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Embracing the future of solar power deep in the heart of Texas

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Michael Gorton, Chief Executive Officer and Chairman of Principal Solar Inc., an energy firm based in Dallas, Texas in the US, readily admits he was less than excited about the prospects of solar energy when a friend suggested he invest in it.
Embracing the future of solar power deep in the heart of Texas

Gorton, an engineer by training, founded Teladoc, a service that provides members with telephonic access to physicians who can then review their medical records, perform oral assessments of their conditions and prescribe medication for what ails them.

Despite a background in energy – his only job on the employee side of the ledger was his being a project engineer at Dallas Power & Light dealing with power plants, distribution, transformer management, and project integration -- he said the idea of founding a solar energy company a non-starter due to what he perceived as then relative costs and prices associated with renewables and fossil fuels.

But in classic entrepreneurial fashion, he didn’t just let the idea go, and just four days later, when awakening on a Monday morning, he turned to his wife and announced, “We’re going into the solar energy business.”

“In the meantime, I had run the numbers and taken a hard look at the costs trends of PV solar, and came to see that there is a real opportunity here,” the serial entrepreneur and enterprise builder told Renewable Energy Magazine during a recent interview.

The result is Principal Solar Inc., a company founded on a seemingly straight-forward concept, but one that, because it seems to presently exist mainly in the realm of what might call the “present continuous” – i.e., lots of activity, almost all of it in the realm of finance rather than tangible projects on the ground, and a steady flow of press releases – has been difficult for some observers to get their arms around.

Put simply, Principal Solar is engaged in the acquisition of small- to medium-sized solar firms that have already built modest plants and have already inked power purchase agreements. But Gorton, who may be one of the most enthusiastic conversationalists on Earth, says far more is to come once PV solar reaches grid parity in the US – something he says could occur in as little as 18 months.

Among its recent acquisitions was its purchase of SunGen Mill 77, a 63 KW roof-mounted facility located in Arundel, Maine, and Capstone Solar, a news and networking site geared to solar professionals. Terms for neither of the acquisitions have been released.

At the same time the publicly-traded company has added high profile names to both its board of directors and its advisory board. In the former category is Hunter Hunt, president and CEO of Hunt Consolidated Energy, a scion of the storied Texas oil company, and in the latter category, Apollo 11 astronaut Dr. Buzz Aldrin.

Gorton spoke to REM shortly after a reception was held to recognize Aldrin’s participation in the atrium of Hunt ‘s headquarters in Dallas. As he settled in to be interviewed, Gorton offered this as context for the conversation that would follow:

“First of all, we are having fun,” he said. “Any time you put together a group of business men and entrepreneurs and they are having fun, magic stuff is going to happen.”

It seems perfectly logical then to start this conversation by asking, how did all of this happen, anyway?

What we did was, a couple of years ago, I was a guy who was a serial entrepreneur who basically had the world laid out before me, and a friend of mine said, “You should get into solar.” The only job I’ve ever had where I didn’t start the company was working as a young engineer and later a manager for a power company, so I “knew” the energy sector and I “knew” that solar energy would never, ever be able to compete [laughs].

When I left the power industry in the early 1990s, solar was 60 times more expensive than natural gas. So I looked at my friend and said, “Why would I ever consider doing that?” and he said, “Because we are going to be building hundreds of megawatts in this country.” And I said, “You are clearly not an engineer. No one is ever going to build hundreds of megawatts of solar power.

So I went from that comment on a Thursday to Monday morning waking up and telling my wife, we’re going to build a solar park.

How did you get from “we’re never going to do solar” to “let’s build a solar power company” in three-and-half days?

I looked at the numbers, and what I saw in the changes of efficiency and cost of producing PV intrigued me. I saw a trend line that I didn’t think was going to end any time soon, and sure enough, I think everybody that has done the analysis sees that solar is going to cost less than natural gas and coal, and that it is already cheaper than nuclear. So we said, “Let’s build a company that makes sense today that we can really grow, but will be able to take advantage of grid parity when it happens.” That was the genesis of the business plan.

What we realized was that there are a lot of solar power operators around the country that are marginally cash-flow positive. By operators I mean companies that have build small-scale generation and that have long term power purchase agreements. That’s what we’re really interested in, the long term power purchase agreements. And so we started working on this and put together a roll-up strategy. So we’re out buying companies and, you know, we started with a lot of people telling us, “this is impossible.”

But I think that entrepreneurs survive on audacity and accomplishing the impossible. Certainly, if you read my bio and the bios of some of the guys that are with me, that’s what we’ve done our entire careers -- the impossible. And who better in American history to point at than a guy like Buzz Aldrin. As he said at the reception, “When Kennedy made his Moon speech… ‘We choose to go to the moon…’ We were blowing up rockets on the launch pad.” [laughs] So these guys who were astronauts said, “Alright, we’ve got six years to go to the moon, and we’re blowing up rocket ships.” To me, that’s the ultimate in audacity and an vivid example of accomplishing the impossible, and over the years I’ve come to know Buzz as a person and a scientist and as a business man, and have incredible respect for him.

