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

SPV Market Research annual Manufacturer Shipment report http://www.spvmarketresearch.com

Manufacturers on the annual top ten list have shifted places, dropped on and off the list, withdrawn from production, re-entered production and declared bankruptcy. Currently crystalline manufacturers are adding more module assembly capacity than cell processing capacity while thin film manufacturers are expanding into crystalline production.

As an example, Sharp Solar (Japan) was the top photovoltaic manufacturer in terms of shipments from 2001 through 2007, the longest period for any single manufacturer. Sharp Solar is one of the PV industry’s pioneers in crystalline and amorphous silicon technology. As with other manufacturers from other countries for a period it priced aggressively to gain share. As with manufacturers from China, it could rely on its home market (Japan) to absorb module product in the years when Japan’s market for PV deployment was almost completely closed to outside manufacturers. As Chinese manufacturers ramped up and the cost of polysilicon increased significantly Sharp made a misstep into thin films that never reaped the hoped for benefits. Now that Sharp has been acquired by Foxconn it is unclear whether or not Sharp’s new parent will invest sufficient funds for the company to regain share.

The annual top ten list of PV manufacturers is important not as a promotion of any particular manufacturer, but as a way to observe regional and technology trends overtime. The past does not lie, it can, however, be misinterpreted or data can be cherry picked to make a point not with which the whole tapestry of the past is in disagreement.

Manufacturers from China will continue to dominate the top ten list for the foreseeable future as its manufacturers ramp capacity in other countries including the US and Mexico.

Top Ten Manufacturers 2015


In October SolarCity announced its Q3 2015 earnings. The company had a gross margin of 46% for its lease business and a negative gross margin of -48% on system and component sales. The company’s gross margin on total revenues was 22%. SolarCity also had an operating loss of $191.1-million and a net loss of $234.3-million.

Comment: It was only a matter of time before SolarCity’s older leases began turning a profit and supporting its newer activities. Unfortunately, component and system sales will be a more difficult profit ship to turn around – a lease will turn profitable over time when the equipment is paid off, an underpriced component or system will never turn a profit.  This begs the question, why continue selling unprofitably at this point? Also, given the uncertain future for PV deployment in the US and the highly competitive global market for PV modules – meaning, low price point wins, and differentiating is basically based on price – what is the future for the company’s Silevo acquisition?  If SolarCity is planning to consume 100% of Silevo output — when it is commercial that is — what happens if installation growth slows significantly?  Many a crystalline cell/thin film panel/module assembler has faced the stark reality of slowing sales and crumbled under the weight of low price expectations.

Concerning the solar lease business model, this vehicle continues to need correction in terms of the value offered to the end user. The annual escalation charge needs addressing, better customer qualification and education is necessary, after installation maintenance, quite expensive on a system by system basis, needs to be rethought and appropriately valued so that when a lessee calls a truck rolls. All solar lease providers are now discovering what utilities have known for years – it is costly to roll a truck.

It will be years before the impact of abandoned systems (in the case of foreclosure) and system removal becomes apparent and along the lines of system removal, the value of components removed from a roof after five years is not established.

Should the company decide that asset ownership and management is its future direction, meaning owning the solar asset on the roof – it is probably the right time for some corporate soul searching.

Net metering is a system that credits PV system owners for electricity generated and fed into the grid and it is crucial to the continued deployment of residential and small to medium commercial PV systems.

Net metering 2.0 is on its way, though what exactly the new program will consist of and what compromises will be made before it is finalized remains to be seen. A new net metering program for California must be in place when California’s Investor Owned Utilities (PG&E, SCE and San Diego Gas & Electric) reach their 5% threshold or by mid-2017(whichever comes first) and battle lines are drawn as the deadline for the successor net metering program required under California AB 327 nears. The solar industry would prefer no change to the way PV generated electricity is valued, which is currently at retail rates. The states Investor Owned Utilities (IOUs) want significant changes to the value of PV generated electricity as well as new $3.00/kW monthly fees for residential PV system owners or lessees. Each IOU has a different method of assessing the monthly fee. For example, PG&E would like a demand charge and SCE would like a grid access charge – these charges are on top of a new monthly fee of $10.00 that all residential rate payers will be charged.

