Models of Solar Success
5 Sep 2008I recently attended a presentation given by one of the founders of MegaWatt Solar, hosted by the Carolina Innovations Seminar. MegaWatt is a very interesting company when viewed in perspective of the rest of the nascent solar industry. It, contrary to the norm, does not view its core competency as intellectual properety.
Most solar companies work like this. A scientist or engineer gets a great idea. He/she plays around in a lab and verifies that this idea could potentially be the secret to making cheap solar come true. He/she then finds partners and a raises first round of equity funding—just enough to keep the team in salaries and parts for their test products. Soon the research and testing is finished and they raise a second round of funding, rinse and repeat, until they have a manufacturing facility and sales.
The critical point of the above scenario is that the company is started by a geek because that geek had a good idea about a technology. From the outset, it views itself as a company that creates and commercializes groundbreaking technology. Its core competency is R&D and it creates barriers to entry with its intellectual property portfolio.
This is a great model and has brought us tons of successful companies. My favorite example of a company with this type of DNA is Nanosolar. Front and center on its home page is this statement: “Nanosolar has developed proprietary process technology that makes it possible to produce 100x thinner solar cells 100x faster.” How geeky (and delicious—I can almost taste crispy, 1/10,000” silicon just reading that!).
This is not the only way to build a company, however. Even a solar company, as MegaWatt showed us. MegaWatt views itself as a systems integrator, to use an IT analogy, or as a developer, to use a real estate analogy. Basically, they believe that they know how to do a couple of things very well:
- manufacture low cost solar systems from third-party products;
- create control systems to milk every last watt out of their installed capacity; and
- package the entire product in a way that will be attractive and easy to work with for utilities.
MegaWatt is fabricating very little from scratch. It doesn’t have a secret silicon printing process—it’s buying cells from whoever is the cheapest per installed watt! While this company happens to also be created by a bunch of geeky guys, their business model focuses on their ability to combine component parts and systems, add value on top, and package the product for a target customer.
One of the interesting things about this approach is that it’s technology-agnostic. If someone (like Nanosolar) builds The Perfect Cell, as someone is bound to do, all MegaWatt has to do is switch out their existing cells with the new ones. Its system is intentionally designed to make this possible: the sun’s rays are focused, using proprietary mirrors, onto a fairly thin strip of actual PV material. This is a common model in hydroelectric dams: the fixed assets (the dams) are built to last 100+ years, and the turbines inside are replaced regularly as new, more effective turbines are built.
It is a mark of the maturity of the solar industry that a company like MegaWatt can exist. The company essentially ignores the problem that everyone in the industry has been focused on for 50 years, presupposing that it will be solved by others in the short term. Probably a good bet.
The question that remains to be answered is this: who will be able to capture most of the profits, the maker of the PV cell or the maker of the integrated system? It depends on which side is able to develop more market power and barriers to entry. I think MegaWatt has a fighting chance.
A quick postscript: I wouldn’t suggest doing any research on MegaWatt on your own as they’re still flying under the radar in their pre-money period. If you’re interested and in the RTP area, they give talks fairly regularly. Just email them at the link from their website. The only article I’ve found online is somewhat dated and, I believe, somewhat suspect in its accuracy.
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