I ran into one of my EE classmates at Princeton University reunions (supposedly the largest single order for Budweiser in the country, ahead of the Indy 500). He works in Germany for a power electronics company and is the only other EE classmate of mine who ended up working in a power-related field. We chatted again last night via Skype. He provided so many insights that I decided our conversation was worth a blog post. My thanks go out to him for being willing to share his thoughts.
Topics (pick à la carte):
- Power semiconductors, the workhorse of all renewable energy systems,
- Explosive product demand and large capital investments,
- Germany’s electric vehicles charging network,
- The silicon carbide market,
- Renewable energy jobs in the U.S., Germany, and globally,
- U.S. vs. German corporate culture.
My college friend asked me to keep his name private. Everything he shared with me is public information, so don’t expect to get any insider info here…just some insight (hopefully).
The Intel of Renewable Energy
If PCs have the “Intel Inside” sticker, most renewable energy systems should have an “Semikron Inside” or “Fuji Electric Inside” sticker. These companies and their peers make the power semiconductor chips like MOSFET and IGBT switches that route the power for renewable energy systems. Have a wind turbine? Their chips are used to turn the wild AC power into the grid’s regulated power. Have a PV array on your roof? Those same chips turn DC into grid AC power. Dreaming about buying a Tesla or Nissan Leaf? You’ll also be buying the power semiconductor chips located between the car’s batteries and its motor.
Unlike Intel, these companies are more vertically integrated. They make the “bricks” that are used to package and cool the power chips. They also make the driver boards to safely turn the chips on and off. Many even build full switching assemblies, including heatsinks and capacitors, which would be analogous to Intel building its own PCs at the same time as supplying its chips to Dell.
Huge Demand, Huge Capital Investments
At the beginning of 2011, my Semikron sales rep was quoting me 6 to 10-month lead times for standard components in early 2011, due to a Chinese wind turbine manufacturer buying up all their production capacity. My classmate said that his company was making huge capital investments to bring more power semiconductor manufacturing online. One typical plan in the industry this year was to invest about 20% of revenues…pretty much all of their profits! My friend mentioned that some companies are not only investing their own capital to finance expansion but have also successfully asked customers to finance this expansion.
Customer-Financed Growth: My friend cited one example with Infineon’s “Capacity Insurance Program.” Customers are so desperate to get parts pay up-front in order to get guaranteed capacity, which won’t be available for another 1 to 2 years! This helps to 1) get additional cashflow for capital investments and 2) locks in customer demand. Not only is this a sign of strong market demand for products, but also demonstrates the critical role that power electronics play in enabling renewable energy technologies.
Jobs: Keep in mind that much of the job growth from these capital investments are in Germany. Believe President Obama when he says that the U.S. needs to play catch-up if we want the clean tech jobs of the future to be here in the U.S. Germany’s progressiveness is paying off with a 6% unemployment rate as compared to an 8.7% unemployment in the U.S.
Growing Too Fast? Since all power semiconductor companies are investing hugely in expanding capacity, it’ll be interesting to see what happens to prices in the next two years. The PV module industry went through a similar capital investment explosion about 3-4 years ago, as many new entrants (especially from China) drove the competition that spurred a 35% drop in prices. Ouch.
Image credit: Solarbuzz
However, my classmate that higher barriers to entry in the power semiconductor business will prevent a market glut. Unlike PV modules, for which the fabrication equipment is readily available and production techniques widely known, the power semiconductor industry better protects its technology. Today’s market leaders have invested for decades in R&D to build deep know-how. Their vertical integration reduces the risk that their special “recipes” leak out. In addition, the industrial customers who use these devices set very demanding requirements. For example, Siemens Wind Power needs to be able to trust the high performance and reliability of the parts it buys. Since there are so few potential suppliers, it also requires that its suppliers will be able to consistently deliver the $1000 components needed for its $1 million wind turbines. It would take years for any new entrant to develop the levels of trust needed to establish themselves in the business, just like it would take decades — if ever — for anyone new to compete with Intel.
I was surprised with my classmates’ answer to my question about electric vehicle (EV) charging stations. Apparently, utilities in Germany are already rapidly building out a large network of EV charging stations. The utilities are the ones who invest in EV charging stations because there is high PR value in Germany with appearing green and progressive. That’s a far cry from the attitude in the U.S., where utility customers revolt when their utility wants to install smart meters…for free.
