Why the sun went down on Sun Edison

Why the sun went down on Sun Edison

SunEdison's demise is bad news for the company, but does not necessarily signal the end of the move toward renewable energy.

(Wikipedia/Dennis Schroeder)

AMSTERDAM, May 12, 2016 – There was bad news for the renewables industry last month as US-based SunEdison, the largest renewable company in the world, filed for Chapter 11 and announced it would be delisted from the New York Stock Exchange (NYSE) on May 17. This  is not a death knell for the renewable energy industry as a whole, however, and should not be interpreted as a sign that the ambitions laid out in the COP21 agreement are unworkable.

Like so many before it, SunEdison was a victim of its own ambition. Hoping to gain market share and increase its geographic reach, it resorted to “aggressive inorganic growth,” making too many acquisitions with too little actual cash to back them up. Because there was a time lag between acquiring these businesses and actually being able to profit from their operation, SunEdison kept its business going with more and more debt until, predictably, things started to spiral out of control. In September 2015, SunEdison’s consolidated debt stood at $11.7 million.

According to the New York Times, SunEdison was  a “red-hot company in a red-hot space.” Unfortunately, it was the flow of red ink in its books that led to the company’s eventual demise.

SunEdison’s failure is not a result of renewable energy being fundamentally unprofitable or unlikely to garner demand. Rather, it is because SunEdison and other green energy businesses like it are stuck in that uneasy cycle so many emerging technology businesses have found themselves in now and in the past. Such companies need customers to build the infrastructure they require and need that infrastructure to attract the customers.

For SunEdison, the bubble has burst, but this doesn’t mean the forecast for the renewables industry as a whole is gloomy. In 2015, the US installed 7,260 solar PV panels, the largest annual total ever, and 16 percent above 2014. In addition, for the first time ever, solar beat natural gas capacity additions, with solar supplying 29.4% of all new electric generating capacity brought on-line in the US in 2015. The US solar industry now employs more than 200,000 workers, triple the number working in the coal mining industry and since 2005 has experienced significant growth. In 2005, wind and solar accounted for just 0.5 percent of US power generation. In 2015, the figure stood at 5 percent.

Today, support for renewables is increasingly coming from some very unlikely quarters. While the top Republican presidential candidates–now down to one–have been ignoring the role humans have played in climate change, further down the ranks, some party members are seeing renewables as a way to create jobs, boost economic development and keep America energy independent. “What I sense among Republicans is there is some belief that, yes, this does sound like a song we could sing,” said Bob Inglis, a former Republican congressman who now runs an organization promoting free market solutions for climate change.

Globally, even former stalwarts of the oil industry are exploring what solar energy can do for them. Kazakhstan has set a target that will see renewable energy projects contributing 10 percent to the country’s mix by 2030, a figure that will necessitate installing more than 3,000 MW of renewable energy capacity by the decade’s end. The country is also doing considerable work promoting such efforts. Astana EXPO 2017 will be focused around innovation in the energy sector, while a May Economic Forum will feature an entire panel on future energy.

Similarly, Saudi Arabia’s Vision 2030 plan clearly seeks to make the nation less addicted to oil and more reliant on investment. The launch of the King Salman Renewable Energy Initiative with an initial renewable energy target of 9.5 gigawatts (GW) is a clear statement of intent. Ironically, the shift towards solar in Saudi is motivated not by environmental concerns, but by an even stronger influence: pure geoeconomics.

With the price of oil in the doldrums, the Kingdom realized that only by shifting its economy will it be able to survive in the post-carbon era. The country will go through a painful but necessary economic liberalization program that should make it more attractive for foreign investment. Thanks to its know-how in solar energy and beyond, British companies are particularly interested in the Kingdom’s economic pivot. London will want to build on their already close security relations with the Saudis to boost investment in the desert kingdom.

If even an oil-rich nation like Saudi Arabia recognizes the necessity of investing in renewables, the writing surely is on the wall for fossil fuels.

SunEdison’s demise should be filed with the many, many stories of companies who have tried to do too much, too soon and burnt out. The product they were selling was sound. But in their rush to make sure they garnered as much of the market as possible, they imploded.

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