The Fall of SunEdison-A Solar Eclipse?
| Case Code: FINC125 Case Length: 12 Pages Period: 2015-2016 Pub Date: 2017 Teaching Note: Available |
Price: Rs.500 Organization: SunEdison Industry: Solar Energy Countries: U.S,World Themes: - |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
MEMC
MEMC was founded in 1959 by Monsanto Chemical Company to manufacture silicon wafers. In 1989, Hüls AG of Germany purchased MEMC. In 1995, MEMC launched an IPO and in 2001, the Texas Pacific Group acquired MEMC. MEMC kept on expanding, anticipating serving the growing electronic chip industry. But, by the late 2000s, the cyclical downswings of the chip industry had taken their toll on MEMC, and it started to report losses. In 2009, MEMC, which had forayed into Photovoltaics (PV) manufacturing to be a part of the burgeoning solar market, wanted to be a more vertically integrated player in the industry – that is, manufacture PV cells and also install solar projects....
Solar in Emerging Markets
Continuing to grow globally, in 2011, SunEdison secured funds to set up solar plants in India, looking to make the country one of its biggest markets for solar projects. It raised $100 million to build solar plants in power-hungry states like Gujarat and Rajasthan. "We are proud of our robust history of financing solar photovoltaic projects with strong long-term returns for investors in many countries and now in India," SunEdison Managing Director (South Asia and Sub-Saharan Africa), Pashupathy Gopalan (Gopalan), had said at the time....
Solar in Developed Economics
In developed economies, SunEdison had a stable substrate to grow; debt financing coupled with PPAs and rebates propelled growth. But even in developed economies, PPAs only made sense in geographies with significant solar rebate programs which could off-set the cost of capital and the high upfront investment costs. By 2014, after a decade of high growth, nations like Germany, Italy, and Greece were rolling back solar incentives. In the Czech Republic and Spain, the solar industry had suddenly come to a standstill when Feed-in-Tariffs 13 were rolled back....
Solar Industry and Solar Economics
By the end of 2015, the cumulative capacity of solar had hit the 200GW mark, which was roughly more than 1% of the world’s total power consumption. It was estimated that 66GW of solar capacity would be added by the end of 2016. The world was building more solar power plants than ever because they were getting cheaper. Since 1975, the cost of installing 1MW of solar had dropped by 150 times. There was more than an 80% fall in the price of solar panels since 2010. But the industry was largely ailing from low profitability owing to the commoditized nature of the business . Without technological innovation, there was very little to differentiate between the offerings of the solar companies...
SunEdison Business Model
By December 2013, SunEdison had total installed capacity of 1.3 GW through its 816 solar plants while 540 MW was under construction and 3.4 GW capacity projects were in the pipeline. Given SunEdison’s strategic shift, the upstream business (historically seen as the core of MEMC) of manufacturing solar panels now focused on internal consumption for the downstream business of solar project development. SunEdison focused on select markets across the globe, namely North America, South America, Europe, the Middle East, South Africa, India, Malaysia, Thailand, and China....
The Rise of Yieldcos
On December 12, 2013, SunEdison announced its plans to monetize its assets through a dividend growth-oriented subsidiary. Holding solar assets was more profitable in the long run than selling them on completion. The plan was to aggregate finished projects and sell them to a subsidiary which would pay for the assets by raising equity. Such yield-based companies were popularly called Yieldcos...
Supernova
It appeared that there was no stopping Ahmad. In a presentation to analysts in February 2016, he indicated that SunEdison was poised to become the world's most valuable company and added, SunEdison is the next ExxonMobil whose value is around $400bn. "That's what we're going after."...
The Sun Also Sets
In July 2015, SunEdison announced the acquisition of Vivint Solar, the second largest residential (distributed power) PV installer in the US, for $2.2 billion in cash, stock, and convertible notes. "We are building the next generation of the biggest energy companies on earth," said Julie Blunden, SunEdison's chief strategy officer. "We're not waiting to find out who they'll be – we want it to be us."..
Aftermath
The ripples of SunEdison's fall were felt across the globe. After showing a promising 13-year growth, receiving around $1.5 billion of tax payers’ support (combination of grants, loans, and tax credits), the $10 billion dollar company had collapsed to become a $150 million company and was liquidating its assets as quickly as possible. SunEdison had around $20 billion of debt and $16 billion of assets...
Exhibits
Exhibit I: Share price slump of SunEdison, Terraform Power and Terraform Global
Exhibit II : SunEdison P & L and Balance Sheet
Exhibit III : LCOE (Levelized Cost of Energy) for Various Sources of Electricity in the US
Exhibit IV : Electricity Costs in USD/MWh in Emerging Markets (Green Bars)and LCOE of Solar
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