September 25, 2011

NOTHING COSTS MORE THAN IT USED TO:

Solyndra's collapse is a tale of too much dazzle: Investors were convinced that the solar company was the harbinger of an alternative-energy boom. But the market changed too swiftly. (Ken Bensinger, Stuart Pfeifer and Neela Banerjee, 9/25/11, LA Times)

[T]o grasp the saga of Solyndra's rapid rise and even faster fall, one has to understand the dazzling appeal of its product. The company's advancement in solar power was hailed as an invention so brilliant that it blinded everyone to the truth: Solyndra never had much of a chance in a fast-changing market.

"It was revolutionary," said Walter Bailey, a former Macquarie Capital investment banker who specialized in green technology and visited Solyndra in 2008. "You had some of the smartest money in the world getting behind it. It was a real company with a huge factory and an extremely unique product.

"The only problem," said Bailey, now a senior partner at boutique investment bank Focus Capital in New York, "was that it never penciled out."

Unlike the increasingly ubiquitous flat solar panel, Solyndra's design completely rethought the process of turning sunlight into electricity, creating a product perfect for flat roofs of warehouses, supermarkets and other commercial buildings.

Its rectangular panels, called modules, are made of dozens of horizontally arrayed cylindrical tubes -- hence the name Solyndra. As the sun tracks across the sky, the curved surfaces stay perpendicular to its rays all day, unlike conventional flat panels. And light reflecting off the roof hits the underside of the tubes, increasing production.

In addition, Solyndra's product weighs much less than flat panels and is far simpler to install. Best of all, said Laura Weilert, a Denver solar engineer, is the way the modules let air circulate through them.

"Wind tends to pull every other kind of panel off a building, but not Solyndra," said Weilert, who has installed Solyndra modules on about 170 buildings in Colorado and had $300,000 of additional modules on order when the company shut down. "For the right market, it's hands down the best thing out there."

Solyndra's founder, Chris Gronet, invented the panels and left his job as an executive at Applied Materials Inc., a major supplier to high-tech companies such as IBM Corp., Samsung Electronics Co. and Texas Instruments Inc., to focus on solar full time.

He formed his own company in 2005 and lured investors with another selling point of his modules -- the fact that they didn't use silicon, an essential and expensive component of conventional solar cells.

By early 2008, the price of high-grade silicon had reached almost $1,000 a pound, nearly 10 times what it had been just a few years earlier. Venture capitalists raced to get in, making Solyndra one of the hottest bets in Silicon Valley at a time when solar was rapidly expanding in the U.S. and Europe thanks to government subsidies.

"They were considered very exciting," said Shayle Kann, managing director of consulting firm GTM Research's solar practice. "They had the potential to substantially reduce solar costs at the time, and they had attracted an enormous amount of private investment."

One investor, British billionaire Richard Branson's Virgin Green Fund, bragged that it had selected only Solyndra from a pool of 117 solar companies seeking backing. Other investors included billionaire Oklahoma oil baron George Kaiser, and a fund that manages the money of the family behind Wal-Mart Stores Inc. Wall Street heavyweight Goldman Sachs Group Inc. was its lead investment banker.

"Very high-profile money was all over that company," said Bailey, the investment banker. "Nobody else had anything as strikingly different as Solyndra."

When the company emerged from what it called "stealth mode" in October 2008, it had already raised $600 million and was the toast of Silicon Valley. It also had applied for the Department of Energy loan guarantee, which would be granted in 2009.

That guarantee, the first approved in the program, made Solyndra a symbolic standard-bearer for the Obama administration's push for investing in green jobs.

Under terms of the deal, the Energy Department would guarantee the loan, issued by the Treasury's Federal Financing Bank and carrying a tiny 1% interest rate. The money would pay the lion's share of a new $733-million factory, the company's second, needed to increase capacity dramatically and streamline manufacturing.

That was key, the company said, because it urgently needed to bring costs down.

By the time the loan was conditionally approved, sinking demand for solar energy had helped drive the price of silicon off a cliff, to less than $100 a pound. Heavily subsidized Chinese flat-panel makers began slashing prices faster than Solyndra could.

Solyndra's prices were 66% higher than competing flat panels in late 2009, according to public documents filed with the Securities and Exchange Commission.


No one ever got rich counting on commodity prices to stay high.


Posted by at September 25, 2011 9:36 AM
  

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