Friday, September 18, 2009

The niche for a polymer solar thermal collector

The International Energy Agency Task Force on solar thermal equipment (Task 37), has a subtask to investigate the use of polymers in solar thermal collectors. Ironically, while they were writing this our team in Detroit, Toronto and Ohio were putting to test what they were studying. The result is that Power Panel may be the first polymer panel to come to market. As the task force notes, "the full potential of polymeric materials can only be used when several product functions are integrated into a single component in a fundamentally new design." We agree. They came to the same conclusion as did our founders that the traditional design of collectors was not suitable. A new approach was required. Our panel forgoes the use of tubing or multiple layers of materials for collection, rather it uses a proprietary flow pattern and a single sheet of thin aluminum to collect thermal energy. The result is that we have a panel that is 1/4 of the weight and has very few parts. The panel comes out of a mold in one piece, an aluminum sheet is inserted, then glass, then connectors and voila, a solar thermal collector is made. Simplicity means that there are fewer pieces to fit and thus it can be made quickly and with little effort. It also means that there are fewer joints, welds and fasteners, dramatically improving the durability of the product. So this panel is lighter, more durable and is easier to manufacture. Though easier, in small volumes of production it is not less expensive than cheap panels from China, or those from large scale production facilities in Europe, though this panel is already price competitive (thus has great scope to further reduce costs with higher production volumes).

If the key to entering the market is to find a niche, than what is the niche for a lighter, simpler and more durable solar thermal collector?

The first niche may be the D-I-Y solar community. Not only are the panels lighter, but they use simple drain-back and unpressurized plumbing. Simple PVC plumbing can be used and thus even business geeks like me can install them and so solar fanatics can too. The polymer tanks that we offer only take 15 minutes to assemble, then simple fittings eliminate most real wiring jobs. These 35 lb panels can be hand lifted onto a roof. This is an interesting community to first market to, as they are the markets "Mavens" (to borrow the term from Malcolm Gladwell, or its Hebrew roots). If a company can earn their trust and support than these mavens will promote your product and their third party credibility can lend much to that company's brand.

Other niches may include where shipping costs are a factor, or where added durability is essential.

The issue with the durability marketing is that it is difficult for a small and new company to earn the trust of customers that we will be around long enough to honour a warranty. For us to do so requires us to borrow the clout from a stalwart in the market. If a partner with clout were to sell our panels and guarantee the warantee than we could enter the durability niche. (which is a very good competitive edge).

Shipping is another area. The obvious market in this niche is remote areas, such as rural Africa, Northern Canada, or mountainous areas in Asia. These panels are very well suited to be Base of the Pyramid solar thermal collectors if higher production volumes can lower their cost. Until then for the less price sensitive but shipping constrained niche is another ideal niche for this product.

In summary, the three niches for the Power Panel polymer solar thermal panel are:
1. DIY solar enthusiasts
2. Extreme climactic applications needing greater durability
3. Limited shipping locales

Saturday, September 5, 2009

Rocking the boat with a hybrid solar thermal and PV panel

One of my current projects is working with Power Panel, a Detroit based start-up solar equipment manufacturer. They have created a polymer solar thermal collector. An interesting aspect of this product is that it has been designed accommodate a PV module that can be inserted into the collector. Because of the unique design this allows that PV to be cooled as heat is collected in the same panel. Ingenious!

(photo: Power Panel collectors on the roof of Next Energy, where the company's R&D facility is located in Detroit, Michigan)

Although this is novel, novelty is a challenge as it has created a new product category. The market for solar equipment is divided between photovoltaics and solar thermal collectors. The distribution channels for each are different. There tends to be a separate value chain for each. Incentive schemes support one or the other. For example, when we begin to speak with parties about our product inevitably the question, "how much per watt?" is asked. A solar thermal collectors price can be divided by the amount of power it can product and this metric can also be used for photovoltaics, so this industry metric is quite prevalent. But, in our case one panel produces two types of energy, thermal and electricity, so the formula becomes $cost/(thermal output + electricity output), which crudely brings us to (say a price of $600/panel) $600/(600 watts+42 watts) = $0.93/Watt. The problem here is this measure cannot then be used to compare to any other product, so we need a new measure to compare our product.

The problem of introducing a product that creates a new product category is one that is well documented. Clayton Christensen might call this a disruptive innovation, as it is a product that changes the dynamics of competition and introduces new features that are fundamentally different to what is available now. He suggests that such products tend to enter the market in niche areas. An obvious niche for our product is where there is limited collection area (roof or ground area for the panels). Because our product collects two types of energy, we can collect more energy per square foot (area) than other products.* Once a product establishes a base in a niche area it can then start to enter into more mainstream market categories. This creep into the mainstream is assisted by cost improvements with scale and by the development of distribution channels and product familiarization. This approach is generally deemed to be more successful as a new entrant can otherwise be quashed by an incumbent who has market power in its main customer base, so the game is to find a niche where the new product does offer particularly appealing attributes and where incumbents are less interested and are willing to cede.

