Even $1.5 billion in subsidies and loan guarantees can’t save a “clean” energy company from bankruptcy.
That’s the takeaway from the looming failure of SunEdison, a company that touts itself as the “largest global renewable energy development company.” Once a darling of Wall Street and the green Left because of SunEdison’s portfolio of wind and solar projects, the company’s stock is now in free fall. Furthermore, two related companies that were spun off from SunEdison – TerraForm Global and TerraForm Power – also appear to be in financial distress. On March 30, Brian Wuebbels, the CEO of both TerraForm companies, resigned effective immediately. If all that weren’t enough, the company is also under investigation by both the Justice Department and the Securities and Exchange Commission about its finances and the disclosures it made to investors.
Last summer, SunEdison’s shares were selling for more than $30, and famous Wall Street investors, including David Einhorn and Daniel Loeb, were holding the stock. But by Friday afternoon, the company’s shares were trading for about 49 cents apiece, and Bloomberg writer Brian Eckhouse was reporting that the company was “teetering on the verge of bankruptcy.”
Why is SunEdison on the verge of failure? The short explanation is simple: It tried to grow too big, too fast. Over a 19-month period it went on a $2.6 billion acquisition binge. It paid too much for the companies it bought and now it can’t pay back its creditors. SunEdison has twice delayed the release of its 2015 annual report and appears to be in technical default on at least $1.4 billion in loans and credit facilities.
To be sure, this isn’t a new story. The annals of business history are filled with companies that failed because they borrowed too heavily and didn’t have enough cash to pay back their creditors. But the remarkable thing about SunEdison is how much cash it was able to get from state and federal taxpayers during its low-emissions trip to bankruptcy court.
Before getting to the subsidies, a quick history. SunEdison was founded in 2003 by solar-energy promoter Jigar Shah, who is no longer an officer or board member at SunEdison. Shah was an early entrant in the domestic solar market, which has since grown at an astonishing rate. In 2003 the U.S. had about 73 megawatts of solar-energy capacity. By 2014, that figure had increased to 18,280 megawatts. During his time at SunEdison, Shah helped the company grow through the implementation of 20-year power-purchase deals that assured investors and buyers of long-term electricity delivery from renewable-energy projects.
Shah deserves some credit as a promoter. He also deserves a smidgen of credit for his new-found belief that solar subsidies should be eliminated. That said, it’s abundantly obvious that his company’s growth was fueled by hefty federal and state subsidies. That can be seen by looking at Subsidy Tracker, a project of Good Jobs First, a Washington, D.C.–based nonprofit that promotes “corporate and government accountability in economic development.” According to Subsidy Tracker, SunEdison has garnered some $650 million in federal grants and tax credits. SunEdison ranks number 13 on Good Jobs First’s list of the top 100 recipients of grants and tax credits doled out by federal authorities since 2000.
The biggest federal handouts – two of them totaling $200 million – were made in 2010 and 2011 to a subsidiary of SunEdison, First Wind, for the Milford Wind project in Utah. In addition to the federal subsidies, SunEdison got $30 million in subsidies from various state authorities, including $21 million from governmental entities in New York. On top of that, SunEdison also received $846 million in federal loans, loan guarantees, tax-exempt federal bonds, and federal insurance. The total government support for SunEdison comes out to $1.5 billion.
That’s a figure worth considering, given that on Friday, the market capitalization of SunEdison – that is, the value of all of its outstanding stock – was about $176 million. Thus, federal and state taxpayers have shelled out roughly eight times as much money in subsidies and loan guarantees as SunEdison is now worth.
Alas, SunEdison isn’t the only example of how federal taxpayers have helped prop up poor management in the “clean energy” sector. Earlier this week, the Spanish energy company Abengoa SA filed for Chapter 15 protection in U.S. bankruptcy court in Wilmington, Del., claiming some $16.5 billion in debt. Like SunEdison, Abengoa has been a leading promoter of solar projects in the U.S. According to Subsidy Tracker, Abengoa has received $986 million in federal grants and tax credits, as well as another $7.8 million in state and local subsidies. The bulk of that sum – about $841 million – was for solar projects. But the company has also collected about $122 million in federal grants for biofuel projects in Kansas, Illinois, and Nebraska. Several of Abengoa’s biofuel plants have already been shuttered, including a plant in Hugoton, Kans., that was supposed to be making cellulosic ethanol (that is, alcohol made with non-food feedstocks). Abengoa was able to build the Hugoton plant thanks to a $97 million federal grant and a $132 million federal loan guarantee.
In all, Abengoa got some $2.6 billion in federal loans and loan guarantees as well as $986 million in federal grants and tax credits. Thus, between the collapse of Abengoa and the looming bankruptcy of SunEdison, federal taxpayers have shelled out some $5 billion in direct grants and loan guarantees to lousy management teams in subsidy-dependent businesses that would never have grown to their current size had they not been able to binge on taxpayer cash.
Critics of the federal government’s support for “clean energy” companies have repeatedly claimed that the government shouldn’t be “picking winners.” To that, I can only say that the evidence – from the failed solar company Solyndra and failed battery companies like Ener1 and A123 to SunEdison and Abengoa – proves that the government hasn’t in fact, been picking winners. Quite the opposite.
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