ion (li- ion) landscape given Hitachi’s penetration into the heavy-duty market and focus on stationary applications.

We’ll see if Johnson Control’s legal actions are successful. Saft says that it will oppose the breakup, and “sees no legitimate grounds for the dissolution.” Saft saw a drop in its stock by as much as 17 percent on the news of the dissolution petition, reports Bloomberg.

The joint venture between Saft and Johnson Controls was established back in 2006 and in 2008 the group opened up a lithium ion factory for hybrid and electric vehicles. At first the JV announced high profile auto customers like Mercedes, BMW and Ford. But over time competitors like LG Chem have overtaken the JV in hybrid and electric vehicle customer wins.

Using lithium ion batteries as stationary energy storage for the power grid has emerged as a quickly growing market. Power company AES is developing the largest lithium ion battery energy storage projects in the world, with 32 MW and 40 MW projects, and AES has worked with newcomer A123 Systems. Electric Power Research Institute (EPRI) has pegged 2012 as a turning point for grid energy storage because by then companies that have collectively received more than $250 million in federal stimulus funding are expected to complete research and development work and move into field trial stages in the U.S.

At the same time, batteries for electric vehicles have seemed to be growing slower than some had predicted. Lithium ion battery company Ener1 wrote down its investment in Norwegian electric car maker Think, citing the fact that Think had halted its vehicle production in Finland for longer than expected, has been unable to raise the funds needed to continue production, and because the overall market for EVs has been moving slower than expected. A123 Systems also recently posted a $53.6 million loss for its first quarter 2011 financials, in part because it’s just not making money off of EV deals yet.

Image is of AES’s lithium ion battery power grid project, courtesy of AES.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Green IT Q1: Cleantech Breaking Out — and Bracing for Hard Times
• Cleantech and investment in 2013
• The next generation of battery technology

This week chip maker NXP launched a wireless-connected lighting product that can connect both LEDs and CFLs to your home (or commercial building) network. Jessen Wehrwein, NXP’s Director, Marketing Programs for Power & Lighting, explained to me in an interview that the so-called GreenChip package — which includes the microprocessor, power supply and the driver — adds about $1 to the cost of the bulb, and embeds the chip directly in the base of the bulb. The company is showing off its connected lighting system along with light maker TCP and energy management startup Greenwave Reality at Lightfair this week.

NXP’s connected lighting systems run over the low power wireless standard 6LoWPAN, which is an emerging standard that is being used for wireless sensor and control networks. On Tuesday NXP is also announcing that it is open sourcing the software that it uses to wirelessly manage the lighting systems over 6LoWPAN, called JenNet. Wehrwein tells me that there are few established standards in the home wireless industry, which is why the company wants to open source its own IP-based and standardized solution. Similarly, Google and Lighting Science Group announced last week that they are working on an open source wireless lighting standard to connect lighting and other devices in the home via the Android platform.

NXP, Lighting Science Group and Google don’t seem to be interested in using the more common WiFi or basic ZigBee for these wireless networks, because of a variety of things like power constraints, latency issues, and the complexity of chips. Wehrwein also noted to me that WiFi is only as robust as each individual node (think if one light in a set of Christmas lights goes out, the whole thing crashes), whereas 6LoWPAN is based on wireless mesh, so it can basically be self-healing.

NXP’s GreenChip package can be used with both CFLs and LEDs, and Wehrwein said that the company wanted to include CFLs because LEDs won’t likely be mainstream for at least 2 to 3 years down the road, or until the high price of LEDs comes down substantially. While incandescent lights are in the couple-dollar range, CFLs are in the $4 to $10 range, and LEDs are in the $40 to $50 range.

Chips and networks are also being used to improve the quality of LEDs, which are still often times substandard to the incandescents that consumers have grown used to. At Lightfair this week chip maker Marvell also launched a chip that can improve the lighting quality of LEDs by connecting them to a network and by controlling the current and temperature of two types of combined LED light sources, and also by enabling the addition of a wireless chip (Updated).

Beyond chips for every bulb, digital lighting management systems are an early but growing product for industrial and commercial customers. Redwood Systems is a three-year-old company that makes a control and sensor system for LEDs that runs over an optimized version of ethernet cables, and other companies in this space include Digital Lumens, Adura Technologies, and building automation companies Honeywell and Johnson Controls.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Green IT’s Q4 Winners: Wind Power, Solar Power, Smart Energy
• Building energy management systems: overview and forecast
• Smart Grid Apps: Six Trends That Will Shape Grid Evolution