Quick Memo: Edisun Microgrids

Edisun Microgrids is an interesting investment opportunity I came across via SeedInvest that is right in my wheelhouse of solar energy and energy storage. (Full disclosure: I work in solar energy and energy storage at Tesla). Edisun offers sun-tracking and energy storage technology, which promises to make solar energy cost-effective and available on-demand. Edisun claims that its technology enables solar panels to continuously face the sun, thereby increasing energy production by 30% and improving the economics of solar by 20%.

With increasing population and standards of living around the world (which implies more energy consumption per capita), global energy consumption is expected to rise 60% from 17 terawatts in 2010 to 28 terawatts in 2050. Concerns about global warming and dependence on fossil fuels will drive clean and renewable energies such as solar to contribute a large portion of this new energy production in the coming years.

Team

The CEO and Founder of Edisun Microgrids is Bill Gross. A prolific investor and co-founder of Idealab, Gross has started more than 150 companies, 45 of which had successful IPOs and acquisitions, including NetZero, PetSmart.com, CitySearch and Picasa. A key team member of the caliber of Gross is a great sign for an investor. His track record gives me confidence that he will be able to bring a successful product to market and eventually steer the company towards some type of exit that will benefit the investors.

Product

Edisun’s product line consists of the PV Booster, the sun-tracking technology, and Baseload Solar, a low-cost small scale concentrated solar plant. The PV Booster claims to only increase costs by 10% while increasing revenue by 30%, therefore improving the economics of a solar installation by 20%. The Baseload Solar product claims to provide a LCOE (levelized cost of electricity, the standard method of making an apples-to-apples comparison between different energy technologies that have different cost structures) of only $60, compared to the LCOE of $63 of a gas combined cycle plant and — most significantly — the LCOE of $152 of thermal CSP (concentrated solar power).

The PV Booster is shown on the left of the image above. The application focuses on C&I (Commercial and Industrial) customers who would have an installation of solar photovoltaics (the same technology as residential rooftop solar). On the right, a type of concentrated solar power (CSP) is shown in which mirrors on the ground reflect solar power back onto a central point on a tower, similar to concentrating the sun with a magnifying glass onto your driveway. The heat is so intense that it heats a fluid to the temperatures capable of powering a steam turbine to generate electricity. These power plants typically store energy in a substance called “molten salt” that can hold heat for extended periods of time. This allows CSP to provide steady power when there is less solar radiation, for example when a cloud momentarily blocks the sun, or even at night when there is no sun at all. Edisun claims to achieve the enormous cost benefits in CSP by utilizing different technologies for different aspects of the CSP plant:

  • Tracking system similar to the PV Booster product
  • Control systems that use software vs. heavy steel and precise machinery
  • Lower cost heat storage system using rocks instead of molten salt
  • Exclusively licensed heat engine rather than a steam turbine to convert heat to electricity

Risks

Politics and regulation can be a risk to any solar company, as many solar projects still depend on government subsidies to be cost-effective. There is also the risk of conventional energy becoming cheaper, or other energy technologies having a breakthrough that would make solar obsolete (wind, clean coal, biomass, or even nuclear fusion). The most accepted reality is that all technologies will have a role in our energy future so I believe the fture for solar is bright. Even if the United States rolls back its support for solar power, there will still be enough of a business case for it to thrive domestically if conventional energy prices increase and/or costs of solar decrease, and there is also an enormous global market. Regarding the Baseload Solar product, the company claims to be able to reduce the cost of a typical CSP installation by over 50%. CSP is a promising technology, but its growth has disappointed due to the inability to lower costs to a competitive level thus far. I am a bit skeptical about this cost reduction claim, but even if they get halfway there it would be a significant breakthrough.

Decision

I have been eager for a strong play in the solar energy space and Edisun seems to fit the bill. I previously thought another company, Geostellar, might have been what I was looking for. After taking a closer look I could not justify an investment and wrote a pretty critical deal memo of the company. If Edisun can deliver on its promise to improve economics of solar installations by 20% with its PV Booster, it will unlock a ton of opportunities for projects where the business case was marginal, but not quite enough to go forward with a solar installation. In C&I this is especially critical when a business case analysis will often determine whether an investment in solar can proceed. This 20% benefit could also help offset the setback the solar industry might face if the federal solar Investment Tax Credit (ITC) of 30% eventually expires.

The company is raising at a pre-money valuation of $20 million in a Series C round. While I wish I could have gotten in at a lower valuation, I am still going to go ahead with this investment opportunity. I believe that this company has the team and two promising products that could make a real impact in the energy space.

If you liked this article please follow me: Adam Wasserzug follow Deal Memo and definitely follow Anthony Maiorana.

Thank you for reading!