Solyndra
From Invertopedia, the encyclopedia of how things fail
Solyndra was a California solar maker whose tube-shaped panels used no polysilicon, the material ordinary panels are made from[1]. In September 2009 it became the first company to get a loan guarantee from the Energy Department's newly funded program, for $535 million[1][5]. Polysilicon and panel prices then collapsed, and on September 6, 2011, Solyndra filed for bankruptcy[1], laying off 1,100 workers[2][6] and leaving taxpayers with a loss the Energy Department's inspector general put at more than $500 million[2].
Contents
The bet
Solyndra was founded in 2005, just as a polysilicon shortage was pushing prices up. Its panels used a different material, copper indium gallium diselenide (CIGS), so it was insulated from those prices, and when polysilicon reached as much as $460 per kilogram in early 2008 that looked like a strong advantage[1].
The company aimed at flat commercial rooftops, where its tubes could cover more of the roof and, it argued, give the lowest cost of electricity[1]. With about $1 billion from private investors[1][3] and the federal guarantee, it built a second factory, Fab 2, meant to make 250 megawatts of panels a year[1].
What happened
| 2005 | Solyndra is founded while polysilicon prices are rising.[1] |
|---|---|
| Early 2008 | Polysilicon spot prices peak at about $460 per kilogram. New supply comes online that year and prices start to fall.[1] |
| Sep 2009 | The Energy Department approves a $535 million loan guarantee, and construction of Fab 2 begins.[1][2] |
| May 26, 2010 | President Barack Obama tours the Solyndra plant in Fremont.[5] |
| 2010 | Solyndra says its panels sell for $3.24 a watt, and an independent analysis of its IPO filing puts the cost of making them at more than $6 a watt. The auditor warns of "substantial doubt" about the company's ability to continue.[1] |
| Feb 2011 | The Energy Department restructures the loan and lets private investors recover the first $75 million ahead of taxpayers.[3] |
| Aug 2011 | Ordinary panels sell for $1.15 to $1.20 a watt on the spot market, and polysilicon is about $51.50 per kilogram.[1] |
| End of Aug 2011 | Solyndra says it is ceasing operations and laying off 1,100 workers, citing Chinese competitors undercutting it on cost.[6] |
| Sep 6, 2011 | Files for Chapter 11. About $527 million of the loan has reportedly been drawn.[1] |
| Aug 24, 2015 | The Energy Department's inspector general reports that Solyndra gave the department inaccurate and misleading information.[2] |
The kill shot
Its edge was avoiding expensive silicon. Silicon got cheap, ordinary panels got cheaper than Solyndra could make its own, and the loan had already been spent on a factory built for the old prices.
Polysilicon fell from as much as $460 per kilogram in early 2008 to $50 to $70 from 2009 on[1]. Panel prices fell from over $3.50 a watt in 2008 to about $1.75 in 2010 and $1.15 to $1.20 by August 2011[1]. Solyndra was selling at $3.24 a watt while it cost more than $6 to make[1], and its panels converted about 11 to 12 percent of sunlight, against about 14.3 percent for silicon[1], so on a given roof silicon could match it.
At a House hearing in November 2011, Energy Secretary Steven Chu put the failure down mainly to an unforeseen 70 percent drop in panel prices over two years[3]. The inspector general later added a second cause: the sales contracts Solyndra used to win the guarantee were weaker than it said, and its own forecasts showed customers wanted more than $700 million less product than the contracts stated[5].
Red flags ignored
- An edge that rented its value from a shortage. The whole case depended on polysilicon staying expensive, and supply was already being added.[1]
- Selling below cost. Panels sold at $3.24 a watt cost more than $6 to make.[1]
- The auditor's warning. The 2010 filing carried a going-concern warning from PricewaterhouseCoopers.[1]
- Contracts that were not orders. Some customers had been promised discounts and lower volumes, and others had no committed business.[5]
- The lender moved to the back of the line. The 2011 restructuring put $75 million of private recovery ahead of taxpayers. The 2005 law barred subordination; the department's lawyers said the ban covered only the original guarantee.[3]
The cost
About $527 million of the guaranteed loan had reportedly been drawn before the bankruptcy[1], and the inspector general put the loss to taxpayers at more than $500 million[2]. Private investors had put in about $1 billion[1][3]. The first phase of Fab 2, the factory the loan paid for, was estimated to cost $733 million[1].
When the company shut down, 1,100 people lost their jobs[2][6].
The inversion
If your edge depends on a rival's input staying expensive, plan for the day it gets cheap. Price your business against where the rival's costs are going, not where they are today, before you build the factory.
What survived
The loan program. By November 2014 the Energy Department had lent $34.2 billion; companies had defaulted on $780 million of it, and $810 million in interest put the program $30 million in the black[4].
The FBI raided Solyndra's headquarters and joined the investigation after the bankruptcy[4][5]. The inspector general's four-year investigation said the record suggested the actions of certain Solyndra officials were "at best, reckless and irresponsible or, at worst" a deliberate effort to mislead the department, and that the department's own checks were "less than fully effective"[2]. In early 2015 the Department of Justice decided not to bring criminal charges[5].
References
- ^ “Market Dynamics That May Have Contributed to Solyndra's Bankruptcy (R42058)”. Congressional Research Service, October 25, 2011. Founding, CIGS design, $535 million guarantee and $527 million drawn, $1 billion private money, Fab 2 size and cost, the Chapter 11 date, polysilicon and module prices, $3.24 price vs over $6 cost, the going-concern warning, efficiency figures.
- ^ “Special Report: The Department of Energy's Loan Guarantee to Solyndra, Inc.”. U.S. Department of Energy, Office of Inspector General, August 24, 2015. The four-year investigation, inaccurate and misleading statements, the department's due diligence, 1,100 layoffs, over $500 million loss.
- ^ “Chu says Solyndra was victim of collapsing solar panel prices”. Physics Today, November 18, 2011. Chu's November 17 testimony, the 70% price drop, nearly $1 billion private financing, the February 2011 subordination and the $75 million.
- ^ “After Solyndra Loss, U.S. Energy Loan Program Turning A Profit”. NPR, November 13, 2014. Loan program totals, defaults and interest; the FBI raid.
- ^ “Why the Solyndra mistake is still important to remember”. Fortune (Katie Fehrenbacher), August 27, 2015. First loan guarantee from the program, Obama's May 26, 2010 visit, the inspector general's contract findings, the FBI joining the investigation, and the 2015 decision not to prosecute.
- ^ “Solar panel firm Solyndra to cease operations”. Los Angeles Times, September 1, 2011. Ceasing operations, 1,100 layoffs, competition from Chinese firms.