28 Aug 2007, 09:15
While some pretty risky clean technologies are being wildly overhyped other safer sectors remain strangely under the radar. One such technology, according to Roger Franklin, is solid state or LED lighting and Europe looks like it is missing the boat.
One factor often complicating investments in cleantech is the tortuous route to market that lies ahead for many of the sector's promising technologies. For example, however cool your wave power device, it is likely to require substantial capital expenditure to ever have it capture a significant portion of the energy generation market.
In addition, clean energy generation technologies are likely to need some sort of public sector support to make them competitive- witness the widespread feed-in tariff regime for solar PV and wind in Europe. These issues mean that investing in many clean energy plays can be a very risky business. Having a large addressable market is only relevant if you have some way of getting to it rapidly and without the need for billions of dollars.
So where in cleantech can we find a large addressable market without these complications? At Library House we've believed for a while that solid state lighting is just such an opportunity.
The market for lighting solutions is vast, estimated at $12bn by Stephen Naor, CEO of Group IV Semiconductor, and growing. Furthermore, because this is an energy efficiency play, there is perfect alignment between financial and political/scientific imperatives. More efficient lighting benefits the customer through lower electricity bills and the environment through reduced carbon emmissions. No need for tax breaks, or feed-in tariffs or any other state-sponsored route to market with inherent political risk built in. A huge, clear and addressable market. No wonder this month has seen a couple more big deals in the area.
Group IV Semiconductor, based in Ottawa, Canada has received another 'substantial' round of funding from Khosla Ventures, Applied Materials, Garage Technology Ventures Canada and BDC Venture Capital to go with the €7m ($9.1m, £4.8m) raised by the company towards the end of last year. California-based BridgeLux has also raised a substantial amount of cash, €16.8m ($23m, £11.3m), in a third round of funding.
So what are these companies up to exactly?
Solid state lighting is essentially the idea that light can be produced more efficiently by directly converting electricity into photons ('packets' of light) using a semiconductor rather than by heating up a filament or relying on fluorescence. There is no doubt that the basic principle is sound - the most advanced 'energy saving' bulbs are only 25 percent efficient whereas solid state lighting solutions can reach up to 80 percent - but the problem is cost. Making solid state (aka LED) lighting cheap enough to achieve significant market penetration is the key challenge.
BridgeLux and Group IV have different strategies in this regard - whereas Group IV are aggressively pursuing a strategy based on all-silicon chips for the general lighting market, BridgeLux is using Indium Gallium Nitride approaches (i.e. an alternative semiconductor) to target large but specialised markets such as industrial lighting or mobile phone flashes.
However, these two companies are far from the only ones targeting this fertile area. For example, Quanlight of San Diego is developing LEDs based on an alternative semiconductor known as dilute nitride which is reputed to have superior qualities at high current loads. The company has been backed by Blackbird Ventures and (SHW)2 Enterprises. Other key players include DFJ, backed by Intematix, which is also involved in the utilisation of new materials in fuel cell technology.
Overall, this is a key space to watch for any cleantech investor. Depressingly, however, Europe appears to have been left out of this exciting arena. Not a single venture backed-company in Europe is targeting the solid state lighting market despite its clear attractions.
Sadly solid state lighting looks set to go down as yet another example of North America leading Europe when it comes to actually bringing clean technologies to market.
Roger Franklin is a Senior Analyst in Venture Capital and Cleantech at investment research firm Library House. The company provides information and research on the fastest growing privately-held companies across Europe
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