Rise and fall of the world’s biggest solar company

In 2011, Suntech Power Holdings was the world’s biggest solar panel producer, shipping more than 2 gigawatts of panels. As Wayne Ma of the Wall Street Journal reported today:

Suntech is now in Chinese bankruptcy court, and [founder Zhengrong] Shi isn't allowed to leave China without court approval, as is customary with non-Chinese executives involved in bankruptcy proceedings

The article is a must-read for anyone who follows the solar industry.

One reason is the dramatic turnaround of the personal fortunes of Shi, a Chinese-born Australian citizen. With his holdings in Suntech, Shi was on the Forbes list of billionaires (with a net worth of $2+ billion) in 2006 and 2008. The WSJ says his holdings were worth $4 billion in 2007 but “around $31 million” today. The pictures also show a man dramatically aged in the past five years.

The failure of Suntech has been assumed to be due to falling solar prices, but this is a pressure that all Chinese producers are facing. It was highly leverage, borrowing heavily to grow capacity and volume after the financial markets collapsed in 2008.

However, there were also unique problems of self-dealing and fraud. The WSJ focused on the investments of Suntech and Shi in Global Solar Fund, which financed European sales of Suntech panels. The story is complicated, but apparently the GSF manager posted fraudulent security for a €554 million Chinese government loan. When GSF got in trouble, the fraud was discovered, and Suntech (an NYSE-listed firm) was forced to report the GSF liabilities on its books and found itself unable to refinance more than $500 million in corporate bonds.

A second questionable deal was that Shi founded a polysilicon producer, Asia Silicon, and provided the unproven startup with both financing and more than $1 billion in purchase contracts. Suntech's failure to disclose its dealings and Shi’s conflict of interest are the subject of a class action shareholder lawsuit filed in San Francisco last year — a lawsuit that’s curiously been ignored by the US media.

After a 2005 IPO and a peak price of near $90, Suntech shares closed Friday at $.61 after trading under $5 for the past 18 months. For Shi, his dreams of creating an enduring industrial empire have been destroyed, as has his personal fortune.

In Memoriam: 2011 solar shakeout victims

As part of updating a research paper I’m writing on solar policy, I’ve been catching up on the state of the solar business. (Regular readers will note that since I joined KGI, I’ve been paying a lot more attention to biofuels).

To start, I thought I’d look at all the solar firms that died (or otherwise were mortally wounded) in 2011. I traced down the announcements of the firms mentioned in various stories, and here is what I found:

Company	HQ	Stock	Tech-nology	Date	Action	Current Status
Soliant	Monrovia, CA	private	CPV	Mar. 29	Liquidated	Liquidated for 1.5¢ on the dollar
Evergreen	Marlboro, MA	ESLR	ribbon Si	Aug. 15	Chapter 11	Liquidated
SpectraWatt	Hopewell Junction, NY	private	Si	Aug. 19	Chapter 11	In liquidation
Solyndra	Fremont, CA	private	thin film (CIGS)	Aug. 31	Chapter 11	Liquidated
Stirling Energy Systems	Scottsdale, AZ	private	thermal (Stirling engine)	Sep. 23	Chapter 7	In liquidation
Solon AG	Berlin, Germany	SOO1.F	Si	Dec. 13	Insolvency	Seeking a buyer
BP Solar	UK	(division of BP)	Si	Dec. 20	Announced plans to close	Winding down
Solar Millennium AG	Erlangen, Germany	S2M.F	CSP & PV solar farms	Dec. 21	Insolvency	Selling solar farm projects

Most of these were solar system manufacturers, making panels, tubes (Solyndra) or stand-alone thermal generating dishes (Stirling). The mainstream companies (like SpectraWatt) might have IP that’s useful for other PV companies, while the oddball companies (Evergreen, Solyndra, Stirling) had unique technologies of little or no value to other firms.

BP Solar’s decision to get out of PV marks the latest realization by oil companies that biofuels (not solar) fit their existing business model. I hope to blog on this another time.

Solar Millennium is unique in that it was a large solar farm developer, and thus its projects (if they still make economic sense) might be bought by other companies. One of its largest projects is the 1 gigawatt Blythe Solar Power Project that won a $2.1 billion loan guarantee from the DEO and was praised by DOE Secretary Steven Chu and California governor Jerry Brown. It appears that the Blythe and other US projects are being sold by Solar Millennium’s majority owned US subsidiary to SolarHybrid AG.

Solynda losing raison d'etre

Solyndra had a terrible 2010: it cancelled its IPO, announced plans to close a factory and cancelled its ambitious hiring goals. Many analysts started asking whether the government would ever get back the $535m in Federally guaranteed loans — over and above the $1b in private capital.

