The German-Indian-Silicon Valley solar power solution

A Palo Alto startup merges local venture capital, German knowhow, and Indian manufacturing. And waits for the magic of "grid parity"

Published June 28, 2007 8:03PM (EDT)

Call it a classic Silicon Valley globalization play. Signet Solar, a renewable energy startup headquartered in Palo Alto, Calif., has already broken ground on a R&D facility in Dresden, Germany, and announced this month that it would it would build three manufacturing plants in India. By combining its own proprietary intellectual property with "thin solar" manufacturing equipment from Silicon Valley's semiconductor tools giant, Applied Materials Inc., Signet hopes to grab market share by selling lower-cost photovoltaic panels for large industrial applications. (Thanks to The Indic View for the tip.)

The venture capitalists behind Signet are betting that the promised land of "grid parity" lies just beyond that next ridge. Grid parity refers to that moment when the cost of electricity generated by solar power matches the cost of electricity from conventional sources. Right now, with government subsidies (and without internalizing the environmental costs of burning fossil fuels), electricity generated by solar power is at least twice as expensive as coal or natural gas. But manufacturing costs have been falling for decades, and some industry analysts are cautiously predicting that within five or ten years, grid parity will arrive. At which point a market that has been growing like gangbusters for a decade will go absolutely bonkers.

Whether or not Signet will be one of the winners in a marketplace that welcomes formidable new entrants seemingly every day is anybody's guess. But that's not why Signet's basic business plan caught my eye. Take another look -- the R&D facilities are in Germany.

Who offshores to Germany? India may be better known for its software expertise, but setting up manufacturing plants there still makes sense -- labor and land are cheaper, Signet's management team is dominated by executives with Indian backgrounds, and the market for solar power in the near future is likely to be huge.

But Germany is not well known as a cheap outsourcing solution. So what's going on?

The answer is that Germany is a hotbed of solar power technology. The decision to locate Signet Solar's R&D facility in Dresden is in large part because Applied Materials already has a plant nearby. Applied Material's thin solar manufacturing process is based on German technology that the company purchased in 2006.

Germany turns out to be a world leader in both solar and wind power technology, and there's a simple reason why: Government incentives and subsidies.

The support has come in many forms, from direct funding of research and development to friendly tax breaks. But probably the most important strategy employed by the government was the requirement that power utilities buy renewable energy at a fixed price that made investing in new technologies automatically profitable.

Just as in the United States and elsewhere the fossil fuel energy industry has pushed back in force, and the tos and fros of politics manifest themselves in policy swings. The "Red-Green" coalition that governed Germany from 1998-2005 was far more aggressive in supporting renewable energy than the current government headed by Angela Merkel. But the bottom line is this: Germany started earlier and was more consistent in its support of renewable energy development than just about any other country in the world -- with the possible exception of Japan. It is now reaping multiple benefits: less dependence on fossil fuels, reductions in greenhouse gas emissions, and an increase in quality jobs. Around 130,000 new jobs have been created in the renewable energy sector overall, with some 30,000 of those concentrated in solar. And that is far from a static number -- job growth has accelerated dramatically in the last three years.

Signet Solar's business plan demonstrates that Germany's strategy has already begun to attract foreign investment. But just imagine that grid parity finally does arrive, and the mighty global energy industry turns its full attention to solar. The sun will be shining brightly in northern Europe.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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