2016 was a wild year and not just for solar. Voters seem to be rejecting the status quo in favor of the unknown in many countries. After decades of reliance on government incentives, subsidies and mandates the global solar industry may be inured to unpredictability but the industry as a whole should be wary of global trends.

No matter what and for everyone, 2016 was a heck of a year. Here is a roundup of a few events that rocked and rolled their way through solar’s 2016.

Donald Trump was elected president of the United States: 58.6% of eligible voters cast ballots in the 2016 presidential election with Hilary Clinton earning slightly over 48% and president elect Donald Trump earning slightly over 41% of votes cast. Secretary Clinton won ~2.5-million more votes than president elect Donald Trump but … Donald Trump won the Electoral College. The president elect appears to be committed to undoing many of President Obama’s progress on climate change, immigration and women’s rights.

Trump’s victory revealed a great divide in the US with great anger on either side. This was a populist victory but certainly not a wholehearted one. A nasty campaign kept many voters home and opened the door to drastic changes that over half the country does not seem to really want. This is less a mandate than an object lesson of the danger of voting angry, voting for change simply for the sake of change, and a bored electorate that would rather sink into depression and not vote than cast their ballots on the basis of the issues.

What it means for solar: The ITC is safe, the Clean Power Plan is not safe and the direction of energy policy and the budgets for RE and solar will be at the mercy of a likely climate skeptic energy secretary. This is not the time for infighting on the part of the US renewable energy industry. All technologies and stakeholders including solar and other RE customers need to band together on the issues that unite them. Specific to solar – the industry is big business now contributing to the US economy.

The UK voted to leave the European Union – Brexit: 2016 has certainly not been bereft of surprising election results but Brexit stands out as the first result to catch global attention and shock pretty much everyone. Brexit, like the US presidential election, the failed peace vote in Venezuela, and upcoming elections in Italy, Austria and France (among others) is a populist uprising against the status quo. Following the vote to exit the EU many in the UK were shell shocked. The result of Brexit may take years to play out. In the meantime, it may indicate weakness in the EU – an example and a precedent has been set.

What it means for solar: Brexit probably does not mean much for solar – at least yet. Tenders are trending in Europe and replacing incentives. Demand is cooling – demand is not dead, but it has cooled enough for major manufacturers in China to withdraw from the MIP because the market in Europe is no longer strong enough to warrant compromise. Should more countries vote to exit the common currency will no longer be common and this would affect trade for all goods and services.

The global populist movement: The global populist movement did not begin in 2016. It has been rumbling around the globe since the housing crisis and recession of the late 2000s, gaining momentum as job security became a quaint memory, as victims of horrific civil war in the Middle East ran for their lives immigrating en masse to anywhere they could, as terrorism destroyed personal security, as austerity measures in many countries ripped apart cherished livelihoods and seemingly secure futures and as people demanding change got more of the same from leaders. Jobs were lost and many are not coming back. Progressives and conservatives alike demanded change. People felt left out of any economic recovery and revolted with their ballots.

It is worth remembering that throughout history political upheaval has typically come from economic inequality and a feeling of powerlessness. Without a ready and clear solution the outcome of upheaval for upheaval’s sake is, well, historically the French Revolution is a good example. After years of anger and few solutions from leaders, voters all across the globe threw out the status quo and replaced it with a heap of grievances and no plans or solutions.

In 2015 voters in Greece sent a loud message by voting down EU imposed austerity – without a plan.

In 2016 UK voters ushered in an uncertain future by voting to exit the EU – without a plan.

In the US, angry voters surged to Donald Trump’s rallies and succeeded in electing him president – without a plan.

Elsewhere in 2016 voters in Spain, France, Italy, Australia, the Philippines, Venezuela and even Iceland – pretty much every election has been effected by populist anger.

What it means for solar: The populist movement ushered in a president who has historically been a climate change skeptic in the US, potentially isolated the UK from Europe and has rendered trade agreements highly vulnerable – but, the populist movement is not responsible for the solar industry’s vulnerability.

Decades of ignoring margins and celebrating low prices for components and system deployment have done their work. Business models such as the US solar residential lease established no money down and free solar as a standard. Low bidding on tenders and PPAs have left the impression that solar no longer needs subsidies – and maybe this is true … the industry does not needs subsidies it can keep on losing money all on its own.

Here are some suggestions for the solar industry as we segue into the ill-defined populist reality in which we find ourselves:

First, when setting targets and goals for module and system deployment costs remember that these are actually prices. All along the value chain a gross margin sufficient to run an entire business must flow in order for a company and an industry to remain viable. A shout out to SunShot – if it survives – goals are wonderful things, but, insist that margins above 30% and ideally above 40% are maintained.

Second, stop using LCOE as a standard for progress. It is a highly manipulative model filled with assumptions, biases and supported with very few facts. It is meaningless.

Third, the people who ushered in the populist movements have been displaced. In the US for example, coal workers are out of work and they are suffering. Coal miners are not anti-solar or RE they are just trying to make a living. While the US solar industry has been celebrating job growth it failed to develop a plan to include the displaced. This is an area where SEIA has failed to act and needs to act.

Fourth, the current populist movement was informed primarily by people who felt disenfranchised. There is no reason that a populist movement with a climate change agenda cannot flourish. This movement should involve all renewable energy generating technology sectors and their customers as well as people who benefit from clean air. Solar has traditionally been grass roots and it is time it got back to those roots.

