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Silicon Valley Firms Investing in Solar Potential

The region's venture capitalists, chip makers and entrepreneurs bet on sun power, which also relies on silicon.

October 17, 2006|Terence Chea | The Associated Press

SAN JOSE — As demand for clean energy rises around the world, the nation's high-tech hub is looking to squeeze more money out of silicon.

Engineers and entrepreneurs in Silicon Valley are taking advantage of their expertise in computer chips to design and manufacture electricity-generating solar cells that they hope will be increasingly competitive with traditional energy sources such as coal and natural gas. Most solar cells and chips are made from the same raw material from which the valley gets its name.

"We're in the very early stages of a long build-out in solar technology," said Erik Straser, who heads the "clean tech" practice at Menlo Park venture capital firm Mohr Davidow Ventures. "The potential is really enormous."

Despite technological advances since the photovoltaic cell was invented 50 years ago, solar is still two to three times more expensive than fossil fuel in the U.S. and relies on government subsidies to compete.

But improving technology, falling costs, rising prices for fossil fuel, concerns about the electric grid's stability and worries about global warming are all raising interest in solar energy. The industry is expected to grow from $11 billion in 2005 to $51 billion in 2015, according to a projection by Clean Edge Inc., a market research firm focused on clean technology.

And that's why Silicon Valley is getting involved.

This month, Applied Materials Inc., a Santa Clara company that manufactures chip-making equipment, announced plans to sell tools for producing solar cells. The company projects the market for such gear will triple to $3 billion over the next four years.

The company's equipment can be retooled for silicon solar wafers, while another of its technologies -- for making flat-panel displays -- can be applied to "thin film" solar cells sprayed onto glass and other flat surfaces.

"By lowering the cost and increasing the volumes, we think that solar power will become much more affordable in more places in the world," Chief Technology Officer Mark Pinto said.

Cypress Semiconductor Corp. of San Jose was one of the first Silicon Valley chip makers to cross over into the solar sector.

Four years ago, Cypress founder T.J. Rodgers persuaded his board to buy a majority stake in solar cell maker SunPower Corp., founded by his former Stanford University classmate Richard Swanson. Rodgers contended that Cypress' manufacturing technology could be used to reduce costs and expand production of SunPower's cells.

Cypress' investment is paying off. SunPower raised $146 million when it went public last year. Revenue has soared to a projected $230 million this year from about $10 million in 2004, SunPower CEO Tom Werner said.

"The semiconductor and solar industries are very similar," Werner said. "It's just that the solar industry hasn't gotten to the same scale as the semiconductor industry."

Solar's expansion in Silicon Valley won't necessarily create many manufacturing jobs in the region. Production primarily takes place in low-cost countries, mostly in Asia.

Only about 100 of SunPower's 1,300 employees work at its San Jose headquarters; the rest work at a new manufacturing plant in the Philippines.

Silicon Valley venture capitalists are also taking an interest in solar, part of their growing interest in companies that develop environmentally friendly technologies.

About $1.4 billion in venture capital was invested in clean tech ventures during the first six months of this year, and $1.6 billion was invested last year, according to the Cleantech Venture Network.

About one-third of that money was invested in Silicon Valley, said Carl Guardino, who heads the Silicon Valley Leadership Group.

"We all realize that green is gold," Guardino said. "Venture capitalists are betting with their wallets that clean tech will play a significant role in Silicon Valley."

So many valley companies, venture capitalists and entrepreneurs are rushing into the burgeoning solar industry that it's inviting comparisons to the early expansion of the microchip industry more than two decades ago.

"If there's anywhere in the world that can push the envelope on solar, it might very well be Silicon Valley," said Clean Edge co-founder Ron Pernick.

But the valley's rush to solar isn't without risk. The solar industry must first bring down costs significantly to persuade homeowners and businesses to install solar systems.

The industry also faces a worldwide shortage of polysilicon created by the rapid expansion of solar. This year, for the first time, the solar industry is expected to consume more silicon than the computer chip industry.

Some valley solar start-ups are moving beyond silicon. Miasole of Santa Clara and Nanosolar Inc. of Palo Alto are developing thin-film solar cells made from alternative materials including copper and selenium. Nanosolar has raised $100 million in venture funding and plans to build what it says will be the world's largest solar-cell factory.

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