Author Archives: The Analyst Team at Lux Research

Views from the Summit

Lux Research CEO, Dennis Philbin, welcomes guests to the sixth annual Lux Executive Summit, Innovation Without Borders: Industry, Technology, Geography. Over 300 leading innovators and investors attended the event held in Boston from May 1-3 this year.

Lux Research CEO, Dennis Philbin, welcomes guests to the sixth annual Lux Executive Summit, Innovation Without Borders: Industry, Technology, Geography. Over 300 leading innovators and investors attended the event held in Boston from May 1-3 this year.

Innovators and investors gathered this month at the sixth annual Lux Executive Summit to take measure of the opportunities and challenges emerging in the wake of a devastating global recession. Among the prospects they discussed were the rising technologies driving developments in energy, the environment, advanced materials, and human health – technologies that will require not millions of investment dollars to advance, but billions. The potential opportunities not only signify better profits, but the possibility of catapulting beyond one-time rivals. Such success, however, will require more than interdisciplinary collaboration. It will demand international coordination.

This week, Lux Populi highlights some of the insights and observations tracked by Lux Research analysts from select Intelligence Services – beginning with our newest, the Lux Research China Innovation service.

China Innovation: China’s two markets
China’s influence and opportunities were a prevalent theme at the Summit, and figured prominently in a keynote presentation from Jack Perkowski, the founder of JFP Holdings, and past CEO and founder of ASIMCO, a major Chinese automotive components manufacturer. Perkowski highlighted the importance of an empowered China-based management team, as well as an understanding of local perspectives around cost as critical aspects for success. Of particular interest were Perkowski’s comments around product (and hence technology) disparity needed to serve China’s two distinct market segments: namely the high-end and low-end consumers.

Foreign companies typically target the high-end, focusing on high-performance and quality. This domain, however, faces intense competition from domestic companies whose technologies are becoming increasingly comparable but offer a cost advantage. Fuelling the adversity is the implementation of policies and regulations by Chinese authorities to ensure the competitiveness of local providers. So, expect an incessant market demand for superior products and services in China. In 2010, China’s gross domestic product (GDP) grew an average annual rate of 11.2%, and the per capita disposable income of urban residents and net income of rural residents rose by 9.7% and 8.6% respectively. With increasing affluence, rising incomes, and government efforts to propel technology momentum, China may potentially outshine Japan as the world’s largest consumer of high-end goods by 2015. However, we note that this does not necessarily translate into a massive shrinkage of the low-end market, which still strives on a free industrial approach.

While clients selling products into China are no doubt aware of the increasing pressure and competition in the high-end market, many struggle to develop strategies, let alone products, to profitably access the lower end consumer. Clients must use the teams present in emerging geographies such as China to identify opportunities and develop products that fit the local market. These teams will no doubt have the highest probability of developing offerings that meet the local need, but they will also open up reverse innovation opportunities already realized by the likes of GE and Caterpillar.

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Summit panelists and attendees shed light on key themes in solar
The sun never sets on emerging technology markets, and Lux Research’s Solar analysts covered a lot of ground at the annual Summit. Among the highlights: Senior Analyst Ted Sullivan gave a presentation entitled, “Taking Away the Punchbowl: Forecasting the Solar Industry in an Era of Declining Subsidies,” which focused on the radical demand shift away from core markets like Germany and Italy and towards emerging markets elsewhere. Whereas Germany and Italy accounted for roughly 2/3 of the market last year, Lux Research expects 1/3 of the market demand for 2015 to come from new countries not yet on the solar map. India, South Africa, and even Brazil are leading contenders to become large solar markets as they introduce subsidies amidst a continuing fall in module prices.

