Season 2 Premiere: Howard Wenger, President of Nextracker
We're kicking off Season 2 of The Solar Journey with solar industry leader Howard Wenger, President of Nextracker!
In this episode, host Dr. Torsten Brammer dives deep into Howard's incredible 40-year journey, from waiting in gas lines during the 1970's oil crisis to leading one of the world's most innovative solar tracker companies. Howard shares how he fell in love with photovoltaics (spoiler: he may bleed silicon!) and never looked back. He walks us through the early days of solar, when costs were sky-high, and people thought he was chasing a pipe dream.
Fast forward to today, and Nextracker is celebrating 100 gigawatts of solar trackers shipped. Get a behind-the-scenes look at what drives Nextracker's success and hear Howard's insights on what it will take to push solar energy and clean tech to the next level.
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Show Notes:
The experience of intense air pollution and gas shortages in1970's Southern California.
How the dramatic drop in solar costs has driven the industry’s growth.
The critical role of policy, technology, and economics in advancing solar energy.
Management philosophy: creating value while fostering trust, respect, and empathy (TRE).
Insights into the challenges and opportunities in scaling solar energy globally.
"Competitive Strategy" by Michael Porter (Harvard Business School)
Transcript:
[00:00:00.24] - Torsten
Welcome to a new episode of the Solar Journey. My guest today is Howard Wenger, President of Nextracker, a manufacturer of tracker systems for utility-scale power plants. Welcome, Howard.
[00:00:15.05] - Howard
Great to be here. Thank you, Torsten.
[00:00:16.23] - Torsten
One of Howard's first project in solar was a PV grid simulation software as part of his master thesis. In general, Howard Wenger works as President of Nextracker Inc, a leading provider of solar trackers and software solutions used in the utility scale and distributed generation projects. He's an accomplished solar industry business leader and executive spending 35 years. He brings the global commercial operations management expertise to next tracker from his prior leadership roles, including President and Board member of Solaria Corporation, President Chief Executive Officer at Sun Power Corporation, and Executive Vice President at PowerLight Corporation. He also worked at PG&E, a Californian utility, and an old brand in Solar Astro Power. Welcome again, Howard.
How did you get started in Solar? What was the trigger moment and what was the first project?
[00:01:26.07] - Howard
Okay, so I grew up in Southern California, and there was a lot of smog alerts there. Sometimes we would be in school and we'd have to go inside because there was so much air pollution in the Los Angeles area, Southern California. I think that was the beginning for me, and I became conscious of the environment.
There were gasoline shortages in the 1970s, so I'm dating myself, but I was graduated from high school in 1977. I was in a line waiting for gas because there was the oil embargo by OPEC. And so there was a shortage of gas, and I was about to go to college, and I was wondering, what am I going to study in college? And it was in one of these gas lines, I actually thought about alternative energy, not necessarily solar, but the need for energy independence.
And then the final trigger moment was in 1982. I studied environmental studies. I tried to get a job in solar in 1981 upon my graduation from college. There were four photovoltaic companies in the United States. I could not get a job because I had a non-science background. And in those days, it was all about research and development.
[00:02:52.09] - Howard
So I went to the World's Fair in Tennessee. And there, what do I see? A photovoltaic panel powering a telephone booth. I fell in love with photovoltaics. Then I got a graduate degree so I could get a job in photovoltaics.
[00:03:10.20] - Torsten
All right. Fantastic. I remember these times. It was in Germany, there were weekends where you couldn't drive on the Autobahn to save fuel. These were the days, 1970s.
[00:03:25.07] - Howard
That's right.
[00:03:26.14] - Torsten
You started in Environmental Science, and then basically you moved onto general management and sales and marketing. How did that go about?
[00:03:41.08] - Howard
Well, the first thing that I did was, before I did that, I became an engineer. I was not an engineer, but I got a master's degree in engineering. It took me almost five years to get a master's in engineering because I had to take all the courses. That's when I learned programming in Fortran.
[00:04:04.13] - Torsten
Fortran, yeah.
[00:04:05.16] - Howard
I call it Fortranus-rex. It's like a dinosaur of programming languages. That's when for my master's thesis, I created this photovoltaic simulation program for large scale photovoltaic systems. And the first program I wrote was about 1984. That's when I got my first job in photovoltaics. I was really an engineer engineer and a researcher for my first 10 years in photovoltaics. Then I got into the policy and business side after that.