Solyndra was once the poster child for green jobs in the Bay Area, with its factory rising only a few miles from the old GM (later Nummi) plant. Instead, it’s looking like California’s answer to Evergreen Solar — except that Evergreen IPO’d early enough to bail out its VCs.

Will 2011 be any better? Not according to Dana Hull of the Merc, who normally offers an optimistic bent on local cleantech companies. Today’s story on the website says “Fremont's high-flying Solyndra hits a rough patch.” However, as lead business story in the dead tree Sunday paper, the headline is more blunt: “Cloudy future.”

Looking at the story, this is one of those balanced stories where the reporter strained mightily to suggest a possible happy ending. The company has money (for now), a top flight team, and has completed some successful installations. It’s still hoping to make a dent in its niche, commercial rooftops.

As for any PV maker, the challenge is the price: if the commodity PV panels aren’t cheap enough, no one will buy them. This is particularly true for most thin film producers, that hoped their lower manufacturing cost would give them an advantage against the established crystalline silicon.

The problem is, crystalline silicon prices continue to fall — driven by an explosion of capacity and scale economies achieved by Chinese makers. Except for First Solar, thin film makers have been unable to keep up.

The prognosis in Hull’s article is grim:

Many low-cost Chinese manufacturers, which benefit from massive government support, are manufacturing at costs in the $1.10 to $1.20 a watt range. Thin-film leader First Solar, based in Tempe, Ariz., manufactures at 75 cents a watt and aims to be at 53 cents a watt by 2014. Solyndra says its current manufacturing costs are about $3 per watt..

"Our manufacturing cost per watt is coming down every quarter," Harrison said. "By the end of 2012 we should be at the $1.30 to $1.40 per watt range, or $2 a watt if you include installation."

But even if Solyndra hits that goal, analysts such as Jeff Bencik of Kaufman Brothers warn that competitors are similarly racing to drive down their costs -- and have a head start.

"It's a moving hurdle," Bencik said. "It will be really difficult for Solyndra to match (other manufacturers' costs) at this point. I'm not saying they can't do it, but I haven't seen it."

Evergreen took a dramatic step — moving production offshore — but did so too late to save the company. Solyndra is fighting the same commoditization, low cost producers and laws of economics.

So if this article is the hometown paper putting the best face on things, I guess we should expect a major (but unsuccessful) reorg in 2011, and a liquidation or other forced exit within 18 months.

Innovative technology, commodity electrons

One of the points I make when teaching about solar energy — as I did for three classes this week — is that the economics of renewable energy are fundamentally different from that of IT, biotech, or earlier technology-based industries.

The challenge facing renewable energy entrepreneurs is that no matter how innovative a company’s technology, in the end it’s going to be used to produce commodity electrons. And even if the government has a policy that aggressively favors “green” energy over all others, makers of flat silicon panels have to compete with thin film CdTe, CIGS, CPV, solar thermal as well as wind, small hydro and anything else that comes along.

So in the end, really cool technology is going to be judged on cost and reliability during the long life of an expensive capital good. PCs may be thrown away after 3 or 5 years, but solar panels are expected to run 20 years or more. This means that high-volume, high-repeatability, low-cost manufacturing is usually more important than some great advance in science (unless of course that advance cuts costs or improves efficiency more than it raises costs).

Attacking this point is Thursday’s column in GreentechSolar by Tuan Pham, an energy analyst (and HelioVolt biz dev consultant) turned solar investment fund manager. The column’s subtitle says it all: “Considering the implications of the fact that solar is really an energy industry, not a technology industry.”

Some of his points are familiar: commodity electrons, the unsuitability of VCs to invest in capital-intensive projects, and unrealistic growth expectations. Others should be familiar, including the near-commoditization of high insolation land intended for solar farms:

Because we can site solar nearly anywhere the sun shines — solar resources at any given location have been studied for decades by NASA and the National Weather Service — our projects are much easier to develop than other energy projects. … Why would property owners expect to charge significant premiums for land if the sunlight is the same 50 miles down a transmission line?

Other points are more contrarian, including this:

Yet, despite all of the tech money that has flooded into solar in recent years, technological advances have not lived up to expectations. In fact, most of the "technology" that is being funded in solar projects is relatively old. Crystalline-silicon (c-Si) cells were invented at Bell Labs in 1954 and since c-Si efficiencies hit 14% in the 1960s, not very much has changed with the technology. Likewise, the other pieces (balance of systems) that go into a solar generating system involve fairly uncomplicated electrical work and few moving parts. These well-known and reliable generating assets, not an elusive magic technology bullet, are what energy and project investors will fund.

