# Thin Film: Growing Market, Thinning on Cash?

While the cleantech niche known as thin-film solar is experiencing a growth spurt, the well of private equity once available for the sector is drying up, that is, at least according to The Information Network, a research and consulting firm that covers the semiconductor market. We wanted to find out if that’s actually the case.

Thin-film solar, a type of photovoltaic technology that uses little or no silicon, is still less efficient than it’s thicker and better-known sibling made with complete silicon wafers. But the technology has proven an attractive investment opportunity for a few reasons. Many of the materials used for thin-film solar can be printed on plastics or foils, which makes it possible to manufacture flexible solar cells.

Mostly, though, thin-film is an attractive investment because the cost of materials to manufacture the solar cells is cheaper than traditional, silicon wafer-based solar technology. A severe shortage in silicon sent its costs skyrocketing 65% over the past three years and turned thin-film solar a hot investment, according to research firm Greentech Media. Now that the space is crowded and is facing increased competition from Asia, investments in the U.S. are diminishing.

The global thin-film photovoltaics market is expected to reach $7.2 billion by 2015, compared to just over$1 billion today, according to a new report released by NanoMarkets.

Greentech Media concurs; the research firm’s new report “The Future of Thin Film Solar,” forecasts that the thin film solar market is estimated to grow to 20 percent of the overall solar market in 2010 from just 8 percent in 2006. But funding deals are shrinking.

Thin-film fundings peaked in 2006, with an average deal size of $13 million, according to Greentech Media. “VC investors have shown an inordinate fondness for new thin-film technologies, investing more than$318 million in the last two years,” says the report. Greentech expects an additional 30 thin-film deals over the next 18 months, but notes that the average size of those deals will be smaller.

Meanwhile, production delays have “soured venture capital firms and other equity investors who had hoped for faster return on investments,” according to The Information Network report. It cites production delays and price competition from abroad as the main reasons the doors have closed to most new funding opportunities in this area of solar.

Nanosolar Chief Executive Martin Roscheisen told Katie that he’s not sure if investment in thin-film is “souring,” but said that if anyone expected a materials-based business to deliver YouTube type investment returns, “they might have put their hopes in the wrong place.”

The window of funding hasn’t closed just yet. Last month, thin-film startup SoloPower raised $30 million in second-round funding to further develop and commercialize their solar cells and modules. Another thin-film startup, Sierra Solar Power, recently raised$6.8 million in first-round funding, indicating that for the right start-up, there’s still money.

WTF is Thin-Film Solar?
In a post about GreenTechMedia’s report, EcoGeek.org’s Hank Green asks in a colorful way: “Thin Film Solar…WTF is it?” Haven’t heard of thin-film solar? The technology has been around since 1976, but has yet to take off for a variety of reasons we’ll discuss below.

There are three different base materials in thin-film solar technology that are used to convert light into energy.

Amorphous silicon was used to produce the first thin-film commercial product, which was developed in 1976 at RCA Laboratories. Instead of growing silicon crystals, the silicon is deposited in a very thin layer on a backing substrate, a process similar to inkjet printing.

But these inaugural thin-film panels were not efficient enough in terms of electricity production to make them good alternatives to standard solar panels. Typically you need nearly double the area for the same power output, compared to monocrystalline panels.

Thin-film panels made with cadmium telluride are a more efficient option. Cadmium telluride isn’t perfect either, however. It has to be used on glass, so solar cells made with the material cannot be flexible. Some industry watchers worry about the material’s possibly carcinogenic properties, according to Robert Castellano, founder and president of The Information Network, although Castellano doesn’t support the theory.

The third base material used in thin-film solar panels is copper indium gallium diselenide (CIGS). CIGS is believed to have great potential in terms of solar-to-electric power conversion efficiency. But here, again, production delays have hindered manufacturers’ ability to secure additional funding.

“We’re trying to give birth to a new process. The trouble is that we don’t know how long the gestation period is,” Dave Pearce, CEO of CIGS developer Miasole told CNET earlier this year. Miasole is backed by $56 million in venture funding. Besides production problems, Miasole has yet to reach its target efficiency, that is, what percentage of sunlight its solar panels can convert into electricity. They’d like to hit 8 percent to 10 percent, but so far they’re struggling to reach 6 percent. Miasole said in September of 2006 that it expected to achieve revenues of$100 million by the end of 2007, but that looks unlikely, according to the CNET article.

Nanosolar, the thin-film company launched in 2002, raising over $100 million in funding from Benchmark Capital, Mohr Davidow Ventures, and even Google’s founders, is still “prepping for production” — five years later. Paul Kedrosky pointed to the recent departure of Nanosolar’s chief scientist Dr. Eberspacher (who left for Applied Matterials) as a sign of troubles at the Palo Alto startup. DayStar, once struggling with manufacturing delays, got a boost in June when it was reported that General Electric (GE) would buy thin-film solar cells from the company. Still, Seeking Alpha writes that “such an order is probably not very significant,” and that DayStar “does not have the manufacturing capability to produce thin-film cells en masse.” One possible reason for concern for thin film solar is that with or without delays, U.S.-based thin-film solar companies now face price competition from the Chinese, according to The Information Network. “A 20MW amorphous silicon plant in the U.S. can cost$60 million in equipment and another $40 million in yearly expenses. The cost of ownership is as high as$2.50 to $3.00 per watt. Currently, the Chinese are advertising sales of completed solar panels for 1.63 Euros or$2.20 per watt, less than the production cost in the U.S.” – The Information Network

Dr. Castellano said that comparable U.S.-made, amorphous silicon panels (meaning they produce the same energy output) cost about $2 wholesale. (All solar panels are priced per watt of energy produced.) Cadmium telluride costs$1.40 per watt to produce; CIGS panels, about $2.10. Factor in marketing and distribution costs and “finished” U.S. made thin-solar panels are easily$3.50 per watt — 40% more expensive than their Chinese iterations.

Thin-film solar panels are cheaper than their predecessor technologies (traditional crystalline silicon costs \$2.90 per watt), but it matters little if Chinese manufacturers can hawk these latest solar innovations at such a discount. While amorphous solar cells are less efficient than CT and CIGS, U.S. investors with their money in the later technologies are watching China for any signs of direct competition.

“Over the long haul, you have to wonder over what time period [the Chinese] can become significant players across all solar,” said Mohr Davidow Ventures Partner Erik Straser, who leads the firm’s cleantech investment team. MDV’s thin film portfolio company, Nanosolar, is likely the only company in the space the VC firm will invest in, he told us. “At this stage, nearly every combination of technologies has been tried, given the thirst and growth potential of the market,” said Straser.

Researchers agree that thin-film solar will play a large part in the future of the solar power market, but it’s yet to be seen what technology, and what country will reap the profits.

Meanwhile, emerging technologies in thin film, such as technologies that use a mix of polysilicon and thin-film materials, could bring in some investment. But with everyone’s hand in the market, it’s unlikely we’ll see many more multi-million dollar rounds on the scale of what’s been raised by Nanosolar and Miasole.