Why Did Solyndra Fail?

Executive Summary:

Solyndra was a copper indium gallium selenide solar cells manufacturer that distributed tubular solar panels for commercial rooftop installation.

Solyndra failed because its cost substantially exceeded its revenue, due to heightened market competition and declining PV prices, as well as internal leadership struggles.

What Is Solyndra?

Solyndra was a copper indium gallium selenide (CIGS) solar cells manufacturer that distributed tubular solar panels for commercial rooftop installation.

Back then, the industry standard was to offer panels that looked like flat sheets of dark material while Solyndra’s panels resembled a row of long fluorescent light tubes.

These tubes would be an inch wide and staked another inch apart from each other. The shape of the tubes is what made the actual difference.

Up to 200 CIGS cells could be placed on the outside of the inner tube. On top of the CIGS material, it added a so-called optical coupling agent, which distillates the sunlight that comes via the outer tube.

The tubes would then mostly be installed on white roofs, which are able to capture up to 20 percent more light than a dark one.

Additionally, the tubes, as opposed to their flat counterparts, were not required to be moved to capture the maximum amount of sunlight. The panels are always presenting some of their surfaces directly onto the sun.

As a result, Solyndra’s panels were allegedly able to capture between 12 percent to 14 percent more energy from the sunlight it received.

Another major differentiator is that the gaps between the panels and their flat alignment to the roof make them more resistant against wind damage, allowing for fewer precautions against storms. This cuts the cost of installation by about half.

Despite its alleged financial and technological superiority, Solyndra had to file for bankruptcy in 2011 after running through more than $1.2 billion in funding. How the company came to be and what ultimately led to its demise will be the subject of the next chapter.   

What Happened To Solyndra?

Solyndra, formerly headquartered in Fremont, California, was founded in 2005 by Silicon Valley veteran Chris Gronet.

Gronet, prior to starting Solyndra, obtained a bachelor’s degree in materials science and a Ph.D. in semiconductor processing from Stanford University. One of his mentors at the time was James Gibbons, the well-respected former dean of Stanford’s School of Engineering.

In the mid-19080s, Gibbons, together with other doctoral students (including Gronet), filed various patents in the field of rapid thermal processing, a semiconductor manufacturing process that involves quickly heating silicon wafers to extraordinarily high temperatures.

That work eventually led them to launch a startup dubbed G-Squared Semiconductor, which focused on the creation and distribution of rapid thermal processing (RTP) equipment. G-Squared was ultimately acquired in 1991 by Applied Materials for an undisclosed amount.

Gronet worked as a general manager of Applied’s RTP Product Group for the next 11 years. In 2002, he decided to take some time off. He later joined U.S. Venture Partners, a venture capital firm, as an entrepreneur-in-residence.

During the program, he was essentially paid to come up with an idea that he could eventually become a viable business. Around 2005, advancements in photovoltaic (PV) technology coupled with the burgeoning threat of global warming led to the rapid adoption of solar rooftop panels.

The Bush administration, in April, passed the Energy Policy Act, which entailed some $15 billion for loans to wind and solar energy projects. Gronet, when the bill passed, was spending time in Colorado where he visited the National Renewable Energy Laboratory (NREL), a government lab that specializes in renewable energy research.

The conventual wisdom at the time was to manufacture solar panels using silicon. However, researchers at NREL and across the globe were making breakthroughs using other materials such as copper, selenium, and CIGS.

As previously mentioned, the CIGS technology did potentially offer a variety of benefits over silicon, such as greater energy efficiency as well as better protection against natural forces. In May, he incorporated Gronet Technologies, which, in January 2006, was rebranded as Solyndra.

Months before the name change, in October, Gronet filed a series of patents applications for his CIGS technology (which were eventually granted in July 2008). With his business plan in place, Gronet went on the hunt for capital to fund his ambitious ideas.

In order to protect his revolutionary technology from being copied, the founder decided to build the company in stealth mode. Meanwhile, he was already able to raise tens of millions of dollars in funding from various venture firms.

In December 2006, the company applied for the loan guarantees created as a result of the 2005 Energy Policy Act. Off of the 143 applications, the government soon reduced its selection to 16 companies – with Solyndra among the lucky few.

The greater public first heard about Solyndra in April 2007 when it announced that it had received $79.2 million in venture capital funding from investors such as Redpoint and CMEA. One of its first setbacks came when Monier Nessim, a key executive within Solyndra, departed from the firm after it decided to continue focusing more time on research instead of pushing for production.