Image credit: Photographer unknown. Found here.
He commented that if you own an EV, you could probably could drive around most of Germany almost worry-free because all of the major utilities already have or are building out charging stations Here are links to German-language sites from E.ON, RWE and Vattenfall. (Open them in Google Chrome to get translations.) Tesla points out in this interesting article that only five charging stations (strategically placed, of course) are needed to drive across England.
The tradeoff is, of course, that Germans pay $0.30/kWhr, which is 3x what we pay here in America, in order to be able to afford new clean tech infrastructure like this (though since gasoline also costs ~$9 per gallon, E-mobility still remains economically competitive). Clean tech doesn’t come cheap (yet).
Silicon carbide (SiC) is one of the most promising “game changing” technologies in the renewable energy industry. I mentioned to my classmate, however, my theory that SiC is peering into a deep technology “Valley of Death.” More to come about this in a future post. If you’re not familiar with the Valley of Death concept, here is some background.
He didn’t seem convinced about my theory, but we both did agree about the two sweet spots for SiC:
- Replacing MOSFETs in residential-scale solar inverters and computer and server power supplies.
- High voltage switches for “smart grid” utility-scale power converters.
I found a chart on Infineon’s website that displays #1 quite well graphically.
He mentioned that many big power semiconductor companies (like ST, Toshiba, Infineon, Panasonic, and Cree) are all developing their silicon carbide technology in-house. I’m aware of a slew of small and mid-sized companies that were founded specifically to focus on SiC technology. It’ll be interesting to see which survive, especially given how many big players are also pursuing this market.
Renewable Energy Jobs
I gave my classmate my list of the top cities and regions for renewable energy jobs in the U.S.:
- Silicon Valley, California
- Boston, Massachusetts
- Austin, Texas
- Boulder, Colorado
- New Jersey
- Detroit, Michigan
- Pittsburgh, Pennsylvania
However, he suggested I think more globally and provided a list of countries, each with different interests and motivations to adopt renewables:
- China – lots of people + lots of growth + not enough energy + government willingness to make big investments = big player
- Germany – engineering competence, highly environmentally conscious, heavy government involvement to “make” green markets
- Japan – one word: Fukushima
- Certain places in the Middle East (lots of capital, lots of sun, plus the oil cash cow won’t last forever; of many projects, Masdar is one of the most impressive
- India – similar to China, minus the capable government, but plus a dash of “Gandhian engineering;” already home to innovative companies in the space such as Suzlon
Within Germany specifically, he cited the southern states of Bavaria and Baden-Württemburg, which are the industrial heart of the country, and arguably Europe. Munich, in particular, boasts the headquarters of well-known technology names such as BMW, Siemens, Semikron, Infineon, Epcos (capacitors), and TUV (safety compliance testing). I might just consider moving there…I’d be much closer to where my father grew up grew up.
U.S. vs. German Corporate Culture
Lastly, my classmate commented on how different the corporate culture is in many German companies compared to what he’s seen in the U.S. Instead of laying off employees during the recent economic downturn, companies furloughed workers and utilized the the government’s “Kurzarbeit” program to make up the difference in salary. This was the alternative to the U.S. system of the government only pays unemployment benefits upon full termination. The German policy comes at the cost of higher taxes, but it allows companies to retain talent during the downturn and fosters good relations between labor and management.
Interestingly, a quick Google search shows that several U.S. states allow employers to opt-in to programs, called “Work Sharing Unemployment Insurance,” similar to Kurzarbeit. Why haven’t we heard more about this, especially for startups and service companies? If you have any experience with these programs, please contact me.
Apparently nearly all small- and medium-sized German companies still family-owned and some large German companies as well (like Bosch and Semikron…even BMW is still 46% family owned). There’s also much less of a push amongst smaller companies to go public. The result of not having shareholders is typically a longer-term outlook and avoids some of the shenanigans seen in public companies in order to make their quarterly numbers.
By this point, it was close to midnight in Germany, so my classmate had to sign off. Thanks for all his insight. If we were still at reunions, I’d go get him a Budweiser…or a good German Hefeweizen.