New York State is betting $225 million on a pair of Silicon Valley startup companies from the highly competitive solar and LED lighting industries.
Top state officials spent nine months secretly researching about 35 potential tenants for a new, high-tech manufacturing campus in Buffalo before coming away convinced that Soraa and Silevo were the right partners for the state.
Soraa, which makes premium LED lights, and Silevo, which manufactures highly efficient solar panels, are young, and the clean-energy marketplace is a crowded one where profits early in a company’s life can remain elusive.
But analysts and industry experts say the companies boast attractive, cutting-edge technologies and a solid business strategy of performing low-end manufacturing overseas and advanced manufacturing in the United States – including the planned Buffalo facilities.
“Any dollar they make, they’re investing back into the company for growth, for construction and expansion, so they achieve a critical market share,” Alain E. Kaloyeros, chief executive officer of SUNY Albany’s College of Nanoscale Science and Engineering and Gov. Andrew M. Cuomo’s economic development rainmaker, said Friday.
The governor swept into town Thursday to announce the state’s largest commitment of money to a single local business venture – $225 million to build two research and development and manufacturing facilities for Soraa and Silevo in a reclaimed brownfield site.
With so much taxpayer money at stake, the announcement raises two key questions: Are LED lighting and solar the right sectors for the state to invest in now, and are Soraa and Silevo the right business partners for New York?
The project won guarded praise one day after its unveiling.
“You’ve seen this: ‘The green revolution is going to bring all these jobs.’ Well, here it is,” said Michael Siminovitch, director of the California Lighting Technology Center, a research and development facility based at the University of California, Davis. “It’s a growth opportunity for any state to support innovation.”
The clean-energy industry is heavily subsidized, and the Obama administration came under sharp criticism when Solyndra, a solar power company, went bankrupt after receiving $535 million in federal loan guarantees to build a manufacturing plant in California.
Kaloyeros and Cuomo maintain the state is protected from a similar catastrophe, even if Soraa or Silevo go belly up, because the state still will own the buildings and equipment.
Soraa and Silevo have agreed to spend $750 million each and hire a total of 850 employees at the facilities the state will construct on the former Republic Steel site along the Buffalo River.
Kaloyeros said state officials talked to investors in the companies and industry analysts and reviewed internal financial documents – because, as privately held companies, Soraa and Silevo are not required to file earnings reports.
The state is satisfied the companies are in good financial health and believes their strategy of looking for opportunities to perform low-cost, low-end manufacturing in China, “while high-end, high-tech will be manufactured in Buffalo,” is a sound one, Kaloyeros said. “The green-energy market, if you look at all the projections, it’s booming,” he said. Here’s more about the two companies:
Lighting makes up a significant portion of the electricity use in a building, so customers are looking for lights with better efficiency and a longer life than incandescent lights but with a better quality of light and color than compact fluorescent lights, or CFLs.
LEDs, or light emitting diodes, fit that bill. They still are relatively expensive, and still make up just a small share of the lighting market, but there is room for growth, experts said.
“So we’re seeing some really innovative companies come along that understand this nexus of lighting quality and energy efficiency, putting those two things together,” UC Davis’ Siminovitch said.
He said Soraa – founded in 2008 by three professors and now based in Fremont, Calif. – is one of those companies.
Soraa’s slice of the marketplace is at the higher end, making more efficient, longer-lasting lights that boast better color for customers willing to pay a little extra. “So that niche is very attractive for retail and grocery lighting,” said Christopher Hwang, a research associate on the Lux Research energy electronics team.
Soraa has raised more than $100 million in financing and as of last winter had about 250 employees, according to the industry website Edison Report.
“I would say they’ve made very good progress, for a startup, in terms of the amount of funding they’ve raised and the number of employees they have and the amount of development projects they have,” Hwang added.
Referring to New York’s decision to pick Soraa as its LED lighting industry partner, James Benya, a lighting designer in Davis, Calif., said, “If you were going to marry a startup company, these guys would be at the top of my list.”
One of the founders of Silevo, Zheng Xu, said after Thursday’s announcement in Buffalo that the solar-panel maker is not yet profitable, but he hopes the company will break even by next summer.
Founded in 2007 by Xu and an Applied Materials colleague, the company had $16 million in revenue last year, according to Fatima Toor, a research analyst who leads Lux’s solar components team. As of this summer the company had raised $72 million in two rounds of financing, Bloomberg News reported.
Silevo produces solar cells at a 32-megawatt factory in China. Their new Riverbend facility will build a 200-megawatt solar cell and module.
What do experts and industry partners think of the state’s selection of Silevo and solar?
“It is impossible to deny that there is meaningful risk in investing anywhere in the solar space in general. The industry is still young, very volatile and extremely competitive. Continuing dependence on subsidies also creates risk,” Shyam Mehta, senior analyst for GTM Research, said in an email.
Mehta noted, however, that fossil fuels and nuclear power industries also received subsidies, while solar industry subsidies have declined even as the cost-effectiveness of solar power has improved in recent years.
Nathan Rizzo, vice president of Solar Liberty, an installer of solar panel systems based in Amherst, said he looks forward to installing Silevo solar panels manufactured locally.
“They’re making a premium panel,” Rizzo said, before adding of the state investment: “I think it’s exciting. It shows that solar is a stable technology, as far as renewable energies are concerned.”
Silevo is a relatively small company – with just 200 employees – that has largely focused its sales in Europe as high tariffs have prevented it from getting much of a toehold in the United States, Lux’s Toor said, so the manufacturing expansion in Buffalo makes sense. “The U.S. is a huge market,” she said. “The U.S. has so much potential. Silevo’s not the only company that’s putting manufacturing capacity in the United States.”