Will Solar Ever Live Up to the Hype? Paul Allen, Vinod Khosla Bet On Infinia’s Sun Engines

8/31/09Follow @xconomy

The early afternoon sun was bearing down on us, and it was about 100 degrees Fahrenheit the other day when J.D. Sitton walked behind his office, squinted, and pointed to the future of his company.

Sitton, the CEO of Kennewick, WA-based Infinia, showed me a device resembling a satellite dish that has attracted some deep-pocketed investors, including Paul Allen and Vinod Khosla. Their hope is that Infinia’s dishes will finally turn solar energy into a workhorse for meeting more of the world’s electricity demand. If Sitton and his backers are right, he’ll be running a multi-billion dollar company five years from now. If he’s wrong, Infinia will be written off as just another costly pipe dream.

“We didn’t want to just launch a company in a cute little industry,” Sitton says. “We want to launch a company that can build a major global industry.”

Solar power has been talked up since the 1970s as one of the main ways the U.S. can wean itself off foreign oil. The field has picked up renewed momentum lately as a way to meet growing demand for electricity while reducing carbon emissions that contribute to climate change. But the current breed of photovoltaic systems, or solar cells, are notoriously heavy, expensive, and inefficient at converting the sun’s energy into electricity, so solar still amounts to a drop in the bucket, generating less than 1 percent of the world’s electricity, Sitton says. If Infinia can help spark a new market for converting solar heat (instead of light) into electricity, then it will have a chance to reach some of the projections of enthusiasts, like Greenpeace, who want to see 15 percent or more of the world’s electricity coming from solar, Sitton says.

Infinia says it already has $2 billion worth of orders for its solar power generation product in hand, which it expects to start rolling out commercially before the end of September 2010. So we shouldn’t have to wait 20 years to find out if this is for real.

“Solar has got to step up in a much bigger way,” Sitton says. “We have to prove it can be done.”

Here’s how this is supposed to work. That satellite dish I mentioned earlier? It has a little motor attached to it that keeps it in the right position to capture as many direct rays of sun as possible during daylight hours. Like any dish, it uses mirrors to reflect something, in this case, sunlight, back up to a focal point. That’s where Infinia has the business end of its device.infiniadish

It’s a Stirling engine, made to convert that concentrated heat from the sun into mechanical work. It’s like a steam engine, except it doesn’t need water—it powers its internal piston through the expansion and contraction of helium. The heat moves the piston, which generates electricity. These engines are thought to be attractive for this kind of work, partly because they are highly efficient at converting heat into electricity, and they don’t require water, or oil. They are supposed to be able to last 25 years with zero maintenance, Sitton says.

Infinia has been around as a company longer than that since the 1960s, mostly working on Stirling engines to make them reliable, long-lasting, and efficient, Sitton says. Before 2005, when it settled on its solar strategy, Infinia worked mostly on Stirling engines for a number of different applications, including artificial hearts and exploration vehicles for outer space.

The most important question any investor today asks is how much power gets generated by one of these Infinia units, and at what cost. The short answer is that each unit generates 3 kilowatts, and costs about $15,000, Sitton says. That’s enough to power a U.S. home for a year, he says.

Sitton, a mechanical engineer by training, was hired by Infinia back in 2002 as president and CEO to direct its new commercial strategy. Back then, the firm had a totally different plan and a different name, Stirling Technology. The company was profitable and employed a little more than 20 people, sustaining itself mostly on government contracts.

Now, with the new solar strategy in place, it is up to 170 employees. “We knew the contracts would always provide us a living, but we would never accelerate our growth and prosper, or control our destiny,” unless it pursued the concentrating solar power project, Sitton says.

By 2006, the company had wound down most of its government contract work to place its bet on solar power. The business model, from the start, was all about outsourcing pieces of the manufacturing and supply chain, sort of like the maker of athletic shoes, Nike, Sitton says. By building a vast network of suppliers that already have expensive equipment and expertise to make pieces of its device, Infinia wouldn’t have to spend billions of its own capital to do everything itself. One key example—the chassis that forms the framework for Infinia’s dishes aren’t all that different from an automotive chassis.

And since top-tier auto industry suppliers have the capacity to make chassis for 20 million cars a year—and a lot of that capacity isn’t needed anymore for building cars as demand has dropped—Infinia has swooped in by offering contracts to make chassis for its solar power generating devices, Sitton says. One of the major suppliers for satellite chassis is Cosma, a division of Toronto-based Magna International (NYSE: MGA). One of the big engine suppliers is Stockholm, Sweden-based Autoliv (NYSE: ALV), he says.

Not every piece of the supply chain is in place yet. The day I visited, there were suppliers competing for Infinia contracts, Sitton says.

J.D. Sitton

J.D. Sitton

Even though Infinia isn’t building everything itself from scratch in the Tri-Cities, this sounds like a huge undertaking in terms of managing all the suppliers, and keeping all the trains running on time. The company raised some significant cash to do the job in February 2008, when it got $50 million in a Series B round led by GLG Partners. The round also included Paul Allen’s Vulcan Capital, Khosla Ventures, Bill Gross’s Idealab, Equus Total Return, Wexford Capital, and Power Play Energy. Since switching to the solar strategy, the company has raised a total of $84 million, Sitton says.

Infinia got its original investment from Vulcan in a Series A round in 2007, says Steve Hall, Vulcan Capital’s managing director. Infinia got the money because of its seasoned management team; the Stirling engine technology is proven to be reliable in a number of harsh environments; and maybe most important, it offers cost and efficiency advantages over other well-known solar technologies like thin-film or crystalline solar photovoltaics, Hall says.

“We believe Infinia’s Stirling engine technology provides a unique platform for multiple energy service markets and is positioned to be a major player helping to drive the clean energy economy in the 21st century,” Hall said in an e-mail.

Infinia is now on the fundraising trail again, Sitton says. It sounds like there are still several levels of risk the company needs to remove—a little more technology risk in developing the “fourth-generation” product, as well as execution risk in getting all the suppliers aligned over the next year to fulfill orders from prospective solar power developers.

Competition didn’t seem to worry Sitton very much. He says the Infinia system operates more efficiently than thin-film or crystalline solar cells. More direct competitors, such as Israel-based Solel, also try to generate electricity from concentrating solar heat, but their process requires water, which can be a scarce commodity in the world’s hottest and sunniest places, Sitton says.

Idealab’s Bill Gross, an Infinia investor, recently said in a public forum that concentrating solar heat has the potential to create “multiple Googles.” Sitton doesn’t want to go quite that far out on a limb yet, but he made clear that he wasn’t satisfied sitting back and collecting a steady paycheck from government grants.

“We want to be the most compelling solar power generation player on the planet,” Sitton says.

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