SunEdison finally fails: In 2015 SunEdison was still buying up companies, developing projects, sponsoring conferences and was viewed – though skeptically by some – as an industry leader. Now pieces of the company, including projects in various stages of development, are available for pennies on the dollar.

What it means for solar: For developers and investors looking for a good buy there is a lot available at, again, pennies on the dollar. Not all of SunEdison’s orphaned projects will be developed, and not all will be developed by the buying company, but many will be developed and at the bargain they were acquired may even be profitable.

SunEdison’s failure, one of poor executive decision making and lax, poor oversight, cast good people adrift. Most will find their way back to solar jobs and some will not. The true victims of the SunEdison debacle were its own employees.

SolarCity and Tesla merge their debts and companies: No one should have doubted that Mr. Musk would prevail in the merger of one highly flawed business model and two highly leveraged companies. A SolarCity failure would have had repercussions far beyond those of SunEdison as employees and residential lessees and PPA holders would have been affected. This is not reason enough to cheer bad business, but it is something salvaged.

What it means for solar: As with Tesla’s non-announcement about its non-existent solar roof tiles and its MOU with Panasonic Solar, expect a lot of PR announcements about upcoming product releases as well as a lot of slipped release dates. All this marriage of debt means for solar right now is, basically, nothing.

China’s market soars to a likely 30-GWp: Solar PV deployment in China ballooned in 2016 to double the goals of its government and make no mistake, solar deployment in 2016 would be 15-GWp lower if developers in China had not continued installing systems.

China serves as a perfect example of solar industry behavior for decades. Developers have not been paid the FiT regularly, curtailment is high and yet developers (while complaining of unprofitability) continued installing systems. This is, again, a perfect example of solar industry behavior for decades. It is illogical and trying to understand why an entire industry would continue to act against its own self-interest could make a logical person’s head explode.

What it means for solar: The solar industry once again finds itself vulnerable to one big market much as in the mid to late 2000s when Europe consumed over 80% of module product. The excess of activity in China could come to an abrupt halt leaving the industry overcapacity and desperate for a new multi-gigawatt market.

It is not too late for the solar industry to change. Growth for unprofitable growth’s sake is not healthy. Some business is not worth doing.

Module prices drop to historic lows: Over 60% of global PV cell and module manufacturing is either in China or owned by Chinese manufacturers. At 30-GWp China’s market for PV deployment is over 44% of global demand. An illustration of what happened to module prices in 2016 is as follows: A company has one primary customer. This customer buys close to 50% of the company’s product. The customer cuts its demand for the company’s products suddenly also indicating that demand the following year will be 50% of its current level. The company has several choices: A) sit on inventory, B) find new customers to absorb the excess production, C) sell the product at a significant discount and reduce capacity to serve the current level of demand or D) all of the above.

Late in 2016 China’s government moved to control demand and several gigawatts of product flooded into the market at historically low prices. Manufacturers outside of China and some Chinese manufacturers reduced staff. The rapid drop in price was, as usual, celebrated by some as an example of progress.

What it means for solar: Prices have already ticked up but full price recovery depends on another record year for solar PV deployment in China. Meanwhile other manufacturers face some tough decisions concerning pricing strategy for 2017. It’s a bad time to be a PV cell and module manufacturer.

Utilities push back on net metering in the US: Blame utility pushback on net metering in part on the US solar residential lease model. Beginning in 2012 demand for residential solar leases accelerated driven primarily by the lure of no-money-down. Eventually utilities pushed back and net metering programs began changing. Hawaii ended its program. Fees were added for homeowners with systems on their roof. In some cases, Nevada for example, initially the changes were applied even to past system owners and lessees. Meanwhile, time-of-use rates also altered the economics for homeowners with solar systems on their roofs.

This is a good time for the US solar industry to pull its customers into its lobbying effort. It is also a good time to change the residential solar lease and PPA business model so that it offers value to all stakeholders. Unfortunately doing so will make this business model even less economically viable for the solar leasing companies.

There is a moral here and it is one the global PV industry should know well: When you rely on any sort of a government or utility program you’d better be vigilant because it will change.

What it means for solar: The economics have changed in most states for homeowners with solar installations on their roofs. As the economics for lessees and PPA holders were never really in the favor of the homeowner (that pesky escalation charge) leasing a system is significantly less attractive.

First Solar changes shifts its strategy more than once: Though First Solar indicated recently that 2017 would be a transition year there is no indication from the company’s behavior in 2016 that it knows what it is transitioning to. The company has been restructuring since Q1 2016. Early in the year it pulled the plug on TetraSun, shifted focus from its EPC and its O&M businesses while vacillating between strategy focusing on module sales and/or community solar deployment. Recently it leapfrogged over deploying its Series 5 module, which it showcased at the 2015 Solar Power International Trade Show, launched its Series 6 module and announced 1600 layoffs.

What this means for solar: Pardon the pun but First Solar would not be the first solar company to fail to read the market and stumble strategically. It is easy to step back and suggest that a focus on module sales in an industry with historically painful price pressure is a mistake and to applaud an implicit admission that expansion via acquisition into crystalline may have been an unnecessary loss of focus from its core competency. The global solar industry is brutally competitive internally – and this is before the competitive effect of cheap natural gas is thrown into the mix. Solar industry participants should hope that this industry pioneer and  largest thin film manufacturer globally, rights the ship.

