SunEdison’s Epic Failure Had Little to Do With Clean Energy
It finally happened. After months of speculation, bizarre twists and turns, and dozens of lawsuits, beleaguered clean energy giant SunEdison finally filed for Chapter 11 bankruptcy protection on Thursday.
The news, and SunEdison’s (SUNE) rock bottom share price, will no doubt have deep effects on the growing global solar and clean energy industries. But SunEdison’s downfall isn’t rooted in the failure of solar and wind.
Instead the company’s tale of woe stems from overreaching ambition and core business decisions that led it to try to grow too big, too fast, and in too many directions. Companies in any industry—from drugs to mining to airlines—could, and have met, the same fate.
Strangely, it’s actually one of the best times in history to be a solar and wind project developer as well as and solar panel and wind turbine maker. A record $330 billion was invested in clean energy last year despite the plunge in global oil prices, according to data from the analysts at Bloomberg New Energy Finance. This year also kicked off on the heels of the unprecedented meeting in Paris where the world’s nations agreed to curb greenhouse gases, which will lead to more clean energy projects.
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In the U.S., in particular, clean energy is booming. An important tax credit was extended late last year, providing crucial incentives for clean energy projects. The Obama administration has managed to push forward crucial rules like the Clean Power Plan, which calls for a reduction in carbon emissions from the power sector.
It was off of this coming boom in solar and wind that SunEdison started on its faulty, mismanaged acquisition path to try to become the world’s largest clean energy company. It crumbled in the process.
The company, formerly called MEMC Electronic Materials, has a long history in the semiconductor industry but entered the solar market back in 2006. Three years later, it spent $200 million buying solar startup SunEdison, which was founded by entrepreneur Jigar Shah and pioneered selling solar panel systems to businesses and homeowners with little or no upfront fees. Instead, customers paid for the solar power over several decades at monthly rates typically cheaper than the local grid power.
By 2013, the conglomerate had changed its name to SunEdison, and by 2015, it had sold off its semiconductor business, choosing to focus solely on clean energy. Following the acquisition of SunEdison, the company started slowly snapping up solar developers, big and small. Around that time, SunEdison also spun off its clean energy projects into separate entities known as “yieldcos” that can be traded on public markets.
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In late 2014, SunEdison started to get aggressive with its acquisitions and made one of its biggest bets, spending $2.4 billion buying wind developer First Wind. That deal enabled the company to call itself the world’s largest clean energy company, propelling SunEdison beyond solar.
But in 2015, SunEdison’s shopping spree strategy changed its tune. By summer, SunEdison announced a plan to buy one of the largest rooftop solar panel installers, Vivint Solar (VSLR), for $2.2 billion. There was immediate skepticism, and SunEdison’s shares started to plunge.
In the months following, investors fled the stock, using the Vivint Solar deal as the last straw of a misplaced and excessive acquisition binge. Some SunEdison investors, like hedge fund manager David Tepper, vehemently opposed the Vivint Solar deal and tried to block it in court.
What followed the Vivint Solar deal was what happens when a company’s public valuation evaporates over several months and still trying to close a handful of multi-million and billion dollars-valued deals. It just can’t work.
SunEdison began to back out of many of its deals. It was hit with two dozen lawsuits. It delayed filing its financial statements. In March, Vivint finally terminated the deal. SunEdison is now being investigated by the Securities and Exchange Commission as well as the Justice Department.
Reuters says SunEdison’s bankruptcy is one of the largest non-financial bankruptcies of the past 10 years. The company is now left with $20.7 billion in assets and liabilities of $16.1 billion.
SunEdison’s shareholders, employees, competitors and the companies it attempted to acquire are now all left with the perplexing question: Why did this happen? This certainly wasn’t inevitable, and it wasn’t based on macro-energy market movements.
The disaster stems from a company that tried to reach too high, too wide, and claim the mantle of the world’s largest clean energy company. Now it’s the largest clean energy failure in history.