[00:04:40.22] - Torsten
So what was the feeling like working in solar in the 1980s, 1990s compared to now? What has changed for you personally, but also when you look at the industry?
[00:04:54.23] - Howard
Well, I mean, nobody in my family or my friends understood what I was doing. And they thought I off, wandering in the hillsides or something. "Howard's a lost soul. He's pursuing this solar dream." Because the photovoltaics, the cost of it, systems were very small, mainly off-grid. They cost $15 to $20 US dollars per watt back then, which is probably about $40 or $45 US dollars per watt today in today's dollars. And so we were in in search of cost effective applications of photovoltaics. So we had a focus first on off-grid, then distributed generation, because then you could sell it at the retail level and get that retail price of energy, and then pursuing utility scale after that. So it's been this progression over 40 years.
And now our company, we just celebrated shipping 100 gigawatts in the company, Nextracker was founded in 2013. So we have shipped now, cumulative in 11 years, 100 gigawatts, which is just an amazing feat, I think, for any company to do. It's just been very exciting.
[00:06:17.19] - Torsten
Would you have expected back then when you started out that we could have possibly come to this cost level where we are right now? Was it more like maybe a dream, a vision, or could you see the that it could come down so much in costs?
[00:06:34.13] - Howard
It's a great question. We saw the rationalization of this. We had our own projections. There was a company called Strategies Unlimited, which is a consulting company that followed the solar industry back in the '90s, and they discovered a learning curve for solar. What they discovered was with every doubling of shipments, the price was coming down 18%, cumulative shipments. And so we would take that in our curves, and we project it out, probably by 2010, 2015, we would be about $2 per watt for a system installed.
We've blown through those projections. I mean, for me, that was the dream. We thought at $2 per watt, we could proliferate solar everywhere. That was the magic number. Now systems are going in for as low as 50 US cents per watt, including a substation in places like the Middle East. It's astonishing.
[00:07:40.06] - Torsten
Yeah, it's just amazing. The solar journey we all took, definitely.
What lessons or insights that you picked up from these very early days of the industry still inform your decisions in 2024? Is that something you could transfer?
[00:07:55.12] - Howard
So many lessons, so many victories, and many challenges inform everyone's journey. And being here at the Intersolar event in Munich, Germany, I think there's over 50,000 people here. Everybody has their own personal journey.
For me, I've always focused on trying to create value. How can I personally add value to whatever it is I'm doing, to the team, to the company, to the organization, to the industry? Always, what could I add personally? And that has guided me throughout my career. It's guided me to go into policy because the industry really needed to change things like how is energy metered? I actually ended up co-authoring net metering legislation and driving it in the United States. I really got involved in the first rebate program for solar in the United States, $4.50 per watt rebate in California in 1996. And so it just always guided me also in helping lead companies. How do you add value?
[00:09:09.00] - Torsten
How do you add value? Did you sometimes end up in a corner where you knew there's a gap. Nobody else is doing it. So I had to jump in. Then you realized, damn, it's not my job. Someone has to do it, but I don't like it to be in that spot for...
[00:09:25.13] - Howard
I've never experienced that. It's been so interesting because everything... First of all, you either are captivated by photovoltaics or you're not. For me, I'm captivated. Every time I look at a solar cell and you see that it's the thickness of a human hair or less, and light comes in and power comes out, for decades, with no pollution and no moving parts, you're like, okay, this is the ultimate energy generation technology.
If that creates a spark in you, which it has in me, I'm obsessed by that. We have, Dan Shugar and I, who's the founder of Nextracker. He and I have worked together for 35 years. And we have this thing where if you cut us, silicon pours out of our veins, not blood. We're just obsessed by this technology. If you have that feeling, then any gap that you jump into is worthwhile, whether it's technical, whether it's growing a business, or if it's creating policy, or just communicating what you do for a living, which is very important. Yeah.
[00:10:43.14] - Torsten
One can tell that the solar spark is still fully alive in you after all these years. Fantastic.
[00:10:51.05] - Howard
Yeah, it's burning very bright. Yeah.
[00:10:55.29] - Torsten
How does Nextracker serve the solar industry? Why do your customers choose you and not other alternative solutions?
[00:11:04.08] - Howard
Well, we've done well. We have a value proposition that I believe is differentiated. The core thing for a strategy, what is strategy? Every company needs a strategy. Okay, this is another guiding principle for me, which I actually learned from Michael Porter, who's a Harvard professor.
