Solyndra has engineered, built and shipped an absolutely innovative solar product. The firm continues to win white-roof designs and has billions of dollars in backlog.
Nothing like the Solyndra design has ever been built before in silicon or CIGS. The firm asserts that their cylindrical tubes have the promise of lowering balance-of-system costs and making installation faster and easier. In fact, balance-of-system cost reduction was the factor cited by Rockport Capital as their reason for investing in the company, according to a partner I spoke with at the VC firm.
But even if balance-of-system costs were being driven to zero, the sheer complexity of the Solyndra design, the richness of the bill-of-materials in the face of First Solar execution, and Chinese c-Si scale makes the Solyndra value proposition seem increasingly fragile.
Years ago, I had a conversation with one of the original founders of Solyndra, a gentlemen whose name is on many of the original patents. He revealed that his own calculations suggested that the packaging costs of the Solyndra design doomed it to being commercially uncompetitive. That revelation came from the product's inventor.
The cost numbers from the now-withdrawn SEC-filed S-1 document:
Solyndra's revenue in the nine months ending October 3 was $58.814 million, and their cost of goods sold for the same period was $108.321 million for the total of 17.2 megawatts of CIGS solar panels shipped. That works out to:
- A sale price of $3.42 per watt
- A production cost of $6.29 per watt
Admittedly, these numbers are from a company still ramping up its production. But read what Vinod Khosla has to say about that -- yield and cost have to be dialed-in pretty early in the game. You can't just hope for the magic of economies of scale in Fab 2 if the costs are challenging to begin with.
The cylindrical shape of the Solyndra product makes it a bit difficult to compare apples-to-apples on panel efficiency versus other flat panels. But read this performance review of the Solyndra tubes in this bumpy translation from a German article in EnBauSa GmbH, a German online magazine. The article raises several valid points about energy production, self-shading, and roof cleaning. If the cylinders shade neighboring cylinders or if keeping the roof clean is problematic, the entire "white-roof reflection" advantage is lost. And if energy production is lower than flat panels -- why bother?
Getting through the IPO window is hard for any company. In the words of Fred Wilson of Union Square Ventures in a recent blog entry: "I believe that the IPO exit is appropriate for only the very best companies, maybe one or two companies per fund...For every other company, I think liquidity offerings followed by an eventual sale transaction is the best outcome. The cost is just too high and the benefits are just too low for most companies these days.
Solyndra's recently withdrawn IPO probably cost somewhere in the neighborhood of $3.5 million.
Wilson adds, "[A] sad tale about the IPO market: First, it is way too expensive to go public. And if you don't get your offering done, which is not an unusual occurrence, you are left with a huge bill to pay (and no cash to pay it with). And if you get your offering done, your company will likely be valued lower than it would be valued in a late-stage private financing.
I used to think that the IPO was the ultimate exit for a venture-backed company. Then in the late '90s, I was involved in about a dozen IPOs, sat on some public boards, got sued by ambulance chasers, and saw the vast majority of our IPOs underperform and get abandoned by Wall Street. Since that experience, I've become very wary of the IPO exit."
Solyndra, hoping for $300 million in proceeds from their IPO, ends up spending $3.5 million and muddies the water for other solar firms. They gave themselves a black eye and had to take $175 million more from their existing investors, likely at onerous "cramdown terms." Earlier investors and stock-holding employees end up with shrinking equity shares of the company.
Not a pretty picture for investors, for employee morale, or for customers looking for supplier longevity.
How Does the U.S. Taxpayer Get its Money Back?
Solyndra has received more than $1 billion in venture capital. But they've also received a $535 million U.S. Department of Energy (DOE) loan guarantee under Title XVII of the Energy Policy Act of 2005.
According to the press release: "The guaranteed loan, expected to provide debt financing for approximately 73% of the project costs, will allow Solyndra to initiate construction of a second solar panel fabrication facility (Fab 2) in California. On completion, Fab 2 is expected to have an annual manufacturing capacity of 500 megawatts per year" and "Over the life of the project, Solyndra estimates that Fab 2 will produce solar panels sufficient to generate up to 15 gigawatts of clean, renewable electricity...Solyndra estimates that the construction of this complex will employ approximately 3,000 people, the operation of the facility will create over 1,000 jobs, and hundreds of additional jobs will be created for the installation of Solyndra PV systems in the U.S."
“'DOE, in consultation with independent consultants, performed a thorough investigation and analysis of our project’s financial, technical and legal strengths,' said Dr. Kelly Truman, Solyndra’s Vice President of Marketing, Sales and Business Development."
Which brings us to the buried lede of this article.
What if the DOE's "thorough investigation" wasn't thorough enough? If Solyndra can't dramatically lower its costs, it will continue to lose money at a rapid pace. Eventually, the VC spigot will shut down, and that leaves the DOE -- and essentially, the U.S. taxpayer -- holding the bag for $535 million. (It is our understanding that only a portion of the loan guarantee has been dispensed and that it does require matching funds.)
What are the repayment terms for the DOE loan? How does the U.S. expect to get this money back from a company that is losing cash with every shipment? We are trying to nail down the exact repayment terms of this loan but have yet to get a response from either Solyndra or the DOE. We'll let you know when we find out.