Ivanpah catches fire and Solana gets fined: In 2016 short cuts taken while installing and operating CSP came to light and yet Solar Reserve still announced a future 2-GWp installation. CSP requires a lot of level land and a lot of time for installation. In the volatile solar industry where time is money and where government programs change overnight CSP is at a disadvantage in competition with inexpensive solar PV. Pressure on CSP developers is significant. It is not going to get less intense.

What this means for solar: All solar technologies including CPV contribute to growing the share of solar generated electricity. For CSP the highly visible concerns revealed in 2016 offer a lesson; when the choice is to lose money or cut corners, unfortunately losing money should be the only choice.

Chinese manufacturers exit the EU MIP: Let’s see, the market in Europe softens a bit more every year while new markets in Latin America and on the continent of Africa emerge and despite the outcome of the US election the US market still offers stability for a few years. Under these circumstances why would Chinese manufacturers agree to continue with an agreement that has little upside for them?

What this means for solar: As there is not enough manufacturing capacity in Europe to fulfill its own demand it means developers and installers will pay more for modules whether they come from Malaysia, Japan, Europe or China. In any negotiation the party that can walk away from the table wins.

 Stuck in recession, Brazil, one of solar’s most hyped markets, considers austerity: In 2016 Brazil hosted the Olympics, impeached its president, delayed its solar auction more than once and struggled with a historic and deepening recession. Now it faces austerity measures.

What this means for solar: The solar industry should have learned the lesson of Greece, Spain and other countries – austerity measures are market killers. Countries in Latin America have historically volatile economies and governments. Macro and micro economic realities should always be factored into a company’s strategy.

Tender bidding in some markets dips below $0.03/kWh: Every day it seems a new low is set in tender bidding. Unfortunately when the new lows are announced details about how heavily these bids are subsidized are lacking as well are picky little details about possible curtailment.

What this means for solar: The solar industry continues to celebrate cheap prices for components and low tender and PPA bids without considering that the result of this ongoing trend is low quality and systems that may either not be built or may be built poorly. Referring back to number 10 about CSP, poor quality will catch up with the developer and the manufacturer and low margins will eventually drive a company out of business.

PR driven solar news: William Randolph Hearst said: “News is what people do not want you to print. Everything else is ads.” The news that the solar industry and its observers read on a daily basis is almost 100% PR driven and is not newsworthy. It also lacks enough detail to be useful.

What this means for solar: The more PR driven and biased news people read the less informed they become. Journalism done well will educate and inform and it will also push the reader’s confirmation bias to the limit and perhaps over the limit leading to better informed industry participants.

The Tragedy of the Solar Commons

The tragedy of the commons is an economic parable that refers to greed.

The tragedy of the solar commons refers to continued selling of modules and deployment of projects for market share with the goal of being on a top ten list as the biggest developer, or installer, or the number one manufacturer.

The global solar industry has been low margin all along the value chain for so long that profit has paradoxically become anathema to it. The tragedy of the solar commons is that an industry with the core mandate of ameliorating climate change, bringing electricity to populations far from the grid and providing electricity independence to everyone appears focused on keeping itself unprofitable.

The result of low margins is continued reliance on incentives, subsidies and mandates. The solar industry will continue to hold itself hostage to government intervention as long as it pursues a strategy of being the least expensive source of electricity. This is irony at its best as if subsidies were removed from conventional energy and if the conventional energy infrastructure had to be built anew every time it was deployed … well, the playing field would not be even, it would likely shift to solar and other RE. One reason for this shift is low running costs. The fuel for solar generated electricity is the sun. Solar system components mine the sun.

The argument for shifting to solar as a primary electricity source requires a shift in the electricity buyers understanding of just about everything to do with how they source their electricity.

The good news is that the trend is towards clean energy and this trend will not abate despite the current political climate. The global solar industry has time to change focus, work together and build a quality, profitable solar industry that offers value to participants and stakeholders all along its value chain.

 

The US presidential election is over and half the country feels like a big black swan swooped down and left a very big and impolite reminder of its passage.

Black swan events are unexpected and have a traumatic effect on economies, governments, industries and people. Once the black swan departs the details of the surprise it represents are unpicked and everyone offers reasons why the event occurred. Remember derivatives and the housing crisis that took down the global economy, destroyed livelihoods, lives and damaged the global solar industry? Systems had been set up to create a landscape perfect for a black swan to swoop down and, well, leave an ugly reminder of its passage. People may have been shocked to find piles of unsecured debt underlying the global economy, but the signs were always there.

In 2016 Brexit seemed like a black swan event to those in the United Kingdom. In Venezuela the vote against the peace accord ending a 50 year seemed like a black swan event. In the US an undisciplined, angry, billionaire business man who insulted all his competitors was elected president.

In 2016 all around the world people have been voting their anger over the status quo, politics, immigration, and their economic prospects among other things. Amid the celebrations and wakes surrounding these momentous elections one thing seems clear – the signs of all these decisions were out in the open and should not have surprised anyone.