[00:11:26.02] - Torsten
Did he write a book? Can we look it up?
[00:11:28.15] - Howard
You can look it up. He's very famous. Oh, a very famous professor, from Harvard, Michael Porter. He's written all kinds of books on strategy and business. He teaches at the Harvard Business School. I've never taken a course from him, but I followed him and looked at his videos and so forth. And what he says about strategy is, strategy is how do you create in business differentiated competitive advantage that's sustainable? Sustained, differentiated advantage. And then that's the strategy. And then the steps to actuate the strategy are also very important.
Nextracker has done this. How has Nextracker created a differentiated advantage with our technology? First of all, through a lot of know-how. The founders, there's actually six founders, they're still with the company today. And the executive management of the company has about on average 25 years of solar experience. We commercialized single-axis trackers back in the '90s, and they were linked row trackers. They were reliable, but they had a lot of constraints and issues. We have taken lessons learned from deploying megawatts, hundreds of megawatts of different tracking technology, and we created an independent row balance tracker where every row is monitored. It has its own antenna.
[00:13:10.09] - Howard
It's connected via wireless mesh network. So we can tell exactly what's happening every minute of every day on every tracker row in a field. And it's unlocked a lot of advantages by being non-linked and self-powered, meaning it's not connected to the grid. It powers itself. And we can now, we can follow the terrain. We call it "light on land". It eliminates grading. You keep the top soil, and you can just have the tracker follow the land. That's our NX Horizon XTR, Extreme Terrain Following Tracker.
We can also control every tracker to maximize energy output. If you have a hill, the tilt angle needs to be different. If the trackers are in different angles on a hill, we control every tracker to maximize the energy output. We also have [aeronautical grade fasteners that secure our tracker. So it's a lifetime connection. We do not have bolts and nuts that you have to retorque. So we have many advantages and differentiation of our product versus the competition that maximizes energy yield and minimizes the cost of energy. That's why we're selected. Fantastic.
Now, we have good competitors. We don't own the whole tractor market. Sure. But we're proud to have led it the last eight years, which is great.
[00:14:44.17] - Torsten
What were parts in such tracking systems? In the early days, there was always an argument against tracking because, it's beautiful if you don't have to touch it to keep the module fixed to whatever, the roof or to the ground, and with the trackers, you do have bearings which might need some maintenance once in a while.
What's it like today with the tracking systems, or your tracking system?
[00:15:10.16] - Howard
It's amazing. We use brushless motors versus a brushed motor that some of our other tracker providers use. We use certain components like lithium-ion batteries versus a lead-acid battery, which is lower upfront cost. But our lithium-ion batteries last – you might have to replace them one time during the life of the project. So we have done things to minimize the O&M cost, to be the lowest O&M provider of trackers in the world. That's our belief, and it's been validated by third parties.
So it's true that trackers have moving parts, but when you think about it, most of the time, they're just rotating a little bit. Super slow – super slow throughout the day. And so there really aren't that many parts that will wear out or have an issue. We've proven that the little bit additional cost versus a fixed tilt, but you could have up to 25 or even 30% more annual energy, it makes sense. It does require more land. There's a lot of trade offs. Trackers aren't the only solution. Fixed tilt is a very good solution for certain applications.
[00:16:38.19] - Torsten
Fantastic. Can you give us an idea of the size of Nextracker, the number of employees, revenue, regions of operation, and customer base? Just to get a better grasp on what Nextracker is.
[00:16:53.23] - Howard
Yeah, sure. So we recently reported we're a public company. All of our financials are available online, nexttracker.com. And you can see that last year, our last fiscal year, which ended March 31, we had about 2.5 billion in US dollars, global revenue. About two-thirds of that revenue is in the US, one-third outside of the US. We have over 1,000 employees now in the company. We have offices around the world. Our headquarters are in California, in the San Francisco Bay Area. But we have offices in Nashville, Tennessee, and in India. We have over 300 people in India. We have a big center in Brazil. In Europe, we have over 60 people. Our main office is in Madrid. And so we're all over the world. Australia, we have a great presence there. So we've been growing historically about 30 % per year for the last six or seven years. So we've been growing quite fast.
[00:18:07.16] - Torsten
And your job title is President. What do you do as a President? What's your day to day work there?