So what is our niche? (more to follow in a subsequent post)

* This discussion ignores the other disruptive aspect of this product, that it is a polymer collector that takes much less material and can achieve great economies in scaled manufacturing and is much lighter and easier to work with. I'll leave that discussion for a later post, so that the hybrid issue can be adequately explored.

Wednesday, April 22, 2009

Low power hard drives - inadvertently BOP products

Engaget reports that Seagate is releasing a series of low-power hard-drives. Meanwhile a number of Solid State Drives have also emerged on the market over the past year.

The development of these drives can be attributed to portable media players and also the needs of Netbooks and ultra-thin computers that too are coming to market. Or in other words, these drives have been created to respond to the needs of developed and traditional markets, but they could have been developed to respond to obvious and great appeal for such devices in developing markets.

While with Geekcorps in Mali 5 years ago, we started to play with solid state drive designs. Our goal was to slim down power consumption on our computers, as they were running on solar power. We also wanted to reduce heat, which meant fewer or no fans to collect dirt in dusty Africa. This and other "off-the-shelf" adaptations led to our successful Desert PC design, which I suspect is still humming at a few radio stations somewhere on the edge of the Sahara today.

Our adaptations were not so much changing the hardware, but rather changing their intended application, or use. Such a device, the Netbook, solid state drives, or low energy drives are an obvious product for BOP (Base of Pyramid) markets, such as the BRIC(Brazil, Russia, India and China)countries, or other emerging countries, but curiously companies still move toward the high-margin developed markets first. I see such thinking in my own work today developing solar products, where the "low-hanging fruit" that we first go to pick are the big markets, classic markets, even when some emerging markets look set to be ripe.

Perhaps the analogy with solar is not helpful, but why is it that the marketing of such advances go first to the high-margin, low-volume market, rather than to the low-margin, high-volume market? Is it because this is a 1.0 (new) technology that will have limited production? Or is it because there is an assumption that a product can capture high-margins in developed markets while it is a first mover, then move to other markets when competition intensifies, or the market is saturated? Does the rich-market-first strategy mean that companies miss out on bigger lower-margin sales today? For example, in a rich-market-first scenario, Seagate could earn $50 per drive and sell 100,000 in the first year. Or, in a lower-margin scenario they could sell 1 million units with a margin of only $10 each. Net revenues in the first scenario would be $5 million and $10 million in the later. Does $10 million not beat $5 million? If so the argument for rich-market first cannot be economic. This is overly simplistic, but I believe one of the driving assumptions in the rich-market-first strategy is that there is not a lost opportunity in going to one market first, rather that the demand just waits. Conversely, in the low-margin high-volume strategy, the assumption is that there is sufficient demand to provide volume. What we continue to witness is that the later assumption is often correct, where with the pace of innovation and flatness of the world, that the rich-market-first strategy is increasingly dated, as new entrants move in quickly if a market is left untouched.

Just to throw more complexity into this discussion, the above suggests that it makes more economic sense to pursue the high-volume strategy, but perhaps the rich-market strategy has more to do with limited capacity, be that capital (increasingly true these days), human resources or simply experience (do we really know how to sell to those markets?). So, the company is starting with a constrained production capacity, where they have decided to produce y number of units and marketing simply looks for the way to maximize profits with that limited number of units; hence why we here in Canada so often don't get what our populous neighbours to the South find on the shelves.

My interest in this discussion is that the greatest needs for such technologies are in developing markets, yet the trickle down from the developed markets happens too slowly, if at all. This is confusing as there is often a sound economic argument (more profits if they chose to go this way) to why a company should pursue these markets, but perhaps Patents do mean that customers in the secondary and tertiary markets will have to wait. Should the Brazil anti-retroviral approach to medical patents be extended to technologies that could improve lives and make money if the manufacturers were to address these markets (i.e. there is no economic or humane argument to why they shouldn't be deployed today in a market), or have the market address it for them? Perhaps that kind of pressure would lead to a net benefit to all, even to the manufacturer?

RIM and the Base of the Pyramid, or low-margin high-volume market

This post is a follow-on from my last.

Over the past year RIM's stock was discounted by many because they expanded from their home turf in the high-margin business market and out to the lower-margin but larger consumer market. Many investors saw this as a poor strategy because it would effect their gross margins (the profit they make on each dollar of revenue).

The gross margin of a company is one of the few "ratios" (stats) used by investors to evaluate a company's performance relative to its peers. Conventional thinking impels a company to "preserve margins" by getting out of low-margin business, usually by selling that off and doing whatever possible to keep from having those margins impacted. RIM broke from the current and made a play with a low-margin higher-volume strategy. Perhaps it is because many Rimmers (employees of RIM) went to such a fine school (my alma mater) that they realize that ten apples is more than 5. Or perhaps they felt that the business market was near saturation, or that they needed to attack their competition from their safer turf. Whatever the reason, RIM surprised many investors this past quarter when it released new earnings. Indeed, 10 apples is more than 5, RIM's profits were up, even though their margins had slipped by 2 points. So, perhaps it is true the low-margin high-volume, aka. BOP (base of pyramid) strategy can work?

The jury is still out, however, because this week there is yet more