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