[00:18:15.08] - Howard
Well, I do believe in the inverted organization chart where I'm at the bottom and the rest of the company is above me.
[00:18:24.23] - Torsten
All sitting on your shoulders.
[00:18:26.14] - Howard
Yeah. Well, and Dan Shugar is the CEO. We partner, and we divide and conquer. He's not at this show. He's at another event in US. So my focus is on R&D and product development, marketing and sales and getting those products to market. That's my focus. We have a team, including Alex Al, who's our Chief Technical Officer, driving innovation in the company, managing that to a real product, getting out in the field, and then sales, marketing, and making sure those assets are managed well in the field. That's what I tend to focus on. I'm also on the board of the company and helping with general management and decision making.
[00:19:19.07] - Torsten
Before Nextracker, you had the experience at PowerLight and many other companies I mentioned previously. What is the best management learning for you when you look back? What advice would you give someone else who's starting a business based on your learnings?
[00:19:42.26] - Howard
Well, first of all, for employees of companies, find your passion, think of something that you're truly passionate about, because that's the number one thing that drives you. And then find something that you can personally add value the team. And then act with. I call it TRE, which is trust, respect, and empathy for your fellow employee. Trust them, your partner, have respect for them, and treat them with empathy.
I think for someone starting a business, it goes back to "what is your strategy?" What can you uniquely add? We don't need another photovoltaic panel. Okay, There are lots of people that are making photovoltaic panels. But if you're going to start a photovoltaic seller panel company, maybe you have an invention that's unique, that's interesting. And so for people who are starting businesses, I think that's very important to have the whole industry in mind. How can you pull the whole industry forward?
[00:20:53.20] - Torsten
That's on the, let's say, product strategy side. What about the, let's say, management, general management? What's the business management side? What's the most important thing you should bring to the table?
[00:21:04.17] - Howard
Well, I'm quite religious about plan versus actual. So you have a plan, execute to your plan, whether you're in product development or whether you're in sales, in bookings or in revenue, execute to your plan. We're doing that at Nextracker. We've had, I think, five earnings calls, and we're executing to plan. And as a result, we're doing well for our shareholders and for our employees and our customers.
And then always put the customer first. I mean, do right by the customer. We walk over broken glass for our customers. I mean, our customers are really the most important partner that you can have because not only do they write the checks, they give you amazing insights on whether it's product, whether it's a sales process, whether it's fulfillment, warranty. They're the ones, listen to your customers. I tell people to have two ears and one mouth. There's a reason for that. That's the ratio. I'm not demonstrating that right now with you. It's inverted. But two-thirds of the time, when you're with a customer, listen. It should be really eyes, two ears, and one mouth, which is 80% of the time, listen to your customers.
[00:22:35.12] - Torsten
How do you handle this situation? Like customization versus your standard product? I guess your customers are also creative and have ideas, and then you have to say, I can't do it with this product. But when do you decide, we'll do a customization for that specific project, or we'll let that deal go, or say, hey, now so many people are asking, we'll try to make it turn into a new product line or a new feature. How do you balance that trade-off the situation? Because you're doing sales and R&D, that's exactly the critical interface there.
[00:23:16.01] - Howard
Yeah, that's quite insightful. It's a challenge for us because you can become quite defocused because there's so many great ideas out there. There's agrovoltaics. Should we go and jump on it? Floating. Should we jump on that? Floating systems. The weather has become more extreme. So now you have these hail missiles coming from the sky, these hail balls that are the size of a grapefruit. How do we protect those systems? And so we listen to our customers right now.
This area of dealing with a more volatile environment is something we're paying a lot of attention to. So we announced last year a new product that now starts at 75 degrees so that it's more hail resistant, for example. Ultimately, you have to try to be data driven, but go with your gut. At the end of the day.
[00:24:21.14] - Torsten
That's the balance, right? So far, we're doing okay in this regard.
[00:24:28.19] - Howard
But we have a lot of of parallel efforts, I can assure you.
[00:24:35.18] - Torsten
Between art on one side and science on the other, how would you describe then, let's say, these business decisions? Are they more on the art side, like gut feel, or on the science side?
