SunEdison with a purpose of ‘Transforming lives through innovation’ is the world’s largest renewable energy developer. Its name, SunEdison, celebrates the greatest inventor and entrepreneur, Thomas Edison, which can be proved by its patent awards of more than 750. It was established in St. Peter, Missouri in 1959. The company formerly known as MEMC Electronic Material tried its hand on solar in 2006. To make its grip strong in this sector, it spent $200mn in buying solar startup SunEdison. It changed its name to SunEdison in 2013 and by selling its semiconductor business, it started focus solely on clean energy. Its philosophy of deep insight is fulfilled by the two constituting components of people and technology. People is represented by the workforce with a passion for solar and technology part is made up of state of the art facilities. It is a gigantic player in the solar field with having over 2 GW of solar installed around the world. This solar endeavour is presented by one of the executive manager in following lines-
“50 years ago our Silicon technology helped to create the computer age and now it’s creating the new solar age, with more powerful and cost effective solar cells.”
The surrounding technological advancement is helping in boosting up their business as solar panels have observed 85% decrease in its cost since 2007. On the account of experience, it is a vertically integrated firm stretching its ambit from silicon in past to solar panel in present.
Their beautiful world took a sharp turn when they embarked upon cheap and easy credit fuelled buying spree. It started in late 2014 when it bought $2.4bn Wind developer, First Wind, and continued with buying largest rooftop solar panel installing company, Vivint Solar, for $2.2bn in 2015 which was later dissolved. It also pulled out of the deal with Continuum Wind at the eleventh hour. The further woe was added by its Yieldco, TerraForm Global Inc. which accused it of diverting $231mn into managing its balance sheet instead of executing the projects. All these activities were a result of deep negative manipulation. Top personalities like CEO Chatila and CFO Brian Wuebbels illegally dissolved the entire management team of Yieldco as its members were opposing the diversion. These deals were a tool of disguise smoothening the real motive of avoiding debt default instead of funding expected projects. These all were already adding up the negative piles when SunEdison set a new record of lowest tariff bidding of ₹4.63/unit for a massive 500MW solar power project in Andhra Pradesh, India. These tariffs were just a thing to taste, but not a long term feasible solution for a company facing battle both at home and at external sphere.
Home refers to the Yieldco structure. It is a publicly traded corporation that provides stable and growing distributions for investors from operating assets that generate a predictable stream of cash flow. Further, inherent losses in the form of operating losses, tax credits or other items results in reduced corporate tax burden and facilitates a tax shield formation. Therefore, it is like killing two birds with one stone.
This concept is proved to be useful up to a wide extent in the RE sector as fear of initial high cost in it is nullified by the assurance of predictable cash flow and the tax shield provided by it. But all these were in vain for SunEdison. This situation can be best described in the lines of a great musician, Tom Pelly, as-
“It just seems to be useless to have to work so hard, and nothing ever really seem to come from it when the direction itself is directionless.”
Growth is a positive sign but too big and too fast growth can put anyone in peril. In late April, SunEdison filed for Chapter 11 bankruptcy protection which involves reorganization of debtor’s business affairs and assets to give him a fresh start along with some obligations. The company is having high debt repayment obligation in comparison to the expected cash flows.
As on Sep 30, 2015 its assets and liabilities are of worth $20.7bn and $16.1bn respectively. Reuters declared SunEdison’s bankruptcy as one of the largest in the past 10 years. Co-founder of Generate Capital describe the situation on his tweet as –
“Founded by Visionaries, Built by revolutionaries, destroyed by Mercenaries.”
Multiple reasons can be cited for its failure. Few of these can be-
- Aggressive growth-
The company without paying due diligence to the management & its outcome took a risk and invested randomly.
- Poor introspection –
It was running after achieving the MWs target without realising the liquidity condition. It indicates incoherency in management and planning. Financial Engineering was not used appropriately which resulted in debt laden state of company.
2. Poor extrospection-
A business works in tandem with its surrounding. For an MNC, surrounding covers full world and its macro factors like oil & fuel conditions.They never realised the volatility of this market unaware of the fact that oil and solar are two facets of same element i.e. energy.
3. Yieldco over reliance-
It was dependent on these subsidiaries to a great extent to absorb assets at premium. These were misused as a tool of misallocation of fund to fight debt problem instead of new projects operation as promised to stakeholders.
Eventually, it created the doubt on its credibility at the end.
Though this event has raised the eyebrows on the viability of tariff below ₹5/unit or rather solar sector as a whole but a positive ray of hope is prevailing since a single entity cannot display the true nitty-gritty of the full sector.
Optimism is the way forward. Government’s daily strides of achieving marvellous new records can’t be ignored in the limelight of darkness created by SunEdison’s Bankruptcy.