Meanwhile, during networking sessions, Analyst Pallavi Madakasira noted a very active debate whether corporate venture capital (VC) would work better than private VC for emerging technology providers in the PV space. As PV industry consolidations increase, many attendees seemed to favor corporate VC’s ability to support and position a company over the long term. The topic was addressed more directly by the panel “Crossfire: Can Corporate VC and Private VC Get Along?“, which consisted of VCs on both sides. In general, Lux Research believes that corporate VC could work better for later-stage start-ups that are in the process of ramping up their production capacity, because:

  • Later-stage start-ups are better positioned, with an established pilot production process, “de-risking” the investment for corporate types
  • They have typically scoped out their targeted end market, and can clearly map to an existing business unit at a corporate investor
  • Corporations bring significant expertise in scaling manufacturing facilities (Consider, Intel’s recent consulting engagement with Miasolé, for example), and
  • Most importantly, corporations often possess the balance sheet and access to finance required to scale manufacturing facilities costing into the billions of dollars

Views from the Summit

Amidst an uncertain economic climate, top corporate executives, entrepreneurs, investors, and academic luminaries traveled to Boston last month to share the ideas, insights and innovations that helped establish them as today’s business and technology leaders.

The event was the fifth annual Lux Executive Summit, where leading innovators – from IBM to Mitsui to DSM – meet, discuss and learn about the technologies that will drive growth and profits for years to come. This week, Lux Populi highlights some of the insights and observations from the Lux Executive Summit by analysts from each of Lux Research’s Intelligence services.

Biosciences: Pulp/paper producers protest penetration into biofuels
Amidst a lively debate about ethanol’s potential to displace petroleum in the U.S., Samhitha Udupa pointed out to Robert Gelman, a researcher at Ashland, that several of the technology developers that Lux has briefed were struggling with pretreatment processes to breakdown and separate components of lignocellulosic biomass (comprising lignin, hemicellulose, and cellulose). Pretreatment is widely recognized as the most expensive step in cellulosic fermentation, and enzyme giants like Novozymes spent many years designing cheaper enzymes. Interestingly, Gelman vehemently asserted that firms, like Ashland, with experience in pulp and paper have long been experts at separating components of wood, an abundant lignocellulosic feedstock.

So why aren’t more pulp and paper players stepping up to take advantage of a huge unmet need in a soon-to-be high-volume industry?

According to Robert, he had the same thought years ago, and pursued the idea with “many” (emphatically) of his higher-ups, but was met with great skepticism. He asserted that pulp and paper producers are “dinosaurs more interested in reliving ‘Blazing Saddles’ than in exploring adjacent applications for their valuable technologies.” While the cellulosic ethanol industry continues reinventing the wheel – or parts of the wheel – in an effort to bring down costs, pulp and paper producers continue to… produce paper and pulp.

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Green Buildings: Dow says many buildings are actually getting less efficient
Mike Kontranowski, Strategic Marketing Manager of Dow Building Solution’ Thermax brand of rigid insulating board, presented a sobering analysis of the direction of building efficiency during the Summit. Although buildings of all types have become more energy efficient on a per square foot basis for the past 50 years, many buildings constructed over the past decade have bucked the trend and have begun regressing on energy efficiency. This reversal comes despite newfound interest in “green building” among governments, occupants, and the building owners themselves, and despite the plethora of insulation, window, equipment, and other devices that yield far greater efficiencies. More surprisingly, many of the buildings are LEED (Leadership in Energy & Environmental Design) certified, because energy efficiency is only one of many metrics that accrue points needed for certification.

The proximate cause of the backslide in efficiency is a switch to less expensive aluminum wall studs in place of wood or block in recent years. Because aluminum is such a good conductor of heat, walls that are otherwise well-insulated – with insulation batts installed between the studs – see an overall insulating R-value of the wall drop in half, from 11 or more to 5. Thermal images of walls are particularly poignant, showing relatively small amounts of heat escaping from between the studs, while the studs themselves were lit up like Christmas trees.

Fortunately solutions exist even for this problem, including new insulating sheathing technologies from Dow and Owens Corning that cover the exterior of the studs. In addition, aerogel companies, such as Aspen Aerogels and American Aerogel, are developing insulating tapes designed specifically to envelop the studs themselves and lend substantial insulating value. Although, adoption of these technologies isn’t likely to surge in the near term, expect renewed regulatory efforts and impending financial programs like the PACE bonds may accelerate their roll-out further on (see the May 3, 2010 LRGJ – client registration required), and may reverse the unfortunate regression in thermal insulation in modern structures. 