[00:24:51.03] - Howard
In the end, I think it's 50/50. I think it's a 50/50 thing. Ultimately, you have to go with your gut because there's only so much data. There's always going to be uncertainty. You have to... Are you a skier? Do you ski? Sometimes the light can be very flat. The sun is obscured by fog and clouds. You can't really see the terrain. You have to leap off the mountain and trust that the company, and you, will make your way down. So that's where the gut comes in. You have to make a decision and leap in because you won't have all the answers through data.
[00:25:37.05] - Torsten
Much of your experience is in the US solar marketplace. We are in Europe today. We are here at the Intersolar 2024. How would you describe the tracker uptake in Europe? Is it very different? Is it different mentality that you experience in sales?
[00:25:57.09] - Howard
The energy is amazing. The amount of activity is still really strong. I was here last year, and comparing last year to this year, it's the same. If anything, there's more activity. I think tempering this exuberance, and there's new markets that are evolving, like Romania is a surprise market that's quite interesting, for example.
Tempering that is... The solar industry can be a field of locus. They can strip all of the crops and move very fast because it's very distributed. There's so many developers, so many companies. The technology is actually quite simple. It's not that technical. It's not like building a gas plant or a coal plant or a nuclear plant. A single company on one site can build 10 megawatts in a week. Okay, or more. It's astonishing how fast these power plants can now rise up. We were talking to a company that was literally installing They hit 10 megawatts in a day. It was just remarkable, right? So what, getting to the tempering part, can we create to access energy quickly with solar. So it's very important that other technologies come along, like battery storage and other things, so that we can provide more of a 24/7 product in solar, with wind, with storage, and other renewables. That's important.
[00:27:47.19] - Torsten
Are you looking into these areas as well, as Nextracker, to extend your portfolio moving away from, let's say, steel and software? And sensors, adding maybe that storage has more solutions to offer?
[00:28:05.24] - Howard
Trackers are still the core. We view the tracker as the spinal cord, the skeleton of the system, and the neural system of the power plant. So that's still the core. But yes, we're looking at potentially doing more. Our customers would like us to do more, which is interesting. When you look at the evolution of the industry, companies, going back 20 years, had a tendency to do more than just make panels. They had to, in our case at SunPower, we ended up vertically integrating because we wanted to make sure the factories were loaded, the solar panel factories. Then as the industry scaled, companies became more specialized. I mean, never did I think I would see more than 10 tracker companies at a show, right? They're just doing trackers. I mean, that's quite surprising. But I think you might see in the future a reintegration to a more fulsome or complete solution again. The industry is evolving all the time.
[00:29:25.23] Torsten
All the time. Sometimes you focus on one part and then you integrate vertically. It just goes.
[00:29:35.04] - Howard
It's almost like a pendulum.
[00:29:37.10] - Torsten
Yeah, it goes forth and back. The solar supply chain has been a big topic for discussion in the last few years, right? And you've been very active in localizing production, particularly in the US, localizing there. But you also did the same for Australia. How do you see that playing out globally and at what volumes? Does that make sense for local production for you?
[00:30:02.12] - Howard
This is interesting because this is also one of these pendulum things, right? Because there was a tendency to have all the manufacturing come from Asia, right? I mean, before that, it was more local. We had factories in different places in the world. I believe that you had association with Qcells in some part in your career. Fantastic company, still around. Yeah, still going, which is great. But there's a migration to Asia. Now, there's more of a localization happening.
So for Nextracker, we have over 80 manufacturing facilities around the world. We've enabled over 20 facilities in the US in a very short period of time, two and a half years. Whereas before, three years ago, the company was importing just about everything. Now, we can hit 100 % domestic content in the United States as an example. But we can achieve more than 65 % in Europe, local product. In Brazil, we have a very high percentage. In Australia, we have a very good percentage. So now it's becoming more localized. In India, over 80 % localization for Nextracker. So, yeah, the pendulum has come back... and it makes sense in a way, because the pandemic has taught us that logistics can be incredibly disruptive, right?
And a big issue. So that actually was a catalyst for Next to localize the United States. Actually, it was the pandemic. It wasn't the Inflation Reduction Act, although that has accelerated our localization.
[00:31:57.10] - Torsten
Talking about the Inflation Reduction Act, local production of PV cells modules is at the core of the discussions we have here at Intersolar and also over the last few years for Europe, for the US. In general, the experience I had, and I guess you also had in a way, is that it's super hard to compete with Chinese PV cell and module makers. Based on your experience, how do you think efforts to diversify that supply chain, cells, and modules will play out?