Polling Problems

During the US republican primary Mr. Trump behaved brashly, used his twitter account freely and insulted competitors and anyone seeming to disagree with him, and yet he kept winning primaries. Media pundits discussed this as a phenomenon and the polls continued to show him losing the primary. He won the Republican primary.

Following the Republican primary media pundits talked over what went wrong with the polls and the pollsters cried mea culpa and promised to do better.

During the general election most polls showed Mr. Trump behind – often well behind — Secretary Clinton. Throughout the election season Mr. Trump continued insulting his opponent and anyone who disagreed with him while tweeting his way through the early morning hours.

He also drew crowds to his rallies and he won the election.

Half of the US electorate and all of the media fell into deep shock. Unhappy voters began wondering if a move to Canada was possible. People wandered the streets muttering “how could this happen?” The media pondered what they missed and the pollsters cried mea culpa and promised to do better.

The US media as well as half the country missed what was directly and clearly in front of them the same deep, disenfranchised rage that was missed in the UK, in Venezuela and in many other voting countries during this year of voting angrily. It was obvious. It was seen. It was disregarded.

The pollsters, well, they failed to do their job correctly. Polling is a subset of market research that is, it is a research discipline. The researcher:

  • Establishes the population to be studied, including its size, and makes an assessment as to the sample size that would appropriately represent the whole population
  • Develops a survey instrument – even the simplest survey instrument has to be carefully crafted
  • Tests the survey instrument
  • Corrects the survey instrument
  • Gathers the data
  • Tests the data for validity
  • If necessary, a larger sample size is gathered

The researcher also understands that all surveys have bias. End user surveys, essentially polling, are highly vulnerable to bias. First, respondents often lie. Second, the analyst (or pollster) may have a bias for a certain result and may make assumptions that would force the poll in a certain direction.

The point of any market research is to set the experiment up so that the possibility of result altering bias is reduced.

In the case of the 2016 US presidential election incorrect polling during the Republican primary should have rung a really big bias warning bell and the pollsters should have course corrected. Doing so may not have changed a thing but it would have lessened the shock on Election Day.

Aftermath of the US election

The US election will have an effect on US climate policy potentially swaying it much more towards conventional energy including fracking for natural gas and oil and away from deployment of renewables and incentives towards this end. The Clean Power Plan as established will not survive and states will start pulling back plans – not all states, but many of them. After election concerns pertinent to the solar industry include:

  • The Three Branches of Government: The Republican Party now controls the Executive, Judicial and Legislative branches of government this means it controls the agenda followed by the country for at least two years until the midterm elections and potentially for decades because of the Supreme Court.
  • The Supreme Court: The next justice will set the tone for the country on wide ranging cases including the Clean Power Plan.
  • The Clean Power Plan: President Elect Trump has vowed to turn back all reforms and likely will – and – cases reaching the Supreme Court may not fare well.
  • The DoE and NREL: The new president will select the energy secretary who will set the direction, tone and budget at the DoE. Funding for solar and all renewable energy generating technologies is at risk. Mr. Trump has chosen Republican Ken Blackwell to head the transition team for the DoE. Mr. Blackwell has lobbied on the behalf of Koch Companies, Southern Company and Dow Chemical among others.
  • The ITC: Though this is a bipartisan agreement and a law, it can be overturned by an act of congress. Best case, it continues as planned. Worst case it is overturned by the new president and congress. However, the odds of the ITC being overturned are low. Very low. Not worth betting on. Again, the ITC is a law and it was bipartisan.
  • The EPA: President Nixon, a republican, established the EPA so it is not a foregone conclusion that its powers will be decreased. However, the president appoints its administrator and President Elect Trump has chosen Myron Ebell, a climate change skeptic to lead the EPA transition team.
  • The Paris Climate Change Agreement: President Elect Trump has made it clear that he plans to exit the agreement and he is likely to do so.

The US Market Going Forward

Just a few pre-election weeks ago the US was a stable market, at least for the commercial application. The commercial application includes utility scale, small to mid-market DG solar deployment and large wholesale DG deployment. The US presidential election inserted instability and shifted the focus back to oil, gas and coal A hiccup in the US market for solar deployment would affect business plans and forecasts for all participants and observers – globally – because the market for solar components and systems is global.

The focus on solar deployment in the US going forward is likely to be driven by the states and the ITC. Once it becomes clear that the ITC is not vulnerable stability should return to the US market for solar deployment.

