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Potentially stranding a significant number of solar development
plans as well as some assets, SunEdison (SUNE)
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
In October we covered the SunEdison situation was covered from the
perspective of company behavior following SunEdison’s acquisition by
MEMC. You can find that analysis including a detailed
timeline of its history here.
To that timeline we now add:
- 2016 January: TerraForm (TERP)
shareholder Appaloosa Management sues to stop SunEdison’s
acquisition of Vivint (VSLR).
- 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.
A short and incomplete list of solar companies that have failed
includes Advent Solar, SunFilm, SpectraWatt, Abound Solar, Konarka,
Millennium, SolFocus, Suntech,
and now SunEdison. Almost all Chinese solar manufacturers built
their companies and maintain their businesses on a mountain of debt.
Some companies emerge from bankruptcy either through acquisition
(Q-Cells and Suntech) or through restructuring – potentially Abengoa
and SunEdison. Recovery is not a given.
A company strategy based on underbidding to win projects, growth
that relies on highly public incentives to stimulate demand, poor
expansion and investment choices and reliance on debt is operating
in an unhealthy ecosystem.
Paula Mints is founder of SPV Market Research, a
classic solar market research practice focused on gathering data
through primary research and providing analyses of the global
solar industry. You can find her on Twitter @PaulaMints1
and read her blog here.
This article was originally published in the April 30 issue
a bimonthly executive report on the solar industry, and is
republished with permission.
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