[00:32:38.08] - Howard
I have really mixed feelings about this topic. Why? Because as somebody who has worked in solar for 40 years now, in wanting that cost and price curve to come down, because at the end of the day, we're competing against the grid and all of the other energy sources that are coming through the grid. And the only way to do that is to get costs way down the curve. And we owe, the industry owes a huge debt of gratitude to the companies in China, in particular, that have scaled massively and driven cost out of the panel and efficiency up with solid warranties and performance. They've done a really good job.
You can argue about how the government has their role and how that's played out and the impact that they've had. It's a different socioeconomic paradigm in China. You could argue with that, but I'm not going to. I'm fixated on mainstreaming solar. So I think for the industry, it's been very good. It's driven cost out. It's forced all of the competitors to be more innovative and more creative and scale the industry. I think now in the US, we have tariffs that are placed on this product because the federal government of the United States has decided that it wants to localize solar cell and panel manufacturing in the US.
I think this can work. I think some of the companies, some of the global players in solar are coming to the United States to make this work, and I think it can work. I think with policy, I look at it as a three-legged stool. You have policy, technology, and economics. They work together. I think other countries can learn from the Inflation Reduction Act of the United States, which is really fast tracking renewables. And it's not for only solar cells and panels. There are incentives for batteries, inverters, the whole value trackers, the whole value chain.
[00:35:00.08] - Torsten
So they've just decided on new tariffs on importing modules to the US. What do you think is the impact on the cost? You stress that point very strongly – that it's all about squeezing out the costs in general, but also for your business in the US. Will it slow down?
[00:35:23.27] - Howard
I don't think it'll slow down because... Why? Other US manufacturers are scaling up their factories and providing production, and it's still a competitive situation, although there are a couple of dominant US players that are benefiting from this trade policy in the interim. And so that will mean pricing will either be steady or increase some. But because of the way the Inflation Reduction Act is with the tax credits for the owner, it can be offset to a degree by this 30% investment tax credit and then the 10% bonus tax credit. So you can get a 40% tax credit that can be offset. So if you have a $1 per watt increase, which is absurd, but let's just say that there was a $1 per watt increase, $0.40 is taken away through this incentive. So it's buffered or buffeted to an extent. I think there have been dozens and dozens of announcements for new factories in the US, and they're going in. The investment is happening.
[00:36:39.17] - Torsten
So you're not expecting a slowdown of the growth and also not a growth increase. There's a reason in prices.
[00:36:46.22] - Howard
I think it's not helpful for growth, let me put it that way. It will slow it down to a degree, but it will still grow. Maybe not as fast. And I think the biggest governor to growth is just the interconnection approvals for these projects. And in the United States, it's astonishing what's happening there. I don't know if you're aware, but the US generating capacity is about 1.3 terawatts, 1,300 gigawatts.
[00:37:24.16] - Torsten
Of installed solar?
[00:37:26.19] - Howard
Installed capacity, electric generating capacity. Half of that's gas. So there's, let's say, 700, 750 gigawatts of gas. I don't know the precise numbers, but it's about 50% gas, the electric system today. Solar is like 4 or 5% or something. Then you have coal and nuclear. Together, they're about 30%. But when you add up in wind, it has, I don't know, maybe 8% or 10 %. When you add up all this, it's 1.3 terawatts, 1,300 gigawatts US generating capacity for electric.
The interconnection queue, the wait line to get connected to the grid is about 2.5 terawatts – double the existing generation capacity of the United States. Okay. The United States has something like 90 nuclear power plants. Okay. I mean, this is the interconnection queue. 90% of that plus is renewable energy of that queue. Solar and storage is 60% of that queue. It's astonishing.
So how are we going to get these projects interconnected to the transmission system? That's the biggest governor to growth. But it's happening. They're getting connected. Our company has grown 30% per year. We're still growing. Projects are going through.
[00:39:01.07] - Torsten
So what's the bottleneck here? Is it technically the grid or is it administration, like bureaucracy?
[00:39:13.17] - Howard
It takes time to get a permit, the studies that are needed. You can call that bureaucracy. And then there are technical constraints. The technical constraints have not been reached, however. There's plenty of substations and transmission, distribution capacity in a lot of the United States. But yeah, there does need to be more transmission installed. There can be reconductoring, which is quite easy to do. Actually, use an existing tower, just put more capacity. So yeah, these things have to happen. They will happen. They're happening.