Consulting   Market Research
Research as needed for projects On going primary survey (research) effort
General Knowledge over a wide range Expertise in subject, industry or technology area
High cost for last minute research, slow project turnaround High cost for on going research, quick project turnaround
Project based Product based
Typically high margins Typically medium to low margins
Deliverables generally built on secondary, public sources or internal estimates Deliverables generally based on primary survey effort, hard data with independent results
Company reputation and expertise key Analyst expertise and reputation key
Ability to compile and assess available information of high value to governments and company boards Market research based projects of high value for manufacturers, industry association, and investors, across industries
Need for company visibility via group papers and speaking Need for analyst visibility via publishing externally, and speaking
The company is the brand The analyst is a company brand
In general, consultants enjoy the ability to work on a wide variety of subjects, do not like being focused on one thing In general, analysts prefer to build on expertise in one area and do not like losing focus
Advantages for Consulting with Market Research: Advantages for Market Research with Consulting:
Quicker turnaround on projects Ability to focus on product development
Provides an original product that can be marketed and which can leverage higher margin business Participation in higher margin projects
Market Visibility Larger base of clients outside area of expertise
Higher volume Higher volume
Takes advantage of analyst reputation in market Potentially provides analyst with higher visibility
Disadvantages with Market Research: Disadvantages with Consulting:
In some cases, lower margins Misinterpretation of data and analysis by consultants
Consultant loses control of analysis to some degree Difficulty keeping up “wall” around confidential sources of data
Acceptance of Analyst expertise by consultants places consultants in the position of not being the expert Unrealistic expectations from internal clients
Selling market research products may take the place of higher volume projects with the result that it is better to lose the sale than sell the report., Unwillingness of consultants to sell market research products, lowering volume
Vulnerable position if analyst leaves as the analyst is a brand Potential loss of individual recognition
Analyst may be out of step with group dynamics Potential corruption of data and analysis
Outside firms may steal data and reproduce Outside firms may steal data and reproduce

Currently SunEdison faces at least 15 lawsuits. SunEdison, Terraform and other defendants asked to have the cases against them consolidated. Along with the lawsuits, from October 2015 through May 26 at least 20 security class actions have been filed against SunEdison its subsidiaries, officials and underwriters. Many of these actions relate to claims that investors were misled about the liquidity of SunEdison, et al.

Meanwhile, GCL-Poly wants to buy SunEdison’s (MEMC) polysilicon business for $150-million and those in charge of selling off the company bit by bit are eager to nail this bid down.

Comment: Potential buyers aren’t just circling overhead they are diving. Meanwhile, future investors in renewable funds should learn to think very carefully before investing the retirement funds of groups such as the Municipal Employee Retirement System of Michigan. The solar industry remains volatile and despite ongoing growth is still subject to heartbreaking, dream shattering and retirement income depleting crashes.

Lesson: SunEdison stands as a stark lesson in solar industry bad behavior. Hubris encouraged Icarus to fly too close to the sun. Overtime too many solar companies have followed his path up and unfortunately met the same fate.

Buckle up another module price war is afoot – or maybe it’s dumping or maybe it’s panicked selling or maybe it is the result of overcapacity and softening demand or maybe it is China’s government saying NO MORE to it’s out of control market and effectively stranding a whole lot of overcapacity or maybe it is all of the aforementioned. Pricing is always a complex subject.

The average price for modules from China is currently $0.60/Wp (and dropping) and the average price for smaller buyers is $0.66/Wp (and dropping). These are averages and there are prices for inventory as low as $0.33/Wp. There are modules available in the $0.49/Wp to $0.60/Wp range. The current trend in module prices is down, pressured by strong production levels in China during the first half of 2016 and a slowdown in deployment in China.

Comment: Module prices will be tumbling potentially through the end of the year. Look out for quality issues. Manufacturers in China have overproduced and with the Chinese government looking to control deployment many are looking to rid inventory of overproduction.

Lesson: Anyone who things that prices will stay down, think again. Anyone who thinks that prices will tick up to margin recovery level…think again. Module sales in the solar industry are historically an unpleasant competitive area in which to do business as many failed companies would attest.

Before boarding theme park rollercoasters riders typically see the following signs:

  • For your safety remain seated with hands, arms, feet and legs inside the vehicle
  • This is a high speed rollercoaster ride that includes sudden and dramatic acceleration, climbing, tilting, dropping and backwards motion
  • Beware, you may lose your glasses and hats on this ride
  • You must be this tall to ride

Similar signs are neon-light visible in the solar industry. Essentially:

  • Proceed carefully and thoughtfully and keep your emotions in check when making solar business decisions
  • This is a high speed volatile, incentive driven industry with sudden market changes due to withdrawal of government funding and painful downward price pressure
  • Beware, you may lose a ton of money on this ride
  • You must clearly understand and accept the difficulties of competing in an incentive driven industry with severe downward price pressure for components and downward bidding pressure on tenders

The solar roller coaster is alive and functioning well as an excuse for constrained margins, unreliable incentives, low bidding during auctions, high debt and a host of industry behaviors. Examples include:

  • Project delays because of inadequate transmission – blame it on the solar rollercoaster.
  • Curtailment because of over deployment and inadequate transmission – blame it on the solar rollercoaster.
  • Companies going on a buying spree ending in bankruptcy and failure (SunEdison) – blame it on the solar rollercoaster.
  • Companies failing due to downward price pressure (too many to name) – blame it on the solar rollercoaster.
  • Low tender bidding for tariffs leading to poor quality installations – blame it on the solar rollercoaster.
  • Incentive driven market bubble leading to market collapse (Spain, Italy and many more) – blame it on the solar rollercoaster.

At this point the solar rollercoaster is a cliché used to explain the often heartbreaking ride taken by participants as they strive to make a profit in a commodity industry while selling against an entrenched competitor and relying on subsidies, incentives and mandates to continue doing business.

On top of all this there is the fact that participants in the global solar industry are also warriors in the battle for the environment. It is an industry where you get to participate in doing good while hopefully doing well in a business sense.

It is also an industry where many dreams of doing good while doing well have been dashed, often because of poor business or technical choices. Solyndra is an example. Suntech is an example. SunEdison is an example. Yingli is an example.

