A blog on using the power of Disruptive Business Models to build successful businesses...and other stuff. by Joe Agliozzo

Sunday, December 02, 2007

California Energy Commission Report on Solar Potential

The California Energy Commission (CEC) through the Public Interest Energy Research Program (PIER) commissioned a report from Navigant Consulting that has quite a bit of useful data (as of September 2007) for solar market sizing. The report is titled "California Rooftop Photovoltaic (PV) Resource Assessment and Growth Potential by County, and can be downloaded here.

The report focuses on the potential for PV installations by county for the state of California, and takes into account such factors as roof tilt, shading, declining installations costs, tax credits, etc. in order to arrive at a total possible installed generating capacity.

One thing that really jumps out is that Navigant estimates a max of 500MW in installed panels by 2016 without subsidies, but that the use of subsidies will increase the total installed base to 800MW.

Then Navigant makes another assumption that "new business models" such as power purchase agreements (PPA's) come into play. Using PPA's plus all available subsidies, the total installed market jumps to 1,700 MW by 2016. So in effect the PPA's could have more impact than the subsidy.

Finally, the goal expressed by the state of California is to reach 3,000 MW. The report states that only way to reach this goal is to assume that technological breakthroughs (like thin film or advanced crystalline silicon) lead to a large price reductions in installed cost.

Thursday, November 15, 2007

Solar Power in California - Disruptive Opportunity?

For the last couple months I have spent some time learning about the solar power opportunities here in California. The market is being fed by two financial engines - (1) The California Solar Initiative (CSI) which is a subsidy program from the state of California and (2) the Federal tax credit (30% for commercial installations) which is scheduled to expire at year end 2008, but many are working to extend this in Congress.

There are currently a number of companies that are taking advantage of these programs by offering the consumer what amounts to a fully financed installation by using a power purchase agreement (PPA). The customer pays the vendor (instead of or in addition to to the local utility) and gets a solar power array in return.

The interesting dynamic here is that installation and materials costs are widely expected to fall, in a fashion similar to the semiconductor industry. With tech companies like Google jumping into the fray with funding and the stated intention of driving the cost of solar below that of coal, there is almost an incentive for many consumers to wait and see rather than jump in with a commitment to a PPA that could last many years. Maybe a new type of PPA will have to be crafted that takes into account the falling costs (of course, once the array is installed it is a fixed sunk cost, but what if pricing and installation costs fall so quickly and sharply that it is worth removing and replacing the array? What about "upgradeable" arrays? Will companies that can offer this type of technology or agreement have a competitive advantage?).

I also wonder if there is an analogy to the PC industry of a few years ago, when prices were falling rapidly and power was increasing rapidly. There the hardware makers had the friendly software makers who were able to give consumers a reason to upgrade to faster machines to run more complex software. Is there an analogy in the PV industry? Rising power costs could be one motivator, I suppose.

Friday, November 02, 2007

Private Equity for Real Estate

For the last year or so I have been working in the world of raising money for investment funds focused on real estate. Primarily we are building a database and calling on university endowments, state and other public pension funds as well as private pension funds (like corporate pension plans). The fund managers that we are raising capital for are all first time managers.

The process is an interesting one. There are literally billions of dollars in investment capital available but the pension fund reps are so overwhelmed with inquiries seeking capital that it is very tough to break in a new manager.

The system seems very "broken" when you start to learn about it. There are undoubtedly many, many new managers that could produce excellent returns for these pension funds (and given the increasing demands for returns by the funds, they need high returns), but because of the information asymmetry problem (no time to vet new managers or manage the risk inherent in a new manager), few new managers are given a chance.

Shouldn't there be some kind of "farm system" for new managers? Something where an investment club of save 5-10 similarly situated endowments or funds like Harvard, Yale, MIT, UC or Calstrs, Calprs, NYSTRS could invest relatively small amounts (say $5M each) and fund a new manager or group of managers? Then as the manager are vetted they can "graduate" to the next level where they have their own fund with larger amounts from each investor? And the investors, for their hard work and risk get the opportunity (and right) to invest in future funds?

