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Solar Panels and the fall of Solyndra

September 04, 2011
Solyndra is the start-up company. The company designs, manufactures and sells solar photovoltaic (PV) systems composed of panels and mounting hardware for large, low-slope commercial rooftops. The panels perform optimally when mounted horizontally and packed closely together, thereby, the company claims, covering significantly more of the typically available roof area and producing more electricity per rooftop on an annual basis than a conventional panel installation. It was founded in 2005 by Dr. Christian Gronet.

The founder was the CEO of the company when it was founded. And since July 2010, it was led by a veteran of Intel Corporation, Brian Harrison. Solyndra is considered the symbol for the clean energy of the United States. And it has even received US President Barack Obama visited the company in May 2010.

The company has received a lot of attention from media and got many favourable financing. For investors, major investors have poured in around $1 billion including US Venture Partners, CMEA ventures, Virgin Green Fund, Redpoint Ventures, Madrone Capital Partners, RockPort Capital Partners, Argonaut Private Equity, Masdar and Artis Capital Management. Besides, with the support of the government, Solyndra has received $535 million of federal loan guarantee, coming from the Department of Energy, in 2009 to build up a factory. It has been a symbol of American success story of green tech innovation and manufacturing, showing that US would become the leader in clean and green power and it was a source of providing jobs to American citizens.

However, any company surviving in any certain industry needs the survival strength. It is all coming back to the basic, with low cost of production, the demand enough to run the factory at full capacity to achieve the economies of scales, and the selling price to be profitable. Solyndra is unique in terms of producing solar panels with totally different designs from the conventional ones. If anyone knows a little bit about the technical, the conventional one are made with silicon and flat surface, whereas Solyndra panel consists of rows of solar cell-lined tubes so that it can enable solar cells to capture light reflected from the roof as well.

The unconventional design has put up the cost of both R&D and production costs. The manufacturing facility cost around $733 million in Fremont, California in 2010, with much of it come from the federal loan guarantee. Solyndra projected the annual production capacity would be 610 megawatts by 2013. However, it takes time to reach the economies of scale to lower its production costs. Even though there are billions poured into the company, it still can’t raise money fast enough to compete with the competition and survive in the current industry environment. Brian Harrison, Solyndra’s CEO has commented: “Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion. Raising incremental capital in this environment was not possible. This was an unexpected outcome and is most unfortunate,”

The biggest competitors of Solyndra come from China including Suntech Power, Yingli Green Energy and Trina Solar. It has been said that the industry from the global recession in 2008 has felt the impact when customers delay payments or cancel orders. Micro economics has shown, whenever the demand has been squeezed, competitors in the field must encounter the price wars. Price has been put under pressure, and in order to be profitable, the cost must be lower than close competitors, especially the production cost. Chinese players are helped by the government banks to borrow money to drive down the costs. According to one article in Bloomberg, whereas Western companies mainly seek private financing, China’s manufacturers’ have received more than $20 billion in government loans from state-run China Development Bank.

The analysis of New Energy Finance has pointed out that solar price in 2010 has been 50% cheaper compared to 2008 prices, putting down more pressure in the high cost solar panel manufacturers like Solyndra. And just within a week ago, Solyndra has announced bankruptcy because of the fierce competition by foreign solar manufacturers. However, Barry Cinnamon, CEO of decade-old Westinghouse Solar has said in its website that it’s not because of higher labor costs, or lack of manufacturing commitment, but “Solyndra invented a solar panel that didn't use expensive silicon. Unfortunately for Solyndra, and fortunately for all the silicon solar panel manufacturers and customers, silicon has gotten very cheap over the past few years."

For the financial statement in its prospectus dated back 2009, it has negative equity due to the large amount of redeemable preferred stock standing nearly $1 billion, the negative equity of nearly negative $500 million. Its weak financial standpoint combined with the bad economic condition in both general and in the solar energy in particular has put Solyndra into this situation.

The clean technology business manufacturing solar panels sounds sexy, and it helps the community by providing a lot of jobs. But the business model should suitable and strong enough for its surrounding business conditions as well as the competition that it has to face in order to be sustainable over the long term.

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


Rating: 4.1/5 (14 votes)

Comments

carlbenfield
Carlbenfield - 2 years ago
A well-balanced post.

We are a renewable energy company in the UK that has spent considerable time and effort learning the Solyndra system, so are naturally hugely disappointed by recent events.

The product itself is superb and answers many of the difficult questions around installing solar on large roofs - mainly those concerning the interface with the roof itself. In our experience, no one product offers a solution in every situation, but Solyndra definitely had a rich vein to tap in their niche area.

The collapse in price of silicon was certainly the major contributory factor to Solyndra's failure and thin-film manufacturers around the world are struggling to compete with crystalline modules.

There are two technology-driven scenarios that might yet resurrect Solyndra:

1. The price of silicon rises again.

2. New thin-film silicon research allows the Solyndra panel to be made with silicon, giving the best of both worlds.

ken_hoang
Ken_hoang - 2 years ago
Thanks Carbenfield for the information,

So how about the technology advance in terms of solar to replace the traditional utility system going until now? Seems like haven't got any sufficient tech to do that yet?

With huge capital investment into building plants, the price and the acceptance of the industry is very important to keep the company going forward. Let's see how the result plays out. Maybe it's not the right timing for the industry yet.

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