Those working in solar get to go to bed knowing they are part of the solution, until they are no longer part of the solution.

PV Industry Behavior – Anxiety Training 101

The thing is that rollercoaster is an apt word for the experience of many, if not all, solar industry participants. It’s exciting. It’s fun. The difference is that real rollercoasters are fun for most people while the solar rollercoaster may be fun on the way up but once it swoops down and around it is definitely not fun. For those whose dreams are dashed along the way, it is tragic.

Globally most of the demand for solar is driven by incentives, subsidies and mandates that is, government policy. Government policies are historically unreliable. Today’s law is tomorrow’s reversed law. There is still relatively little pull for solar deployment from end users. This is because there are substitutes. End users of grid connected electricity in industrialized countries are disconnected from the source of the electricity. For most users price is the key metric for choosing solar and other drivers, such as climate change, serve as after decision support mechanisms. Even climate change is, for many, an amorphous driver for making electricity product choices.

Decades-long reliance on incentives that time out or end abruptly has encouraged a certain behavior among solar industry participants. At this point in solar industry history this behavior is deeply ingrained and largely unconscious. It is, however, easily observable.

In case of incentives whether they be rebates or tariffs supply and demand participants ramp up activity in the beginning and at towards the end of each decrease, panic as the end of the incentives life and rejoice if it is extended. During this process there is no time to develop a systematic approach to do business. There is only time to react to stimuli.

The current trend – in all markets – is to auction off a mandated tranche of megawatts. In this example, unlike an auction for fine art where the highest bid wins, participants bid downward. In the end, the lowest bid typically wins and is celebrated by the entire industry as a sign of progress.

If constrained margins and the potential of low quality installations because choices were made along the way to support the low bid is a sign of progress, then, well, solar auction winners are very successful. The problem with this behavior is that it is counter the best interests of the participants. A caveat, not everyone in this process is losing money, but many are losing money.

Rollercoaster Riders

The very human tendency to ignore facts that stand in stark dispute to what they want to believe goes by many names. To a market researcher it is confirmation bias that is, the tendency for people to seek only those facts that support their opinions, beliefs and choices while ignoring all the rest.

The global solar industry uses its solar rollercoaster as an example of everything good while ignoring the lost jobs, failed technology directions and worse, lost dreams. Some historic examples of companies derailed along the way (in no particular order) include BP Solar, Schott Solar, Evergreen Solar, Suntech, Uni-Solar, Abengoa and Sharp Solar. There are many more. Not everything is lost, but much is discarded along the way. Three examples of wild rides on the solar rollercoaster are SunPower, First Solar and Q-Cells.

SunPower

SunPower was founded in 1985 and has been riding the solar rollercoaster for decades. Cypress Semiconductor invested in SunPower in 2002 and began divesting in SunPower in 2005 concluding the spinoff in 2008. SunPower acquired California-based commercial system integrator PowerLight in 2007. TOTAL acquired a 60% stake in SunPower in 2011 also offering it credit support. In August, TOTAL reduced its credit facility while extending it to 2018. Also in August, SunPower cut ties with some suppliers, closed its module assembly facility in the Philippines while indicating it would add capacity in Mexico and announced it would cut >1000 jobs. It also announced that, due to YieldCo uncertainty, it would reduce focus on the international utility scale sector and refocus on DG. Job cuts will primarily come from closing its module assembly facility in the Philippines and from cuts in its system’s business.

What does it all mean? SunPower finds itself in the difficult position of competing with less expensive premium module products that also have lower cost structures. Concerning its systems business it finds itself in the highly competitive downward spiraling tender and PPA biding sector. With the residential application facing net metering headwinds in the US and DG also highly competitive SunPower may not find itself with an advantage.

First Solar

First Solar bought its ticket to the solar roller coaster in 1987 when it was founded by Harold McMaster, CEO of Glasstech Corporation as Solar Cells Inc. In 1999 True North Partners, an investment group chaired by John Walton, son of Wal-Mart founder Sam Walton bought the struggling CdTe manufacturer – just in the nick of time – renaming the company First Solar. In 2004 First Solar received a $5-million loan from the state of Ohio to expand capacity from 6-MWp to 25-MWp. In 2006 the company raised $400-million in its IPO. Along the way First Solar has made unsuccessful forays in other technology directions toying with CIGS and crystalline without bringing either to commercial production. In the early FiT days First Solar correctly read the market and focused its business on the rapidly growing market in Europe for large scale deployment. Reading price competition correctly, it refocused on the system’s side of its business right as crystalline prices began falling and the market in Europe began softening. Recently it shuttered its crystalline start up Tetrasun and announced a restructuring indicating that it would focus more on module sales and less on its EPC and O&M business.

What does it all mean? No one can guess right forever and luck always runs out. Module sales are not the high margin area of the PV industry. Concerning module sales, overcapacity is pressuring price and prices for higher efficiency Chinese product are currently below First Solar’s cost of production. More concerning, backing away from its EPC business may indicate that years of competitive bidding has caught up with the company in terms of tight margins and potentially unprofitable system sales. As for O&M as this area is traditionally underfunded stepping away seems a good direction.