While some of Pham’s conclusions will create heartburn among solar activists, the nudge towards increasing accountability should not. Pham singles out “Pretend PPAs,” in which Purchase Power Agreements are quoted with unrealistic prices and costs that will eventually become obvious.

The recommended antidote for regulators and utilities being compelled to buy renewable energy:

• Increase and enforce penalties on non-fulfillment of projects
• Shorten execution time frames (at least for PV).
• Enforce stiffer penalties on projects that are late.
• Require bigger proposal deposits.
• Expedite the interconnection process.

Accountability is good and necessary for buyers, sellers, investors and society. A lack of accurate information and accountability creates market distortions that lead to bubbles and crashes.

The solar industry is approaching a shakeout period, with the strong consolidating the weak. Many venture investors supporting a company with more than $100 million of equity funding will eventually seek other exits if the firms are unable to IPO in the next 18-24 months. (Don’t ask me which ones will go first — my Ouija board is on the fritz.)

Let’s hope that more accurate information leads to the survival of the most efficient and best run firms, rather than those who were lucky at the VC roulette wheel but who lack the resources and capabilities necessary for long-term survival in this competitive industry.

Who needs inefficient solar panels?

The IPO of thin-film solar module maker Trony Solar has been cancelled in the light of a lousy IPO climate that also claimed Solyndra’s IPO hopes. The Chinese firm had hoped to raise $200m.

In her story on the cancelled IPO, Camille Ricketts of VentureBeat notes this is in the context of other declines in the thin-film market, including Applied Materials discontinuing its SunFab thin-film integrated equipment line.

Buried near the bottom of her story is the heart of the matter:

Thin-film cells are generally less efficient than their crystalline silicon peers. Their main saving grace — which motivated a lot of investment in the market two years ago — is that they use less silicon. Back when the material was expensive, this made thin-film a compelling proposition. But silicon prices have since dropped, allowing crystalline silicon panels and the companies who specialize in them, namely SunPower, to remain on top.

This raises the question: if crystalline silicon prices continue to fall — as they have for decades — why would we think that thin film companies have any sort of future?

Low efficiency means greater spending per kWh on balance of system — including installation labor and permitting costs that seem more stubbornly resistant to experience curve efficiencies. There’s also the real estate question — due to the space limitations of a rooftop environment, behind-the-meter applications often have trouble generating enough power to meet local demand as it is.

Yes, solar remains an industry of a thousand niches. Flexible thin-film substrates will have a future in building-integrated photovoltaic and other niche applications where it is competing with no PV — rather than silicon PV.

Still, we’ve known that a shakeout is coming in PV, due not only to the high level of investment in solar startups but also the importance of scale economies to overcome increasing cost pressures. The shakeout is going to be brutal to makers of low-efficiency components and modules.

Rough days for venture-funded cleantech startups

Tonight’s event hosted by the SJSU-affiliated Environmental Business Cluster (EBC) was officially about Creative Financing for cleantech startups. And certainly the speakers talked about strategic investing (CVC) and government grants in addition to normal angel and VC funds.

One of the panelists was Brian Sager, a VP and co-founder of Nanosolar, which had A-list Silicon Valley tech zillionaires as its angels, then did a Series A and B with VCs, Series C with private equity and Series D with strategic investors impressed by a $4b backlog. By the time it was done, it raised almost a half-billion dollars.

Still, this is not a great time for cleantech investors. Moderator Eric Wesoff of Greentech Media noted an excessive number of VC-funded entires in a wide range of PV technologies, and Wesoff and several panelists alluded to the shakeout now underway.

The final comment of the evening, by NREL CIGS researcher turned VC Andrew Willamson, noted that valuations this year for most series B,C,D were off 40-60% (or even 80%). Dr. Williamson concluded: “I’m not doing anything this year that I can’t get for half off.”

Still, there were some thing missing from the session — great speakers but a little more coherence was needed. (Admittedly, the audience was a mix of people who attend two of these events every week versus those who were at their first or second.)

Wesoff tried but skimmed through his slides to avoid boring industry veterans. One thing that would have been interesting was the observations of GTM coworker Rob Day last month on cleantech VC “conventional wisdom”:

1. Cleantech only happens in Silicon Valley and MIT. If you look at the dollars flowing into cleantech from venture capitalists, and read the sunday NYT, that's the natural conclusion you would draw.…
2. Cleantech is really only solar, "smart grid", biofuels and electric vehicles.
3. Cleantech is really only about capital intensive business models.
4. Cleantech startups are only for whiz-bang PhD researchers who have earth-shattering innovations. Business models like energy efficiency services, and other implementation efforts, need not apply.
5. The only good cleantech startups are those backed by VCs. The fact that only 1% of startups get their initial capital from VCs simply means that 99% of new businesses are bad ideas.