Complicating matters, at least for PG&E and possibly the CPUC, in August the CPUC voted to investigate operations at PG&E, a move that has the potential of leading to the breakup of the utility. The investigation has its roots in the 2010 San Bruno pipeline explosion. Following the explosion emails came to light exposing a very close relationship between PG&E and the CPUC, a lax attitude towards safety on the part of the utility and the utility’s sloppy paperwork (much of which was lost). Several fines later and amid federal and state investigations into the relationship and the utility’s safety record, CPUC head Michael Peevey stepped down and was replaced by Michael Picker who promised a more open relationship with the public and stricter oversight. Despite promises from Commissioner Picker, the CPUC (as of publication) has not complied with a search warrant from the California Attorney General concerning its relationship with the companies it regulates.

Commentary: First and foremost, the formerly and potentially current very friendly relationships that the CPUC has/had with the companies it regulates is simply unacceptable and potentially criminal.

Second, it took far too long to replace CPUC Commissioner Peevey. The new leadership at the CPUC needs now to be as transparent as possible or it simply cannot be trusted to regulate anything. This means turning over all requested documents and emails immediately because stalling has implications.

Third, the culture at PG&E and the other IOUs should be investigated potentially either annually or biannually by rotating experts so that no one becomes comfortable relationship-wise.

Fourth, it just might be time to reconsider whether gas and electric operations can be appropriately managed under such a large umbrella, or whether the problems at PG&E are specific to it. That is, are mighty IOUs dinosaurs that need more than regulation and/or is it their time to lumber off of the stage.

As to NEM 2.0, this decision is a test of whether or not the CPUC can move into a distributed generation future that puts more of an onus on conservation, independent responsibility, electricity generation by renewable technologies (with storage) and that rewards rate payers for all-of-the-above instead of penalizing them. PV generated electricity that is fed into the grid benefits everyone. Polluting forms of electricity penalize everyone.

Throughout its history, dating to the 1970s, the terrestrial PV industry has faced unreliable incentives, skeptical government support and unsuccessful market manipulation, utility antipathy to changing the status quo, entrenched reliance on conventional energy and protracted periods of aggressive pricing. These factors have led to a specific market behavior on the part of participants.

Driven by incentives, in particular the European-style Feed in Tariff, the market for PV systems grew at a compound average rate of 38% from 2009 through 2014. In 2009, the market for PV deployment was dominated by Europe at 83% of total demand, a situation that was not sustainable. In 2014, the market for PV deployment is more diversified, still primarily incentive driven and dominated by the markets in a few countries and thus remains highly vulnerable.

Entrenched behavior, such as a rush to install prior to a change in an incentive have resulted in acceleration of deployment at sometimes questionable quality, acceptance of power purchase agreement prices and tender bidding at rates too low to ensure long term profitability among other unhealthy market behaviors. Business models have sprung up to take advantage of incentives that perpetuate unhealthy market behavior.