Q-Cells

Q-Cells climbed aboard the solar rollercoaster and took a wild ride swooping around every curve, climbing ever higher and finally swooping down into bankruptcy and acquisition by South Korea-based Hanwha. Q-Cells was founded in 1999 as one of the PV industry’s first pure solar cell manufacturers. The company’s first goal was to be a cell provider, currently the basis of almost the entire solar PV industry in Taiwan. In 2001 it had 12-MWp of cell capacity. In 2005 it went public. From 2005 through 2008 it bought or invested in an amazing array of PV technologies: CSG (silicon on glass), VHF (a-Si), Solaria (low concentration), Solibro (CIGS), Brilliant 234 (silicon tandem junction), Calyxo (CdTe) and Solar Fields (CdTe). It formed a joint venture with Evergreen Solar, EverQ, to manufacturer crystalline ribbon technology. Good Energies invested in Q-Cells and Q-Cells invested in REC. In 2008 the company planned to build a cell manufacturing facility in Mexico. Along the way the company put on one of the solar industries biggest and most highly anticipated parties at the annual EU PVSC conference. In 2010 pricing for solar cells and modules crashed. In April 2012 Q-Cells declared bankruptcy and in August 2012 it was acquired by Hanwha.

What does it all mean? Sometimes it pays to be a little circumspect when on a shopping spree. Q-Cells spent and invested money freely dipping its fingers into just about every available PV technology apparently on the theory that the market would decide and that it, meaning Q-Cells, would be nimble enough to take advantage of the market’s choice. The market chose lower price and Q-Cells could not outlast the downturn.

Boarding the Ride

Doing business in the solar industry takes courage. The odds against success are stiff and the goals for low prices counter free market theory. Even end users are not immune to the vagaries of government policy. Former participants forced out through company failures typically look back longingly at their time in the industry. Call them solar refugees. There is no getting around the lure of making a living by combating climate change and in doing so potentially changing the world for the better.

But be warned enter the solar industry at your own risk as it is a wild, fun and often heartbreaking ride filled with steep downward price dives and neck-breaking shifts in government policy.

At its best the PV industry marries the opportunity to profitably contribute to the climate change solution.

At its worst industry pressures leads to prices for modules that are too low and bids on large projects that are unprofitable.

Too often new entrants enter blindly, certain that they have the market or technology solution that will overcome all the cost, price and market barriers. In many cases the realities of what it takes to survive and thrive are ignored by wearing blinders or … riding the rollercoaster with their hands over their eyes.

It is not always true that the best business plan and the best technology will win but it is true that the solar industry and all of its technologies and participants is crucial to the future. The way the world’s population sources its electricity must change and solar is part of the solution. So, for your safety remain seated with hands, arms, feet and legs inside the vehicle and beware of high speeds and sudden, dramatic acceleration, climbing, tilting, dropping and backwards motion. Beware, you may lose your glasses and hats on this ride and remember you must be this tall to ride.

Potentially stranding a significant number of solar development plans as well as some assets, in April SunEdison finally took the step that many expected and filed for bankruptcy. Pondering where things went wrong for the troubled firm leads to a winding road of overexpansion, debt and the traditional sidekick of highly visible companies and people, hubris.

Hubris, of course, happens quite often in the corporate world and there is a long list of companies that were swayed by it – who knows, one is probably being swayed at this very minute.

In the solar industry, hubris and desperation are often intertwined. Solar companies operate in a reality that includes aggressive pricing, push-pull incentives and subsidies and end user/government expectations that are nearly impossible to meet if maintaining a margin is important. In this environment panic, desperation and expediency can lead to poor decision making while companies that become highly visible and envied can fall victim to their own PR and end up making decisions in a vacuum. The problem with vacuum decision making is that it is almost always divorced from reality. Ignoring reality can, well, lead to bankruptcy.

In 2015 SunEdison delayed its filings and launched an internal audit. In 2016 though the internal audit found no evidence of fraud it found problems with the company’s overly optimistic outlook and its lack of sufficient controls and procedures as well as its untimely reports to its board.

This may be the first time that poor decision making and careless processes and controls have been blamed on optimism.

Blaming mistakes on executive optimism – even by inference, could give optimism a bad name and this would be a shame because healthy optimism is a good thing. Healthy optimism has kept many an individual and even companies afloat during tough times. Healthy optimism works hard to make its vision come true while not ignoring the potential of failure. Healthy optimism does not march over a cliff because it believes it can fly.

Blaming SunEdison’s current struggles on optimism and poor processes is a glaring understatement that soft peddles breathtakingly bad executive decision making.

Many a CEO has become tone deaf to warnings referring to those bearing cautious news as naysayers while being shored up by those who are paid well to agree. After all, when you are riding high people willingly agree with you. Once you fall these same people will be the first to say they saw the cliff you were heading towards as they enjoy watching you charge over its edge.

In the wider context, it will encourage those who believe the solar industry is hiding behind industry-wide unreasonable and unreasoning optimism something to point to – just as they still point to Solyndra.

In October the SunEdison situation was covered in the Solar Flare from the perspective of company behavior following SunEdison’s acquisition by MEMC. The following list is from the October 2015 Solar Flare.