However, the executive team remained undeterred and continued to plug away. Later in 2007, it signed the lease for its first production facility in Fremont, a building spanning 81,000 square feet.

But it wasn’t until October 2008 when all of the previous hard work finally came to fruition. That month, Solyndra finally came out of stealth by not only announcing the launch of its product but stating the company had already managed to raise a whopping $600 million in venture funding.

The team, furthermore, said that Solyndra already had orders worth $1.2 billion lined up. However, this didn’t mean actual cash in the bank since it would only receive the money after successfully installing the solar panels.

At the time, its Fremont production facility was capable of producing 110 megawatts (MW) per year, a figure that Solyndra aimed to get up to 500 megawatts per year. Over the coming months, Solyndra’s team managed to sign a variety of additional deals.

For instance, it closed a $320 million sales contract with Carlisle Energy Services in November. Meanwhile, due to the costly nature of its business, Solyndra also continued to raise additional cash.

In January 2009, it first announced a $220 million venture capital round. Two months later, in March, Solyndra secured a $535 million loan guarantee from the U.S. Department of Energy. This became the first issued loan as part of the Energy Policy Act that had been in place all the way since 2005.

As part of the deal, Solyndra committed to a variety of requirements, for instance building a second production plant in which it aimed to employ up to 3,000 people. At the time, millions of workers had lost their jobs as a result of the financial crisis.

The Obama administration, by pouring billions of dollars into rapidly ascending technologies, hoped to revitalize job and thus economic growth. With the United States government behind its back, Solyndra was able to sign on even more customers.

In May, it inked a 189 million deal with Amsterdam-based solar integrator SunConnex as well as a $115 million deal to sell panels to EBITSCHenergietechnik, a solar integrator in Zapfendorf, Germany. This catapulted the company’s sales backlog to about $1.8 billion.

To make their bond official, then-vice president Joe Biden and Department of Energy Secretary Stephen Chu, in September, joined Solyndra’s executives for the ground-breaking of its second facility, which would also be located in Fremont.

However, the government’s loan guarantee would only cover about 73 percent of the cost of building the second facility. Therefore, Solyndra was still on the hunt for more cash. The same month it broke the ground for its second facility, it also raised another $286 million in venture capital funding.

Additionally, it also applied for a second loan guarantee from the government. However, the approval and issuance would ultimately take too long, which prompted the executive team to seek additional funding vis-à-vis the public markets.

In December 2009, Solyndra filed to go public and planned to raise an additional $300 million in equity funding. Subsequent disclosures with the SEC revealed that while the company was starting to generate serious cash, it was losing even more of it at an unprecedented rate.

In 2008, the company generated around $6 million in revenue while posting a loss of $232 million. A year later, on the backbone of the launch of its first facility, its revenues had managed to grow to $100.47 million (while still losing $172.50 million). In 2006 and 2007, it lost $27 million and $114 million without any income, respectively.

Doubts would soon emerge about the firm’s ability to stay alive. By February, analysts were calling it a “fraud with uncertainty”. However, the much bigger blow came later in April when PricewaterhouseCoopers (PwC), the company’s auditor, noted that the company is heavily in debt despite having raised about $970 million in funding.

Its representatives added that the company has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern.”

Not only was this hardening its ability to enter the public markets but made it much tougher for Solyndra to close new deals. After all, nobody wants to buy panels from a company that may not exist anymore by the time they’re shipped.

To instill some confidence into the public, former President Barack Obama personally came by Solyndra’s Fremont factory and gave a speech, stating how investments from the stimulus package have been creating green jobs while giving a boost to the industry as a whole.

Unfortunately, despite the presidential backing, Solyndra had to nix its IPO plans in June 2010. Instead, it raised another $175 million in funding by selling a convertible promissory note to its previous backers.

Matters got even worse when founding CEO Gronet officially stepped down from his role in July. His replacement became Brian Harrison who spent 24 years in various roles at Intel and was previously the CEO of Swiss semiconductor company Numonyx.

Despite all the bad press, Solyndra was actually able to attract another client in July, with Southern California Edison (SCE) buying 18 rooftop solar systems over the course of the next 20 years. Yet, even the new deal wasn’t able to stop its demise.