  • Unreliable incentives: Incentives such as feed in tariffs and also capacity based incentives such as rebates stimulate out-of-control market behavior in that deployment overshoots the original intent of the incentive.  Typically, these incentives are developed with few controls and little understanding of market behavior. Anticipating a decrease in the incentive, market behavior accelerates leading to incentive budget shortfalls and electricity ratepayer anger over increasing utility bills. Globally, governments have reacted with retroactive changes to incentive rules and remuneration, rapid decreases in tariffs and rebate levels and the abrupt cessation of incentive activity. In recent years utilities have sought new fees for PV system owners, curtailment of production and alterations to net metering schemes.
  • Skeptical Government Support and Unsuccessful Market Manipulation: Though it would seem as if climate change should be sufficient reason for governments to begin shifting energy production away from fossil fuels and to renewable technologies, unfortunately climate change action remains captive to well-funded special interest groups.  Even in China, where air pollution is responsible for the deaths of thousands of people a year, coal continues to drive close to 80% of electricity production. Achieving government support tends to depend on the strength of the solar lobbying function.  In Germany the solar lobbying function has traditionally been strong. In the US the solar lobbying function on a federal level has not achieved significant success in driving federal policy though the state SEIA’s (which are not divisions of the federal SEIA) have had differing levels of success.Government mandates for achieving a percentage of electricity production from renewable technologies often fall into the category of unenforceable goals and are vulnerable to changes in administration (governance). Incentive programs are often overrun by high priced consultants with the result that efforts are often shortsighted as to methods of achieving goals in a controlled fashion.  As to the latter, Germany’s FiT and the California Solar Initiative (CSI) were successful, for the most part, at stimulating the market for solar deployment while also controlling it. Government goals for deployment often fall victim to utility pushback and rate payer (voter) anger over higher electricity bills.  As strong markets for PV deployment were flooded with low priced imports and domestic manufacturers struggled to compete and finally began failing, governments in the US, Europe, Canada, India, instead of implementing positive measures to incentivize domestic content (cells, modules and balance of systems) governments in the EU and US stepped in too late with punitive measures that did little to restore domestic manufacturing.
  • Utility Antipathy to Changing the Status Quo: Deployment of distributed generation (DG) photovoltaic installations, particularly the residential application), takes a direct hit on utility revenue model. This is particularly true for the investor owned utilities (IOUs) in the US and for monopolistic utilities in other countries. The utility business model will need to change, becoming smaller and leaner while focusing on local populations to make a necessary change to a more distributed model that supports a future driven by renewable energy technologies. Globally utilities are loath to change the status quo and as deployment of DG PV accelerates are instituting changes to and controls of net metering as well as adding fees to electricity bills of residential and small commercial PV system owners.  The lobbying function of large utilities is significantly stronger than that of renewable technologies in genera,l and specifically that of the solar lobbying effort. Often utilities lay the reason for their reluctance to switch to renewable technologies at the feet of variability (availability of the sun or wind resource) and in the US point to the Duck Curve (the difference between forecasted load and production from renewable technologies and ensuing ramping problems) to shore up reluctance.
  • Entrenched Conventional Energy: While the lobbying function of large utilities is significant it is dwarfed by that of conventional energy producers of oil, coal and natural gas. Natural gas has successfully rebranded itself as a ‘relatively’ clean energy source that is immune to variability concerns. Coal, oil and natural gas have well-funded lobbying efforts and it is in their interest to keep electricity consumers from conservation and from switching to renewable energy technologies. End users in industrialized countries are vulnerable to the public relations efforts from conventional energy producers.
  •  Aggressive Pricing: In the late 2000s, manufacturers from China benefiting from grants, loans and other subsidies ramped capacity and began pricing competitively. In a relatively short period of time manufacturers in Europe and the US found themselves in an uncompetitive position.  Unfortunately, low margin pricing was celebrated by the PV industry as progress and expectations were set in the minds of end users that pricing would continue decreasing from an already unsustainably low level. It is now almost impossible for prices to increase to the point where a comfortable margin would be possible. The best that can be hoped for is a cessation in price decreases.  Manufacturers in Japan are now facing price and margin pressure similar to that experienced by manufacturers in Europe and the US.
  • Business Models: In the US, the Solar Lease Business model, now spreading to other countries, entices residential and small commercial customers with promises of free solar.  This means that the installation is provided at no charge and maintenance is included. This model includes an annual escalation fee on the order of 3% that is based on the assumption that utility generated electricity will increase by 3% a year.  Promised maintenance is often not performed and the sales function is highly aggressive.  In the end solar lease customers pay far more for their installation than they would if they bought the system using reasonable financing.


In general … the Liability/Asset ratio should be low — the higher the ratio the more likely it indicates potential solvency concerns.  Inventory turnover in general should be high, indicating an efficient use of inventory.