BTW, of $864m of Q3 VC investing in “industrial/energy”, 60% went to SV vs. less than 5% for Boston. Wesoff noted there were more deals being done for smaller amounts in 2009 than 2008.

Still, I think the anecdotes of a few individuals would have benefitted by adding the perspective of an academic or researcher, to address several other points:

• Where is the VC money going within cleantech? If you’re not in those areas, are you toast?
• What models require VC (that “capital intensive” story) versus ones that are unlikely to get VC?
• How do you scale without outside investment?
• What do we know in general about sources of funds for high-tech startups, particularly during these difficult economic times?

With the current economy, I have seen a lot of SV events around bootstrapping in the past year. Admittedly, no one can build a $100m factory by bootstrapping, and many of the businesses that most excite the audience (especially VCs) are the ones that are going to grow fast or die trying.

Still, some of the people in the room seemed keen to get their business of the ground — to make a difference somehow — and perhaps sell out early to a larger firm that has the resources to take it the rest of the way. Perhaps a separate event could focus on getting early stage companies off the ground — to proof of concept — a topic that would be eagerly embraced by many in the audience and of course fits the EBC’s mission.

Is cheap oil bad news?

The NY Times today has caught up to the idea that good news for consumers (low oil prices) is bad news for the renewable energy industry. This is actually a story that’s been building for months.

Consumer are thrilled that oil prices have pulled back some 50% from their summer record highs, putting money in everyone’s pocket. Oil that was once $147/barrel is now hovering around $40, slightly up from $34/barrel in December. Local gasoline price (with high California taxes) went gone from over $4/gallon to less than $1.70/gallon before coming slightly above $2. These falling oil prices have meant falling consumer prices, down 1.0% in October and 1.7% in November — increasing consumer purchasing power.

By the same token, environmentalists have been worried that falling oil prices will lessen national interest in renewable energy and energy efficiency. I think the worries are overblown for several reason, not the least of which is the strong support for EE/RE that’s a certain outcome of the Obama administration.

Business Week attributes the current turmoils of the PV industry to falling oil prices. I’m not sure I follow the argument, given how small a role oil places in US electricity generation. Coal provides half, and together coal, nuclear and natural gas account for 88% of US electricity.

I think the other factors listed by BW are more important, specifically the excess entry of new startups fueled by VC investments (as they did with dot-coms in the 1990s, and disk drive and PC companies in the 1990s). There is also the general decline of capital spending by firms and consumers — both because cash is scarce (so long-term spending is being deferred) and due to difficulty obtaining financing. No cash, no panels, no sales.

While the nature and amount of Federal support for PV is unknown, our new president has already said he’ll spend money to improve the energy efficiency of Federal buildings. Although no public promises have been made yet, some activists predict this will include LED illumination —which would drive the new technology down the learning curve.

Also, the energy/environment “dream team” nominated for the new administration are expected to take steps to reduce CO2 emissions. The #1 target will be those coal-fired power plants, thus increasing the price of electricity more directly than any changes to oil prices.

On the transportation side, falling gasoline prices have cut sales of hybrid vehicles in half. Hybrids are more expensive up front, and payback periods have doubled since last May’s levels. But I think there will be an opening for real economy cars — like those we had in the 1970s after the first two oil shocks — which are both cheap to operate and cheap to buy. Honda is already on this trajectory

I originally thought there wouldn’t be much impact on electric vehicle sales in the near term. EVs penetration is well under 1% — not yet the early adopters in the diffusion of innovations (Everett Moore) sense. These earliest adopters (called “innovators”) want to be the first on their block to own one, and are not motivated by cost-benefit calculations.

However, I’ve since changed my mind. Everyone’s feeling poorer, including the rich who are willing to pay a premium for an EV: their stock portfolios are down, their retirement portfolios are down, their real estate portfolios are down. Like everyone else they are deferring capital expenditures as much as possible.

With or without cheap oil, there will be a shakeout of EV manufacturers. There has already been excess entry (30+ companies thus far) and thus consolidation or shakeout is inevitable. If the Big Three survive, they will add to the competition during a period with high up front costs and limited range. The pressures will be exacerbated by the wariness of individuals and businesses to make capital purchases.