In November 2010, Solyndra announced that it would close its first factory and lay off around 40 workers. The construction of its second building had just been concluded but production was yet to be started.

However, the second plant was still able to churn out 500 megawatts worth of thin-film solar cells in any given year, allowing the company to still meet its goals. In 2010, Solyndra had installed 60 MW worth of modules and aimed to ramp that up to 200 MW by the end of the year.

The company began 2011 by raising yet another round of funding. In February, it raised $75 million in debt financing. Furthermore, the Department of Energy’s loan guarantee deal had been adjusted to extend the repayment period and thus give the company more leeway.

Although it was able to close another customer by installing panels on the Seattle Seahawks stadium, Solyndra was also again on the hunt for additional capital. In June, it raised another $10.66 million in options, warrants, or rights to acquire another security.

Around the same time, federal lawmakers started a probe of the government’s loan guarantee program after Republicans had taken over the House in November and continuously fought with Democrats over the federal budget.

On August 31st, 2011, the party was over at last. That date, Solyndra filed for Chapter 11 bankruptcy and laid off all of its 1,100 employees. The company had managed to penetrate around 1,000 rooftops that generated nearly 300 megawatts.

Those furloughed employees eventually filed a class-action lawsuit against Solyndra, stating that it had violated laws that required it to give at least a 60-day notice before laying them off.

The government’s role, in particular, became a topic of interest. The DOE itself had continued to pour additional cash into the company despite its looming bankruptcy. After filing for bankruptcy, Solyndra had four weeks to find a buyer.

In the meantime, it also faced more scrutiny. The FBI launched an investigation into the company in early September and even searched its headquarters. They even paid CEO Harrison a visit.

CEO Harrison and CFO Bill Stover also attended a congressional hearing during which they were pleading the Fifth Amendment, thus refusing to answer any questions. Not long after, on October 13th, 2011, CEO Harrison announced that he would step down.

Unfortunately, Solyndra was not able to find a suitable buyer. Instead, it held a two-day auction in early November to sell off some of its assets. This included a scanning electron microscope, which went for $270,000, or a digital projector that was bought for $1,300, amongst many other items.

Solyndra entered the news cycle again when, in October 2012, it filed a $1.5 billion antitrust lawsuit against major Chinese solar panel makers Suntech Power, Trina Solar, Yingli Green Energy, as well as their suppliers and banks. Solyndra alleged its Chinese counterparts of colluding to undercut competitors by flooding the U.S. market with products at below cost (more on that later).

While its executives ended up avoiding any criminal charges, the company eventually managed to find another taker for its existing facilities. In February 2015, SolarCity, which was founded by Peter and Lyndon Rive, the cousins of Tesla CEO Elon Musk (and acquired by it in 2016), turned the former production facility into its R&D headquarters for a newly launched manufacturing arm.

The last thing we heard of Solyndra was that the company settled with Yingli Solar, a Chinese manufacturer of solar panels, for $7.5 million as part of its antitrust lawsuit.

Why Did Solyndra Fail?

Solyndra failed because its cost substantially exceeded its revenue, due to heightened market competition and declining PV prices, as well as internal leadership struggles.

Reckless Spending

The main reason why Solyndra failed was that its costs simply outstripped the revenue that it was generating.

As previously stated, Solyndra incurred heavy losses during its foundational years to be able to build its technology, production facilities, and quickly ramp up manufacturing.

Here is an overview of the company’s losses from 2006 to 2009:

  • 2006: $27 million
  • 2007: $114 million
  • 2008: $232 million
  • 2009: $172 million

In those four years alone, Solyndra managed to post a combined net loss of around $545 million. It can be assumed that, despite closing its first factory and closing more deals, its losses for 2010 and 2011 remained on roughly the same level.

Now, most of the upfront investments are simply a necessity of doing business in deep tech industries such as solar panels.

Solyndra’s assumption was that by quickly scaling up operations and manufacturing capabilities, that it would be able to compete on price and thus quickly capture market share.

By the fall of 2010, Solyndra had tried to adapt to those changing circumstances by going after a different set of customers. Instead of targeting system integrators and resellers, it went directly to consumers, namely the owners of the rooftops.

For instance, CEO Harrison was trying to leverage the relationships Solyndra had been able to build to directly sell its solar panels to the United States government (in particular the Defense Department).