Seems like technology could also enable this. By having a simple web based management/governance system that goes from gathering initial submissions to monitoring investment performance, you could somewhat automate the process of managing this small program and make it functional for the large funds to try this.

There are a couple firms with allocations from Calstrs doing this now - but they are really creating their own fund in cooperation with the emerging manager and taking a piece of the promote -which is not as attractive for the manager, obviously.

Tuesday, August 07, 2007

Community Reinvestment Act (CRA)

Most financial institutions that makes loans to consumers are required to meet a set of federal laws collectively known as the Community Reinvestment Act (CRA).

"The CRA was enacted in 1977 to prevent redlining and to encourage banks and thrifts to help meet the credit needs of all segments of their communities, including low- and moderate-income neighborhoods." (from the Office of the Comptroller of the Currency - one of the chief enforcement bodies of the CRA)

Most financial institutions satisfy their CRA requirements in two ways: (1) lending to lower income customers or in lower income communities and (2) buying tax credits wherein the proceeds of the tax credit sale go to fund affordable housing.

A few (mostly larger) institutions will directly invest in affordable housing and other initiatives that support low and moderate income communities (venture capital targeted at businesses in low income communities is one example).

The interesting disconnect in this market comes from the fact that most of the tax credit deals only go to larger institutions because it is just easier to sell the deals (and more deals) to these larger customers. Often the smaller financial institutions get shut out and have a lack of CRA qualifying deals to pick from.

The other interesting issue is that the institutions have to meet geographic requirements (invest/lend in their service areas). There can often be an asymmetrical information problem because the institution is not made aware of all the deals in their service area and the entity raising capital doesn't know of all the potential investors/financial institutions who can "get credit" for investing in their deals.

To date, there is no central clearing house for this information, nor is there anyway for smaller institutions to band together to go after the "bigger" opportunities, or to directly invest in affordable housing and earn CRA credit (without making a direct loan on a property, which they may consider too risky).

Friday, June 08, 2007

It's been a long time

Decided to start blogging again. Sold my interest in BetterPPC to my co-founder in October 0f 2006. It was a hard decision for me, but it was the right decision and I think Ben will be very successful with BetterPPC (and he has been doing well since the sale). I wish Ben and the BetterPPC team all the best.

Why did I sell my interest? I guess it all comes down to choices and stages of life. I didn't have the passion for running a very small startup with limited resources anymore. I guess to be honest I was "burned out". 2+ years of my life went into BetterPPC and I didn't feel like I had the passion that it would take to push it to the next level. My co-founder did and wanted to do it on his own steam, so the deal made sense and provided me with some reward for all the hard work I had put in.

Since then I have been working in real estate finance, mostly because of an opportunity to work with a great team that just happened to come up. I had met the founder and president of the company several years previously and when he found out I was free, he asked me if I would like to give his industry a try. It made sense to me because for a change I would be responsible only for myself and making deals happen, rather than making all the decisions and having all the responsibility inherenet in running a company. So far the experience has been great, I have a background in real estate (I was a commercial broker at the beginning of my career, I developed an industrial park in 1998 before moving into technology and I practiced real estate law as a lawyer), and I have been learning a lot.

We work in the areas of structured/secured financing and equity fundraising for institutional investment funds. It has been a kick to work with some of these managers and in some ways the process is very similar to raising VC money for a startup company. You have to have a great idea in a great market, a great team and convince investors that you can execute.

I wouldn't be true to my own business theory (and title of this blog) if I didnt' also say that there may be opportunities to disrupt many of the current process in this "tradition rich" industry. Hopefully more on that in more frequent postings in the next year.

I still have a passion for technology as well, keeping up with the online ad world, video, social networking, widgets, etc. and can't help myself from looking for opportunities there as well.

Finally, I have become completely engrossed by the sport of kite surfing and have gone from a complete beginner to being able to have fun in some pretty heavy conditions. Down right now with a knee injury but that is also a sign to work harder until I heal!

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