Green Swans
• In December 2009, Germany registered 1,500
MW of solar system installations.
Shawn Kravetz—President
of Boston-based hedge fund
Esplanade Capital—writes about
the move from Birkenstocks to
Blackberries in the solar power
world, and how Green Swans—
unexpected events in the greentech world—are both a risk and
an opportunity for investors
The latest Green Swan event flew out of Germany
yet again, whereby proposed changes to its incentive
structure surfaced in mid-January of this year. If this
proposal becomes law, Germany will remain a robust
solar market but will offer less compelling economics
for future solar projects. The German situation
remains fluid, and we remain focused on taming this
and future Green Swan events.
Six yearS ago, a proverbial light bulb went off
in our heads and we began to research solar intensely.
At the time, it reminded us of technology in the mid-
1990s: rapid growth in a nascent sector with capable
companies and management teams. Yet, for us, solar
had three compelling differences:
The growth opportunity was truly orders of magnitude, as we were talking not about computers or
storage, but electricity.
roughly one coal-fired power plant per year (~ 1 GW).
In 2010, solar installations likely will exceed the
generating capacity of 10 such plants: 10x growth, but
still quite small (almost quaint) in the realm of the
electricity universe.
• Spot silicon prices hovered around $32 per kg
in 2004, hit a high of $500 per kg in 2008, and
have since plunged to ~$50 per kg today.
• The financial crisis paralyzed larger scale solar
installations, yet global solar installations grew
20% from 6.1GW in 2008 to 7.4GW in 2009
(some industry analysts were calling for global
solar installations to be halved versus 2008).
• In 2009, the German solar market awed even
the most ardent industry follower.
• In January 2009, Germany registered a mere 3
MW of solar system installations.
• In June 2009, Germany registered ~150 MW of
solar system installations.
Green Swan events tend to connote negative
outcomes; however, in many instances, they have
enabled astute investors to turn unexpected volatility
into green profits. We spend a tremendous amount
of time in the air ourselves flying to Asia and Europe
conducting on-the-ground diligence, and we maintain a very clear view on which companies are best
positioned to outperform and underperform in
certain environments. Given the market reaction
to Germany and our overall expectations for robust
global demand, we believe that solar investors will
have a bit of wind at our backs for the rest of 2010.
Even more importantly, the bifurcation between
winners and losers that began in 2009 has intensified frenetically. This will reward superior security
selection.
While solar enjoyed traction in selected countries
around the world (notably Germany and Japan), it
(wrongly) appeared to be merely a futuristic, hippie
fringe concept in the U.S.
Many of the solar companies did a curious thing; they
made money.
At the time, you were more likely to bump into an
environmentalist than a capitalist at a solar confer-
ence. Today in solar, BlackBerrys outnumber Birken-
stocks as different constituencies seek different
forms of green. When we first started in solar, global
solar installations equaled the generating capacity of
Throughout its history, solar has been barraged by what
we term “Green Swan events.” Whereas a Black Swan
event signifies a rare, hard-to-predict, and high-impact
episode, a Green Swan event suggests such an event
in greentech. For us, it has been six years of expected
unexpectedness, a flock of Green Swans:
• Spain installed 480MW of solar in 2007, a
figure that grew 5X to 2,500MW in 2008 and
collapsed to 150MW in 2009.
In March 2009, we gave a speech in Munich stating
that we were seeing an overwhelming number of
opportunities in the solar sector. The global financial
crisis had required true corporate triage: companies
that would live regardless of treatment, companies
that would die regardless of treatment, and companies for which immediate care (e.g., financial assistance or a turn in the market) would determine their
fate. We scrubbed in and launched a solar-focused
fund in addition to our flagship fund in order to seize
the opportunity. To us, solar remained an investment
theme that would last a decade, but the window had
never been open so wide. We felt like the only kids in
