With hefty funding, solar start-up takes on big guns

With $100 million in its wallet, Nanosolar says it wants to topple the old guard in the solar industry.

Nanosolar is only a few years old, but it has laid plans to take on multinational corporations, such as BP and Sharp, in the solar industry.

The Palo Alto, Calif.-based company on Wednesday announced that it now has the funding to get started on volume production of its photovoltaic technology. It plans to build a manufacturing facility in California that will eventually produce 430 megawatts of solar cells per year, making the company one of the largest solar producers in the world in the span of a few years. Nanosolar will also build a plant in Germany for taking the solar cells and fitting them into solar panels.

Cost is the company's primary weapon, said CEO Martin Roscheisen. Rather than producing solar cells made out of rigid silicon, the company has come up with a way to embed CIGS (copper-indium-gallium-selenium) into thin polymer films. Ultimately, a solar panel from Nanosolar will cost about one-fifth to one-tenth the cost of a standard silicon solar panel, and expanding factory capacity will be easier, according to the company.

"For (traditional manufacturers) to build a 400-megawatt facility, it costs $1 billion. It costs us a tenth of that," Roscheisen said. "It is a roll-to-roll process. It is much simpler. There are three miles of solar cells on a single roll" of polymer film, he said.

Initially, Nanosolar will embed its CIGS solar cells into relatively standard solar panels and sell them to utilities for solar farms. Later, plastic sheets coated with the particles will generate electricity on the rooftops of big box retailers, he added.

Backing this rapid expansion is a wide array of investors who have committed an eye-popping $100 million to the company. Investors include Mohr, Davidow Ventures, Google's , the venture vehicle of eBay's Jeff Skoll and OnPoint, the venture arm of the U.S. Army. Roughly $75 million of the total is in equity, while the remaining $25 million consists of subsidies and other types of funding.

Over the past two years, investors have begun to flock to alternative energy companies in the face of rising prices of oil and electricity.

Solar companies have been some of the chief beneficiaries of the trend. Demand has grown so rapidly that a shortage of silicon panels that began in 2004 will likely last into next year. Builders have also begun to incorporate silicon solar panels into new homes.

Looking for a silicon successor
Silicon, however, is not an ideal material for solar panels, according to experts and even solar manufacturers. At a theoretical maximum, silicon solar panels can convert around 30 percent of the sunlight that strikes it into electricity. In practice, commercial solar cells convert anywhere from 10 percent to 20 percent of sunlight into electricity.

Silicon also remains costly to produce. In the end, a solar-produced kilowatt might cost 35 cents, while a kilowatt straight from the grid might cost 25 cents, said Ron Kenedi, general manager of solar systems at Sharp. Hence, governments in Japan, Europe and the U.S. subsidize the cost of solar equipment.

Thin-film companies such as Nanosolar and HelioVolt say they can provide the same level of efficiency in producing electricity as silicon panels. The difference is that their panels are effectively printed sheets of plastic, dramatically cutting costs. As an added bonus, a thin-film solar cell is just that--a thin sheet. The material, therefore, can be placed on a wide variety of surfaces, or even get incorporated directly into roofing tiles or building glass.

Other types of thin films have failed in the past, but CIGS thin films are more durable, say backers. The potential of CIGS has even begun to attract large companies, such as Shell. Silicon manufacturers dispute this, and in the past several months a heated competition has cropped up between silicon and CIGS companies.

"We're going to have the economies of scale of the print business," said Erik Straser, a partner at Mohr, Davidow Ventures.

Nanosolar currently has a pilot manufacturing facility and will begin to produce solar cells on the upcoming factory in 2007, said Roscheisen, who started the compay in 2001 after selling off a string of Internet companies. The factory won't be capable of producing 430 megawatts a year at first; that's the ultimate capacity, he added, but they will be coming out with a product. (The 430 megawatt measurement means that, if you took all of the solar cells produced by the factory in a year, they could generate 430 megawatts at a given instant.)

The company has also begun to line up supply agreements with customers, said Straser. In the past year, Nanosolar has begun to hire manufacturing executives--such as Werner Dumanski, who worked in the hard drive divisions of IBM and Hitachi--to help it make the transition from science experiment to industrial manufacturer.

"A lot of these people started in the windows coating business. Then in the '80s, they moved into hard drives," said Straser.

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