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Nanomaterials: Best practices for building a business around nanotechnology
During a panel discussion at the Summit, CTO Seth Coe-Sullivan of QD Vision, President Donald Cho of Finetex EnE, and President Adrian Burden of Bilcare Technologies discussed best practices for building a business around nanotechnology. Common tips included:

  • Secure funding early
  • Protect intellectual property
  • Integrate environmental, health, and safety (EHS) plans with business strategy
  • Develop a strong team top-to-bottom
  • Developing nanointermediates instead of just nanomaterials, and
  • Focus on a small number of target markets

While the trio hit most of the best practices that we’ve touted before, one of the most critical steps for a start-up is forming partnerships early with large corporations (see “Open Innovation and Its Discontents: Solving the Emerging Technology Funding Problem”). With these tips in mind, clients should check each box when engaging start-ups and benchmark the potentials against strong players like QD Vision, Bilcare, and Finetex.

With regard to Finetex, its VP Donald Cho told Lux analyst Jurron Bradley that it supplies nanofiber filters to GE for its turbines to filter the incoming air. While gas turbines may not represent a large opportunity for filter companies, the partnership is a strong vote of confidence for the product and pushes Finetex further in front of its competition. Finetex’s revenues from nanofiber sales are still a modest $1.5 million, but it sports an extensive partner and customer list, which speaks well for its future. Clients looking for a nanofiber supplier, especially for textile and filtration applications, should engage Finetex, but those considering running their own production lines should look to Elmarco for equipment.

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Power: Toyota, Compact Power, and BYD offer contrasting views on the future of Li-ion
Three panel speakers in energy storage provided three very different visions for the future of lithium-ion (Li-ion) batteries and electric vehicles. The panel included Bill Reinert, National Manager for Toyota Motor Sales’ Advanced Technology Group, Prabhakar Patil, CEO of Compact Power (a subsidiary of LG Chem, and battery supplier for the Chevy Volt), and Micheal Austin, VP of BYD America.

Reinert, the most conservative of the three, lamented that at today’s Li-ion battery prices, even a plug-in hybrid vehicle (PHEV) with as little as a 10-mile all-electric range (AER) is still too expensive. While Patil agreed that Li-ion batteries were very expensive today, he felt that costs would drop by a factor of two to four in the next five years to 10 years. Austin, by far the most bullish of the three, claimed that BYD is already producing Li-ion batteries at $500/kWh, as well as the electric vehicles (both all-electric vehicles – EVs – and PHEVs) and grid-storage systems that use them. 

Our view aligns most with that of Toyota’s Reinert. Our cost estimates for automotive Li-ion packs to the automaker range between $633/kWh and $686/kWh on the pack level, which is too expensive for any PHEV to compete with a NiMH-powered standard hybrid without serious subsidies (see the Lux Research report “Looking Inside Li-ion Batteries for Cost Reduction“). While we agree with the low end of Patil’s estimates – namely the claim that large-format Li-ion prices will drop by a factor of two over the next decade – we don’t see them dropping by a factor of four in the foreseeable future, due to high materials costs.

However, BYD may have found a solution to the problem of high costs. Austin told us that the keys to BYD’s ultra-low battery prices are 1) BYD’s iron-phosphate cells contain less lithium – an expensive cell material – than other lithium iron phosphate (LFP) cells made by the likes of A123 Systems or K2 Energy and 2) BYD’s pack is a hybrid of energy- and power-cell chemistries, allowing for rapid charging (50% SOC in 10 minutes) while reducing the total cost of the system. Moreover, in June 2010, the Chinese government announced a trial plan in five cities that will pay subsidies of up to 60,000 yuan (roughly $8,800) per electric vehicle directly to the automakers. This allows consumers to buy BYD F3DM PHEVs (with a 24 kWh pack) at roughly $10,000 per vehicle, while BYD’s E6 EV (with a 65 kWh pack) is now priced for U.S. sales at $35,000 – the Chinese consumer price is yet to be set.  With these new lowered prices, BYD expects the sales of these vehicles to be very strong.