[00:39:53.06] - Torsten
Excellent. A little jump back to Nextracker, or let's say also management. You mentioned earlier, you basically started out as a tracker system company, which is focused on having smart structures based on steel, and then you added more and more software. You moved the company from an engineering company, like hardware engineering company, to a large portion becoming a software engineering company. Was there any issue with that?
[00:40:32.27] - Howard
There was a bit of an issue. One of the things that we did was we purchased a company called Brightbox that had some AI and machine learning capability. This is maybe five or six years ago. And because we didn't have the technical know-how in the company, we got some help by buying a company and injecting that DNA into the company. What we did is we translated that know-how into how we manage every single tracker row, which is like the length of a football field, American or Euro football field. Pretty long tracker row. Every row is managed to maximize the energy yield. That's done through software. We call it TrueCapture.
And with the advent of panels, the way they, for example, you have a solar panel, electrically, one panel can have actually be two panels, right? It's split electrically. So we have added to the software something called Split Boost, where we allow the bottom half to be shaded in certain times of the day and allow the top half to be fully illuminated. So we are optimizing every moment of every day, every row through software. That's one example of how we're using software.
[00:42:01.25] - Torsten
And that came in through the company you acquired?
[00:42:05.17] - Howard
I mean, that was the start. That helped provide us some of the algorithms and know-how to make that happen. But now we have a full performance, fully capable performance team, and they keep evolving the software and what we're doing.
[00:42:21.20] - Torsten
What I found surprising as a European or a German, that it seems that US American companies are a lot more ready to acquire a different company if they lack the know-how or the market access. I think, at least in Germany, I'm German, there's usually the tendency to think, well, the company is so expensive, we might as well do it ourselves. Then you start from scratch. It's a very different philosophy, I would say, right? Yes. To grow a company in terms of pure growth or adding features. Did you observe that yourself? Do you understand why that is?
[00:43:04.23] - Howard
I understand it. We talk about it. I mean, we call it organic versus inorganic growth in a company. It's a trade-off. You can do it organically. You could hire, try to hire the expertise, reroute some of your existing people, get them on a project. But then there's always competing priorities. Sometimes a company has so many competing priorities that they can't really dedicate the resources that are needed to expand their horizons.
What I've observed in the companies that I've been in, we're like, okay, we're going to acquire a company because you really try to find a synergy. You really want to find a company that's doing something that you're not doing, but will fit culturally together. And maybe in Germany, I don't know. Maybe that's just something there's a concern, or there's an experience that when you bring another company that the culture fit isn't there or it just doesn't work. Often it doesn't work in the United States. I think it's like marriages. I don't know what the statistics are, but it's like 50%, 50/50. I think it's like that for companies that buy other companies.
[00:44:33.28] - Torsten
And with that different perception of how do you do growth organically or inorganically, in the US, there's also a very different approach to value a company, right? In Germany, it's usually like, we just look at the EBIT for the last two years and that's it, right? We pay you the EBIT for the last three years.
And in the US, it's more like you go about multiples, you look into the future, you look at the people you would acquire. There's a very different approach to valuation of companies. Have you observed that as well? Because you also act as an investor. And maybe you have also looked at the VC landscape in Europe. Maybe you also observe the differences there.
[00:45:30.07] - Howard
Yes, all true. I think that if you're a public company like Nextracker is, you're held to maybe a different standard where the investors in the company, since we're a publicly owned company, anybody can own Nextracker. And so some of the traditional metrics, financial metrics, are important. The multiples that we're paying for this company. We have to pay attention to that.
But the more important thing is, for us, is what is the value proposition of the company we're acquiring? I mean, is it something that's going to truly help us be more differentiated, be a stickier platform where we get engender more customer loyalty? Those are more of the, will they match culturally, the employees with us? Is there a leadership team that is maniacally driven like we are? Will they match us in our energy and intensity? These are more of the things that we're looking at as a company. But we also have to adhere to these metrics. I don't know in Europe, I don't have as much experience with an understanding what motivates a European company versus a US company, what the differences there are.
[00:47:08.27] - Torsten
I just would say that those big exits for some companies in the US, as you see it in the US, would never, ever be possible in Europe.
[00:47:25.03] - Howard
Is that right? Why is that?
[00:47:27.15] - Torsten
That's the thing I was trying to get from you. Maybe we do some research and meet again.
