Solar Singed: Two Weeks After Two Other Bankruptcies, Solyndra Goes Belly-up

Two weeks ago (at NewsBusters; at BizzyBlog), yours truly pointed out how establishment press coverage of the bankruptcy of Massachusetts-based Evergreen Solar had emphasized its Bay State assistance, and only rarely brought up how it benefitted by being able to sell solar panels it otherwise would probably not have bothered to produce to projects benefitting from American Recovery and Reinvestment Act ("stimulus") dollars.

On August 17, Larry Dignan of ZDNet, in an item published at CBSnews.com, tried to convince readers that Evergreen's failure was not indicative of an industry meltdown (bolds are mine):

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The bankruptcy of Evergreen Solar is causing some media consternation about the solar industry, but it’s a stretch to imply that the company’s demise is the sign of an industry meltdown.

... Evergreen Solar, like many businesses in an emerging industry, benefited from an initial surge, failed to adjust to market conditions and failed. Evergreen Solar may hang around after restructuring, but the company is akin to those early hard drive and PC companies. The industry consolidates and some players die. Other bankruptcies in the industry will occur. CNET noted that Solon is also closing facilities amid global competition.

You can’t have more than 300 companies—a stat via Solarbuzz—playing in the solar panel market and not expect a few to flop. In its most recent annual report, Evergreen Solar cited BP Solar, First Solar, Kyocera, Mitsubishi, Sanyo, Sharp, SunPower, Trina Solar and Yingli. While some of those competitors are Chinese, most of them aren’t. Evergreen Solar wasn’t run over just by China outfits, but companies from around the world too.

Other reasons Evergreen Solar had to file for bankruptcy:

• It focused on off-size solar panels. Evergreen said in its annual report that “historically, we have produced non-standard size rectangular wafers that were then processed into Evergreen Solar branded solar panels.” Those panels were assembled in its Massachusetts facility.
• The company made a move to focus on industry standard size wafers, but ran out of time and funding. Was it China that derailed Evergreen Solar or the fact it was Betamaxed?
• Evergreen Solar failed to raise enough cash when times were good. In the stock’s glory days, Evergreen Solar could have raised cash via stock sales. It could have used that currency to build a war chest. Perhaps Evergreen could have used its inflated stock to acquire more companies and assets. It didn’t buy its way into a company that could weather a storm.
• There was simply too much debt on the books. Evergreen Solar needed more capital, but you raise debt when you DON’T need it. Not when you’re desperate.
• The company doesn’t make money. Evergreen Solar’s net loss for 2010 was $465.4 million. In 2009, the company lost $266.2 million. In 2008, Evergreen’s net loss was $228.6 million.

All of this would be fine (with everyone but the investors, of course) if Evergreen's failure had been 100% investor-funded. But it wasn't. The State of Massachusetts is out tens of millions of dollars, and the stimulus-funded projects containing Evergreen-produced panels may not be serviceable if something goes technically wrong.

After today's news -- as well as the August 19 news that Spectrawatt, which received some funding from the state of New York, was also giving up the ghost -- someone should be asking Larry Dignan: "Are we at meltdown yet?"

In case you missed it, direct stimulus showcase beneficiary Solyndra filed for bankruptcy this morning, idling 1,100 workers. The reasons identified in Darren Goode's Politico item somewhat echo those relating to Evergreen (bolds and numbered tags are mine):

“Regulatory and policy uncertainties in recent months created significant near-term excess supply and price erosion,” [1] Solyndra President and CEO Brian Harrison said in a statement. “Raising incremental capital in this environment was not possible. This was an unexpected outcome and is most unfortunate.”

Solyndra’s problems included “uncertainty in governmental incentive programs in Europe and the decline in credit markets that finance solar systems,” according to a company news release.

The price of solar has dropped more than 40 percent this year, influenced heavily by highly subsidized Chinese firms.

Clean energy advocates called Solyndra a casualty of a maturing solar industry.

“That’s the reality of capitalism,” [2] said Josh Freed, vice president for clean energy at Third Way. “The solar industry is shaking out — prices are dropping and consolidation is happening. [3] We’re in a survival of the fittest or fleetest mode where companies are positioning themselves for a more competitive market.”

... Obama visited the Fremont facility in May 2010 and touted it as an example of why the administration had funneled tens of billions of dollars in loan guarantees and overall stimulus help to clean-energy facilities.

“The true engine of economic growth will always be companies like Solyndra, will always be America’s businesses, ” Obama said at the time. “Less than a year ago, we were standing on what was an empty lot. But through the Recovery Act, this company received a loan to expand its operations. This new factory is the result of those loans.”

The Energy Department — in a blog post just before the company’s noon announcement — touted its loan guarantee programs while acknowledging that it does not always pick winners. [4]

Notes:

• [1] -- I believe this translates to: "We were making stuff even when we had no idea of whether we could sell it."
• [2] -- That's a pretty brazen statement by Mr. Freed with little if any attachment to reality. Any resemblance between the solar "industry" and capitalism is purely accidental. Rush Limbaugh was much closer to the truth when he said on the air during the 2 p.m. hour that "There never was a real business there." And here's a shocker (not, not really) Darren Goode "somehow" overlooked: Joshua Freed recently "was a Vice President at GMMB, where he was part of the media team for Obama for America and advised the senior leadership of the Bill & Melinda Gates Foundation. Mr. Freed also was the communications director for the Obama Colorado caucus campaign and advised the Obama for Colorado campaign in the general election."
• [3] -- In another non-surprise, Mr. Freed, in his position at Third Way, "focuses on the policies and strategies needed to bring about clean energy reform and to address climate change." There is no evidence in Mr. Freed's stated background of anything resembling first-hand experience with capitalism.
• [4] -- This statement echoes Massachusetts Governor Deval Patrick's statement that he "would do it all over again" after Evergreen's bankruptcy filing. They just don't get it. It's not the government's job to "invest" in "private" industry in the hope that they can "pick winners." Private investors, who of course often fail to pick winners, do a consistently better job of that, especially in the areas of due diligence (taking equity if necessary (more often than not it is, and in the form of a majority stake) and in structuring financing arrangements which put the founders' and managers' feet to the fire to produce results -- or get out of the way so investors can find people who can.

Solyndra's still-extant history page indicates that it reached $140 million in revenues last year after $100 million the previous year. Since it's privately held, unless Congress received financial statements at some point (which seems doubtful, based on the history of efforts to pry information from the executive branch and the company; per Politico's Goode, "a July [congressional]subpoena deadline came and went without a response"), we don't know if it was ever profitable. Another interesting point: Goode also notes a company claim that its sales "has increased its sales revenue by 2,000 percent in three years." That statement makes would appear quite likely that the company's annual sales at the time the it received its hundreds of millions in federal loan guarantees were far less than $100 million.

A non-accounting person intuitively knows that even a somewhat profitable company with the high-end revenue stream noted is courting danger by borrowing money to the tune of almost four times its sales ($535 million divided by $140 million). But it looks like the Department of Energy couldn't figure that out.

Early indications are that President Obama in his jobs initiative announcement next week will want to dump more money the government doesn't have into even more "clean energy" and "green jobs" projects which, based on the track record, are destined not to pan out. One would hope that Obama and his party will give this madness a second thought in the wake of the Evergreen and Solyndra fiascos; but it probably won't happen.

Cross-posted at BizzyBlog.com.

For more on the lack of coverage given to disappointments over the creation of so-called "green jobs" please see Julia Seymour's "Networks Barely Criticize Obama's Disastrous 'Green Jobs' Policies."