Roger Franklin

The last couple of weeks have seen another burst of activity in the world of solar photovoltaics (PV) – Solaria's US$50m funding round led by Q Cells, IBM's interest in becoming a major player in photovoltaics and many smaller venture capital (VC) deals – but the big question is why should we care? There may or may not be lots of money to be made in PV technology, but how important is it when it comes to combating climate change and resource depletion?

The New York Times pointed out a couple of weeks ago that the gap between how important people think solar is and how important it actually is, is yawning. When asked what would be the most important energy source in fifteen years, the top answer was solar even though the US Department of Energy expects it to account for only 3% of total electricity generation in 25 years time!

Even those in the industry admit that solar PV is a long way from making a substantial contribution to the fight against climate change. When I interviewed Daniel Cintolesi, director of corporate sales at Q Cells, for Library House's cleantech report earlier this year he commented: "Will solar PV substitute a substantial part of energy demand in the next ten years? No way. No way."

The hype over solar PV seems even more absurd when two further facts are considered:

1. PV won't be able to deliver electricity at the bulk market price for another twenty years, even in hot climates.
2. Compared to other renewables, it is the least cost competitive.

At Library House, our European data shows that companies in the wind, hydropower and solar sub-sectors all attracted between £30m to £40m of institutional funding during 2006. Given that both wind power and small scale hydropower are already able to deliver energy at the retail price and small scale hydro can even supply at bulk prices, this seems a strange distribution of capital.

Don't venture capitalists like proven technologies and proven markets? Perhaps the answer lies in the public policy attitude to solar PV. Generous feed-in tariffs, funded ultimately by the consumer rather than by government, have bankrolled the sector in Europe whilst tax breaks have done the same in the US. Given this environment, many investors have obviously seen solar as a one way bet.

It seems that irrational obsessions with particular clean technologies are becoming a feature of the global response to climate change. Europe seems focused on what Vinod Khosla of Khosla Ventures has termed 'elitist' technologies which will never pass the 'Chindia test' (that is, be cheap enough to be adopted in the world's fastest growing economies), whilst the US obsesses over bio-ethanol, which will not replace fossil fuels even if the whole of the US landmass is planted with corn.

Instead of hype, what is needed is a broad based energy strategy recognising the importance of all low carbon technologies (wind, geothermal, small scale hydro, solar concentrating, biomass, nuclear, carbon capture). Such a strategy will require tough choices. However, the current media environment seems in danger of convincing people that solar PV (or biofuels depending on your taste) is the magic bullet that will solve all our problems.

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