[00:47:35.26] - Howard
It's very different.
[00:47:38.26] - Torsten
I mean, look at one of those iconic examples, WhatsApp. It's a team of a bunch of engineers.
[00:47:48.07] - Howard
I see this startup thing.
[00:47:51.27] - Torsten
Not only startups, but even mature companies. Then you value them at a crazy value. Oh, I see. Because you look into the future. Yes. I think you would never, ever see that, or rarely see that in Germany. That's interesting. So the VC culture is super different. And California is, of course, the ultimate space for that.
[00:48:13.04] - Howard
Yeah. There's also a disproportionate number of casualties, I think, in the business world in the US, right? Versus maybe it's a more careful approach here. I did have a fortunate experience of working with Total, the giant energy energy company out of France. They were a 60% owner of SunPower when I was there, and a great, fantastic partner. And they acquired companies while we were there. They made investments in storage. They bought a retail energy company in Belgium. I think, they were very thoughtful, to your point, about these companies and their prospects and holding them to deliver on their plans. But also they were, I think, very forward leaning in terms of where we're going for the future. And that was really caused by the leadership of Total, which is still in place and driving that company to be one of the leading green energy companies in the world, which is exciting. That's what we need. We need these energy giants.
[00:49:21.29] - Torsten
To move in.
[00:49:24.29] - Howard
We're very proud to have grown our company, 8 billion market cap. Okay, market cap. That's fantastic. These energy companies are like 50 times our market cap. They're giant. What we earn in a year they earn in a week. Okay, and so the industry needs to greatly expand and grow. Our company needs to go 10X. When we're north of a $50 billion market cap or $80 billion, we want to drive it to $100 billion market cap. Okay, now we've arrived. The industry needs to become where the oil and gas industry is today, which is very difficult to make that energy transition happen.
[00:50:19.02] - Torsten
Do you understand why oil and gas hasn't moved in with full on speed a lot earlier, not even today?
[00:50:27.14] - Howard
Well, some of them have. Some have invested hugely. Some have not. I think it's plain and simple. They're making tremendous amounts of money selling oil and gas. They're earning huge profits this way. They did well during the pandemic, and they're doing well now. I think that at the end of the day, shareholders, most of these energy giants, are publicly owned companies. You have to focus on profit, profitability. I think some are investing big time.
We're working with these companies. Most of the large energy companies we're working with, they are in solar, they're in wind. We want them to do more. Please do more. They're doing great, though. We highly value them. We're very happy with their progress. But we need to go 10X in renewables. All right. Why do we need to do that? Why do you think we need to do that? You're a scientist.
[00:51:36.29] - Torsten
You know the data. Why we need to do that? We've got something going on with our climate, and we need to protect the basis for our life, right?
[00:51:46.15] - Howard
You got that right. Yeah. That's the core of the mission. That's what binds these 50,000 people together at this Intersolar event, right?
[00:51:56.16] - Torsten
So my final question is, usually, what's required to take solar to the next level? I guess you just put it out, right? You have to go 10 times and we need the big utilities to come in even more than today.
Or would you like to add an extra perspective to taking solar to the next level?
[00:52:17.12] - Howard
I mean, it's going to happen with or without these energy companies coming on board. That's what's inevitable. It's unstoppable. It's undeniable. Look at the interconnection queue of the United States. Look at it here in different parts Europe, in Spain, in Germany. I mean, it's happening. The energy transition is going to happen with or without these. It could go faster if these other companies joined, but it's happening. It's going to happen. So it's a foregone conclusion.
We need more hybrid systems, I would say. We have to solve the storage problem. Storage on-side. But with electric vehicles and lithium-ion costs coming down, I mean, it's... Did you know that California has 10 gigawatts of battery storage they've installed in four years. The grid's 50 gigawatts. Already, there's 10 gigawatts of storage in about 35 gigawatt-hours. It's amazing.
[00:53:13.26] - Torsten
It's amazing, yeah.
[00:53:15.20] - Howard
It's happening. It's super exciting. Hey, thank you so much for this interview.
[00:53:20.26] - Torsten
Howard, thanks a lot for joining and sharing your personal solar journey and all your insights. I wish you all the best for your Nextracker and enjoy the rest of the days here at Intersolar.
[00:53:34.07] - Howard
Really appreciate it. I think the name of your podcast, The Solar Journey, is spot on.
It's been a journey.
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