  • 1959: Monsanto Chemical Company founds Monsanto Electronic Materials Company (MEMC) as a merchant manufacturer of 19-mm silicon wafers.
  • 1961: Dynamit Nobel Silicon, (DNS) builds a polysilicon and Czochralski ingot plant in Merano, Italy
  • 1962: MEMC pioneers the chemical mechanical polishing process (CMP). MEMC begins using the recently developed Czochralski (CZ) crystal growing process.
  • 1966: MEMC begins production of 1.5 inch wafers
  • 1970: MEMC’s plant in Kuala Lumpur, Malaysia begins producing 2.25 inch wafers.
  • 1979: MEMC introduces 125 mm wafers
  • 1982: MEMC develops EPI wafers for CMOS applications
  • 1984: MEMC begins producing 200mm wafers and builds a pilot plant to make granular polysilicon
  • 1987: Ethyl Corporation acquires the FBR technology developed under its Jet Propulsion Laboratory contract by General Atomic and Eagle Picher and begins production of granular silicon. MEMC develops feeders to use the finished product and is the primary customer for FBR material. Ethyl later splits into two divisions. One of the divisions is named Albemarle (after one of the Ethyl pioneers). The Albemarle division owns the poly plant.
  • 1989: Hüls AG of Marl, Germany, and a subsidiary of VEBA AG, buys MEMC through DNS naming the combined company MEMC Materials
  • 1994 Ethyl Corporation spins off its Albemarle division
  • 1995: MEMC acquires granular polysilicon (FBR) facility from Albemarle and renames it MEMC Pasadena
  • 1995: MEMC launches IPO
  • 2000: VEBA AG merges with VIAG AG to become E.ON AG
  • 2000: E.ON AG increases ownership of MEMC from 53.1% to 71.8%
  • 2000: MEMC has a net loss of 68-million Euros on revenues of 944-million Euros
  • 2001: E.ON considers bankruptcy for MEMC
  • 2001: The Texas Pacific Group (TPG) buys the 71.8% of MEMC owned by Germany Utility E.ON, restructures debt and replaces the CEO. At the time of the sale, for the symbolic amount of $1.00, MEMC stated that it only had enough cash to operate through September of that year. Texas Pacific Group agreed to revise the purchase price if MEMC improved its financial performance and to offer it debt financing
  • 2002: Nabeel Gareeb is named CEO of struggling MEMC
  • 2002: TPG converts preferred stock to common stock increasing its ownership of MEMC to 90%
  • 2003: With perfect timing – just as growth in the PV industry begins accelerating, SunEdison is founded as a commercial PV developer of PPA projects
  • 2004: MEMC enters a licensing agreement with Silicon Genesis Corp (SiGen) to manufacture wafers using SiGen’s layer transfer technology
  • 2004: PV industry demand begins to surge as crystalline supplies become constrained. Prices for wafers at >$3.00/Wp
  • 2006: MEMC agrees to supply Suntech Power with solar grade silicon wafers for ten years and receives a warrant to purchase a 4.9% stake in Suntech
  • 2006: Polysilicon prices spike with spot prices at >$400/kilogram
  • 2008: Nabeel Gareeb resigns as MEMC CEO
  • 2009: BP Solar sues MEMC for ~$140-million for failing to supply the company with polysilicon in 2006 and 2007 under a three year supply agreement, winning $8.8-million
  • 2009: MEMC acquires SunEdison
  • 2010: MEMC acquires crystal growth technology company Solaicx for $66-million
  • 2011: MEMC idles its polysilicon manufacturing facility in Merano, Italy, reduces capacity in Oregon and scales back its facility in Malaysia as well as laying off ~1,400 employees globally
  • 2011: Enters a joint venture with Samsung Fine Chemicals and MEMC’s affiliate, MEMC Singapore, to produce high purity polysilicon in Ulsan, Korea using the FBR process.
  • 2011: BP exits PV manufacturing
  • Suntech files for bankruptcy protection
  • 2013: MEMC changes company name to SunEdison
  • 2014: SunEdison spins off its semiconductor business as SunEdison Semiconductor
  • 2014: SunEdison launches Yieldco TerraForm
  • 2014: SunEdison licenses Solaria’s technology and announces Zero White Space module technology, purported to increase electricity output by 15% by eliminating space between cells
  • 2015: SunEdison sells shares of SunEdison Semiconductor to help finance acquisition of First Wind, eventually would sell all shares in SunEdison Semiconductor
  • 2015: SunEdison goes on a shopping spree buying First Wind, Globeleq Mesoamerica Energy, Continuum Wind Energy, Vivint and Solar Grid Storage
  • 2015: SunEdison announces layoffs of 15% of 7260 employees
  • 2015: SunEdison launches an internal audit and delays filings
  • 2015: SunEdison licenses LCPV/BIPV company Solaria’s Zero White Space technology that essentially involves slicing cells into thin strips and assembling the strips into a modules without spaces in-between the slices
  • 2016 January: TerraForm shareholder Appaloosa Management sues to stop SunEdison’s acquisition of Vivint
  • 2016 March: Vivint cancels SunEdison acquisition
  • 2016 March: US Justice Department launches an investigation into SunEdison’s financing activities and the SEC begins investigating the company’s disclosures to investors
  • 2016 April: SunEdison’s internal audit finds no evidence of fraud but plenty wrong with internal procedures
  • 2016 April, Vivint sues SunEdison over failed merger
  • 2016 April, SunEdison files for bankruptcy