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Solar: Summit panelists dish on solar industry outlook
Conference invitees attending the Summit’s solar track caught perspective from the industry’s leading lights at two separate panel discussions. First up was the “Top Dogs” panel, wherein Satcon CEO Steve Rhoads and Enphase Energy Founder Raghu Belur discussed the relative merits of centralized inverters versus panel-level microinverters. In addition, Yingli Solar Managing Director Rob Petrina discussed Yingli’s market entry strategy for the U.S.

Overall, all three were incredibly positive about the prospects for the U.S. market in 2010 and 2011 as it begins to soak up demand from Germany. Further, Rhoads and Petrina stressed that the Chinese market is not to be overlooked, especially given the quick pace at which plants can be installed. For example, Satcon cited a total development, engineering and construction time of only a few months for its 38 MW of projects with GCL in China, compared to the 12 to 36 months more typical of U.S. installations   

Later that day, Craig Cornelius, Managing Director at Hudson Clean Energy Partners, moderated a panel of “Solar’s Emerging Leaders.” The panel included Dave Pearce, CEO of CIGS start-up NuvoSun; Kurt Barth, founder of CdTe up-and-comer Abound Solar; and Cynthia Christensen, Director of Marketing for Stirling Energy Systems (SES), a developer of a unique variation on solar thermal. The three discussed some of the challenges of overcoming the “bankability” and “warrantability” concerns for new technologies. They suggested the use of third-party insurers and funding initial installations off the company’s own balance sheet were generally accepted best practices in the market downturn. Indeed, SES noted how it spun off a separate project development subsidiary, funded by the same investors, to allow it to focus on technology developments. Clients should watch Abound and SES carefully for their first installations this year, while NuvoSun’s progress with its partner Dow Chemical will determine that company’s future success.

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Water: Top dogs and rising stars discuss opportunities and challenges in the hydrocosm
Two separate panel discussions at the Summit generated insightful commentary on topics ranging from regulation in the hydrocosm, the need for innovation in the field, new market growth opportunities, and the impact of the current low cost of water.

The first panel provided perspective from “top dogs” representing every part of the membrane water treatment system, beginning with David Moll from Dow Water & Process Solutions (the membrane), Bill Musiak from Norit X-Flow North America (the modules), and Jeff Fulgham from GE Water Process & Technologies (system development and other facets).

The panel discussed markets for residential treatment systems, food and beverage processing, wastewater, and two areas of particular excitement: the produced water market and wastewater reuse, all of which we agree are significant growth areas.

We were glad to see the panel unanimously confirm the importance of the wastewater treatment market, which we recently covered in Technologies Turn Waste into Profit (client registration required). The panel also shared our interest in ultrafiltration membranes and the produced water market. Lux Research discussed membranes in a recent report Filtering Out Growth Prospects in the $1.5 Billion Membrane Market (client registration required), and will discuss specifics of the produced water market in an upcoming Water State of the Market Report (SMR) later this year.

The Summit also brought together “rising stars” in the water market, namely Amir Peleg from TakaDu Ltd, Emily Landsburg from Blackgold Biofuels, G.G. Pique from Energy Recovery Inc. (ERI), and Marc Bracken from Echologics Engineering Inc.

The current low cost of water was of particular focus for panelists who discussed how to grow a business given this fundamental truth in the water market. The low cost of water effectively reduces the drive for innovation and new products, since customers are not motivated to alter current water treatments and use patterns.

G.G. and Amir both noted that there is a need for national water policy to push the agenda of innovation, among other benefits. Marc from Echologics noted that repairing the aging water infrastructure is often a pain point for customers because, irrespective of the cost of water, it must still be transported efficiently. Emily noted that Blackgold Biofuels’ business actually helps water utilities stretch their revenue by providing a cash stream from the waste buildup in the pipe infrastructure. In addition to the cost/revenue discussion, the panelists emphasized the need to collaborate, and for solutions that form a “treatment train” instead of claiming to be silver bullet.