Manufacturer Liability/Asset 2014 Inventory Turnover 2014
First Solar 25% 29.34
Gintech 40% 10.82
Solartech 40% 12.31
SunEdison 41% 6.88
NeoSolar 42% 13.49
JA Solar 62% 5.99
SunPower 63% 14.51
Trina Solar 69% 6.51
SolarWorld 74% 3.85
Jinko Solar 74% 5.28
Motech 89% 8.09
Renesola 92% 4.37
Yingli Solar 95% 1.64
Canadian Solar 101% 6.85

The global solar industry and all of its technologies (flat plate PV c-Si and thin film technologies, CSP and CPV) is and always has been innovative. That it has often been an unprofitable industry beset by unrealistic expectations for cost and price has trapped it between the need to continue innovating and the expectation that it do so cheaply.

Innovation begins with an idea or a spark or an inspiration or an epiphany.

The leap from idea to concept takes time, thought and research.

Research takes time, thought and requires a careful almost to the point of plodding methodology.

The road from concept to prototype takes research, experimentation, trial and error, more innovation, more thought, retrenching to step one and a careful, painfully conservative methodology that along the way takes into consideration more epiphanies, inspirations, sparks and ideas.

The journey from the prototype that proves the concept and embodies the ideas, inspiration, epiphanies, research, experimentation, trial and error and back-to-the-drawing board frustrations is long and fraught with data gathering, testing, retesting, more data gathering, plotting the new data, returning to the drawing board, realizing when a direction is wrong, tramping back up the research path to rethink things, more experimentation, more data gathering and plotting until finally, the idea that became a concept that became a prototype becomes a product.

Production of high quality products require an understanding of the time, expertise and inputs from idea through to commercialization and understands that a reasonable value must be established for the product. This value, or price, will continue to support necessary ongoing innovation.

Unfortunately, the global PV industry has placed itself in the position of innovating on a shoestring budget and at the speed of light.

The Invasion of Free Solar

The installation side of the solar industry is also pressured by the need to install systems faster and some of these pressures come from within. The promise of free solar, a marketing pitch, typically used to market the residential solar lease, has set unreasonable expectations of cost/price that all participants are forced to market against.

Marketing slogans that is, catch phrases developed to seize the buying public’s imagination, should not be mistaken for truth, wisdom or anything other than the means to sell a product or service.

Currently popular among residential solar lease providers, the term “free solar” refers to the ability to have a PV system installed at a homeowner’s domicile without the homeowner paying for the installation. This means that the installation charge is avoided up front and applied to the back end. That is, the installation cost is recouped over time by the lease provider via the monthly rental of the installation as well as through the annual escalation of the initial monthly lease payment. Typically ~3%, the escalation charge means that eventually the lifetime cost of leasing the PV system will be greater than the cost of buying the installation at a reasonable (and static) interest rate.

All buyers of all economic strata seek the best deal and the best deal is free. That free is an illusion is not the point. A free good can come at the cost of quality meaning that a poorly functioning free good will likely cost more in repairs and eventual replacement than a good that is acquired at a price that approaches its true value. A price set at free obscures the cost of developing the good or service and creates the illusion that the research, development, manufacturing and selling of the good was, in the worst case, free itself.

An offer of free solar commoditizes the residential installation, shores up the assumption that the cost of manufacturing a PV panel is approaching zero and undermines the true value of owning a residential PV system.

The true value of owning a residential PV system, aside from the benefits to the environment, is energy independence on a personal level. Never mind (for a moment) the ongoing attacks directed at net metering from utilities, an appropriately sized PV system gives the electricity consumer control over how much electricity is bought from the utility at retail rates. Pardon the pun, there is a power switch from utility as electricity landlord to end user – and, this is where it should be. Leasing a residential PV system does not imbue the lessee with the same power; simply put, it means that the electricity lessee potentially serves two masters, the utility and the solar lease company. Finally, the true value of independence is obscured and the value of the product (PV generated electricity) is undervalued. This is not what Adam Smith meant by the invisible hand. In the case of the solar lease, the invisible hand would seem to be implying that the value of the PV installation is zero.

The marketing phrase, Free Solar, undermines the true value of personal energy independence, obscures the true costs and benefits of PV system ownership, shores up false expectations of ever cheaper PV modules and installations, and undercuts the need of an innovative industry to continue innovating by eviscerating the revenue stream that pays for research and development, not to mention, strategic planning, marketing and sales.


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