And I’ll tell you two things about him: 1.) Everybody in the world will take his calls. So if he’s your friend and he’s part of your company, you can open any door. And number 2.) He still believes in accomplishing the impossible. So when you put those two things together, you understand why it makes sense to ask him to be a part of our advisory board.

Is the renewable energy sector today as ripe for entrepreneurship today as the tech sector has been for several years now?

Remember I said the only job I ever had where I didn’t start the company was at the power company. What I’ll tell you is I think the power industry is ripe for disruption. Have you read Clayton Christensen’s books about disruptive entrepreneurship?

I happen to be reading them right now…

Well, good. Clayton Christensen, some of his papers and books, actually cite one of the companies I built, which was a health care company and I’ll tell you this: the name of the company was Teladoc, and we started doing something that seemed impossible and a lot of people said to me, “United Healthcare is doing this, Aetna is doing this, and there’s no way that you’re going to be able to compete with these giants.” Well, today, Teladoc is 10 times larger than the next largest tele-medicine company in the world. So we went from “You’ll never be able to compete with these guys to being the ones that made it happen.

And in American business history you can find case after case after case of this happening. I mean, look at Henry Ford. The guy was a machinist, right? And he revolutionized the manufacturing process and created the automotive industry. So the way I respond to your question is, it is the disruptors who are the entrepreneurs that are going to bring the innovation – and its not just, “How do we produce a better PV cell?” It’s processes that really build an industry, and I think that it is the entrepreneurs who bring those things to the forefront.

I was having a conversation the other day with an industry analyst – and I’ve told this story a few times since – who basically suggested that if this renewable energy thing was ever going to amount to anything, the big energy companies – meaning, the big fossil energy companies – would already be deeply into the space. Is this a bit of the naysaying you’re talking about?

A lot of people of people grasp at the negative or the short-sighted view. Right now, a lot of people are saying Solyndra is the big news, but in reality, it’s not. If you look at every industry, from the automotive to electrics to the telecom, what you see is that it’s, traditionally, the Solyndras that fall. Some amount of failure is always a prerequisite to success in industry.

 

When I was in college, Digital Electronics made the biggest and baddest computers. Who? Remember when Zenith made the greatest TVs? Who? So the reality is the Solyndras of the world are part of the growth of an industry and, you know, that’s how things improve. And listen, Solyndra made a great solar panel. But when I put a plug into the wall, I care about one thing: I want electricity to come out of that wall plug, and I don’t want to pay a whole lot for it. The people who get that are the ones that are going to win the battle.

 

If you have an iphone or an android phone in your pocket, you have a device in your pocket that in the 1960s would have costs a trillion dollars and would have been the size of the Empire State Building. How did that happen? It was the silicon revolution. The second silicon revolution that’s going on right now is with solar PV. Those rocks that essentially turn sunlight into electricity are getting cheaper. This year we’ve seen the price of PV go from about $1.85 a MW to what, a $1.15 a MW… and grid parity occurs somewhere around 85 cents a MW, so we’re in striking distance of that right now, and my prediction is that eventually, the cost of PV is going to be as low as 5 cents a MW.

Think about it. What have we been using so far to build our solar panels with? We’ve been using the same manufacturing process that we use for our microchips and using silicon that they use in Intel chips. Is that necessary? C’mon! That’s like build our cars out of titanium, when we could use aluminum and it would be much cheaper.

So what’s happened in the industry in the last few years, the reason for the precipitous drop, is that we’re getting better and better and better at the efficiency of our manufacturing processes, while also getting better and better at recognizing what our realistic costs should be. As a result, we’re seeing silicon panels coming off the assembly line in much more bulk today than we have in the past and it is that bulk that we need to drive the cost down even further.

Now, all that said, I don’t solar is ever go to entirely replace natural gas, because the sun is still going to set. That said, silicon solar will cost less than natural gas to generate electricity. So here’s the beauty: If you look at the three primary generation resources that we have in this country, they are nuclear, coal and natural gas, and we are fools if we desert any of them.

All of them are necessary for diversity, but a nuclear power plant, if the engineer says “Let’s take this baby down for maintenance.” By the time the maintenance is done and the plant is ready to start sending power back out on the grid again, about 48 hours have elapsed. With a coal plant in the same scenario, the down time is something like 36 hours. And while maintenance is a regularly scheduled task, it sometimes also occurs on a less predictable basis. By comparison, solar is very predictable. Despite the fact that we have far from perfect weather forecasts, we know, generally speaking, when the clouds will roll in. And we know that the sun is always going to rise and always going to set.