Its lobbyists were even able to convince Congress to change the law and keep foreign solar panels off of military roofs. Unfortunately, the revenue generated from government projects never became substantial enough,

Furthermore, heightened competition (which will be covered in the next chapter) as well as lowered demand in key markets like Europe (as governments cut down on solar subsidies due to the financial crisis) negatively affected the company’s revenue run rate – and thus its ability to operate.

Solyndra’s executive team, furthermore, assumed that it would be able to continue raising additional funding. Unfortunately, both its attempt to go public as well as a second application for a government subsidy were ultimately rejected.

If Solyndra would’ve been able to continue raising money a few more times, it might still be in business today.

Competition

Another reason for Solyndra’s failure was the rather unexpected entrance and the ascendance of Chinese solar players.

The Chinese government (vis-à-vis state-controlled banks) poured billions of dollars into local PV startups.

Not only did they possess greater cash balances but were able to build out more factories, which ultimately improved their economies of scale.

Due to those government subsidies as well as economies of scale, Chinese companies were able to offer solar panels at a fraction of the prices that Solyndra was charging.

They then went after the same markets, namely the United States as well as Europe, that Solyndra was targeting.

By the end of 2010, Chinese manufacturers were able to provide solar panels at around 50 percent of the cost that Solyndra and many other American or European companies were charging.

As a result, they were able to grow their market share from 10 percent in 2005 to around 50 percent by 2010.

Although Solyndra did end up substantially cutting its prices, it wasn’t able to hit the necessary price levels to stay competitive with most of its Chinese counterparts.

Internal Turmoil

Lastly, another reason for Solyndra’s failure can be attributed to the internal turmoil it suffered from throughout its existence.

Many former colleagues described co-founder Chris Gronet as someone who was both extremely knowledgeable and passionate about the prospects of solar energy.

However, he also fell in love with a technology (i.e., cylindrical solar panels) that was expensive to make and had limited commercial appeal.

A former Solyndra employee put it very bluntly in an interview with The Mercury News: “There was irrational exuberance about the cylindrical design. One of the most dangerous things business people can do is fall in love with their product. There was a lot of delusional thinking that this product was better than everybody else’s.”

Despite the shortcomings of its product design, Gronet was able to persevere and convince a variety of investors to back his company.

However, with that backing also came a loss of power. When Solyndra filed to go public in late 2009, Gronet owned 8.06 percent of the company. Argonaut Ventures, the investment arm of Tulsa oil scion George Kaiser, and his George Kaiser Family Foundation were the biggest backer with an ownership stake of 35.74 percent.

And it was ultimately Argonaut and Kaiser who took the most active role on the board. By early 2010, the board grew increasingly unhappy with Solyndra’s financial performance.

As a result, Gronet was consigned to a figurehead role in February and wasn’t operationally in the business he helped to start. For the next five months, Solyndra was effectively without a CEO in a time in which it desperately needed to instill confidence into customers and the wider public.

Brian Harrison, who eventually replaced Gronet in July 2010, wasn’t able to turn the ship around either. His commitment to the company was probably best exemplified when, just weeks after the bankruptcy announcement, he also decided to depart Solyndra.

Many former employees stated Harrison wasn’t able to create any meaningful change and motivate employees enough to cause a significant change.  In the end, Harrison left the sinking ship just as fast as he boarded it.

Did Solyndra Pay Back?

Solyndra, as far as public records show, did not pay back most of the money it raised from both the government as well as private investors.

The United States government itself had issued loans worth $528 million (out of a total of $535 million it committed to Solyndra) to the company.

Because Solyndra filed for Chapter 11 bankruptcy, neither the company nor its executives are required to pay back the funding it took on.

However, in the subsequent years, Solyndra was able to auction off some of its possessions. Additionally, it settled with a Chinese solar manufacturer for $7.5 million in April 2016.

Despite the blockbuster failure, the government’s loan program actually turned out to be a success. By November 2014, the program had allocated $32.4 billion to dozens of projects. At that point, $3.5 billion had already been returned while the government garnered an additional $810 million in interest payments.

Furthermore, the program did end up supporting the creation of some meaningful businesses. The most notable example became Tesla Motors, founded by Elon Musk, which managed to repay its loan within three years.

Hi folks, my name is Viktor! By day, I lead a tech team of 10 for an e-commerce startup. At night, I work on expressing my weird thoughts through this blog. And if there's time, I cuddle my cat..