Knowing these things, we should be using solar when its available, and natural gas when the sun is not available. We’re not going to ever get entirely away from natural gas… we need it for national security, and so on… but let’s save it for when we need it. We can use solar and natural gas together to create a very reliable and efficient energy system. It makes perfect sense.

So a clean energy future, in your view, is basically a matter of wisely diversifying the nation’s energy portfolio and how its utilized over the course of the day, region by region?

That’s exactly right.

We’re about to enter a year of high-stakes politics in the US, with the presidential election. If President Obama is re-elected we can anticipate certain things occurring in the energy marketplace. If a Republican is elected, we can anticipate dramatically different things happening. How does an entrepreneur deal with the uncertainty?

I think entrepreneurs have to be self-reliant. It’s wonderful that the federal government, and the German government and the Japanese have really driven the process of bringing solar down to the point where it currently sits. The good news is we are probably going to be at grid parity in a lot of locations in about 18 months If we see another drop in PV prices like we’ve seen over the past 18 months, then we are at grid parity by January 2013; I personally don’t think that’s going to happen. I think that it is going to stretch on for longer than that, but the reality is we are so close right now, that we are going to get there with or without government involvement.

So the smart entrepreneur is like the smart pioneer or survivalist. You figure out a way to get to that point were things are really ginning, and some of us will survive and some one. But I think the solar industry is here. It is inevitable now. And trust me, I’m in Texas, right? There are six Democrats in this state, but also think about it this way, Texas is an energy state. Our energy is oil and gas. Last week I stood in the Hunt building, from Hunt petroleum and Hunt Energy. The companies founded by the original Texas wildcatter, H.L. Hunt. That is an energy family. Hunter Hunt, the grandson of H.L. Hunt, just joined our board, when we had our reception, which Buzz Aldrin came to, and what Hunter Hunt said was, “We are an energy company,” speaking about Hunt, “We recognize the value of solar.”

So here’s the good news: traditional energy is beginning to get it. Some won’t. Like the pundit you talked to, But a lot of them are. When the guys at Hunt decide they want to join the board of a solar energy company, it ought to perk the ears up of a lot of companies.

Going forward with what you are doing? What is your timeline? What are some of your benchmarks and what are some of the things we in the public should be watching out for?

Well, right now, we’re doing acquisitions. Again, we have a two-part business plan. The first part is hyper growth. It is our stated intent to become the number one solar power company in the world. That’s audacity. I know a lot of the big guys are going to look at us, laugh and say, “It ain’t gonna happen.” Well, that’s our intent and everything we do every day is focused on that objective.

Today, our primary focus is acquisitions. So we are doing hyper growth through a roll-up strategy.

 

And that’s what you mean when you say, “roll up” strategy; basically, it’s an acquisition strategy…

 

Yes. What we are doing is rolling up the sector that we believe is most profitable right now. We’re not interested in manufacturers. What we’re interested in are companies that have installations and power purchase agreements. That’s who we are buying. And there are a lot of people out there who believe in this. And look at this from the perspective of a small or medium sized entity right now that looks at us and say, “Gee, you now have Hunter Hunt on your board, you have a guy that ran generating at one of the largest power companies in the world on your board, you have one of the best known female executives on your board, you have Buzz Aldrin standing up and talking about the value.”

So its easy to see how a lot of the small- to medium- sized power purchase agreement companies would go, “I now can become part of something much bigger.” So we’re having a good time and accomplishing our objectives.

Is this roll up activity in the US or is it taking place in international markets as well?

Well, right now we are focused domestically, but we’ve got some big plans that you are going to start seeing press releases on in the first of the year.

Now, phase two of our vision comes into play when we are at grid parity. I don’t know, maybe 2015, or 2013, or maybe 2019…. We’re agnostic to the date. But when that day happens, we believe that gigawatt power plants will be built and we have a team that knows how to build gigawatts and we have the team that knows how to build gigawatts. If you look at my management team, you’ll see a lot of guys who have already built gigawatts; not the post holes and the panels, but the turbines and the large scale transmission-and-substation interfaces. So we know how to do that part. What’s the difference between a nuclear power plant and a solar power plant? The complexity is on the nuclear power plant side. A solar power plant is post holes and panels. Think about it, it’s very, very simple. From an engineering perspective, solar is beautiful. There are no moving parts.

That’s what the electric vehicle people tell me…

They’re right! What’s really funny is that in 25 years we’ll look back at our internal combustion engines and we’ll say, “What the blank were we doing? Look at all the black soot on all the walls and crap in our lungs.” I’ve driven a Tesla – wow! You touch that pedal and that car moves. The torque that you can produce with an electric motor is just amazing. Of course, we have to solve the battery problem, but I think we are going to get that done and electric cars are going to make internal combustion engines look like toys.

For additional information:

Principal Solar Inc.

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