The Independence Institute’s Todd Shepherd, along with this blog, have spent two years covering, and ultimately exposing, what is now the Abound Solar scandal. Understandably, much of the focus is now on Weld County District Attorney Ken Buck’s criminal investigation as well as a Congressional Oversight Committee inquiry into the bankrupt solar panel manufacturer.
Recently released emails on Complete Colorado indicate that, despite statements to the contrary, the White House politicized the Department of Energy (DOE) loan guarantee process for politically well-connected Abound.
But something else within those emails caught my attention reminding me of free market economist and Nobel Prize winner Milton Friedman’s famous quote, “there is no such thing as a free lunch.” In other words, even things that appear to be free have an associated cost.
This basic economic concept is lost on Colorado State Representative Max Tyler’s (D-Lakewood) who in a March 23, 2010, press release bragged about a government-dictated increase in Colorado’s renewable energy mandate:
With HB 1001 we will manufacture and install panels and turbines all over Colorado to capture free energy….The sun will always shine for free, the winds will always blow for free, and our energy production will be cleaner. Renewable energy, green jobs, and a cleaner future — what’s not to like?
At roughly the same time that Tyler publicly fantasized about “free energy,” a credit advisor for the Department of Energy (DOE) loan guarantee program James McCrea was concerned about “major issues” with Abound Solar’s marketability. In an email dated April 1, 2010, just seven days after Tyler’s press release, McCrea explained:
Another issue is the very limited supply of telluride, its potential price trajectory and other demands for it. Related to this is a question of the viability of the Abound panels as compared to other panels and whether there is sufficient benefit to allow the panels to be profitable if Te [telluride] prices really increase. If the price really rises will there be alternative uses that can afford it basically turning it into a non available input for Abound?
I don’t believe we have ever worked with an input material that is so limited. We need to think that through carefully.
Before going bankrupt this summer, Abound produced cadmium telluride (CdTe) thin-filmed photovoltaic solar panels. Cadmium and tellurium, used in the manufacturing of Abound’s panels, are two of the world’s 17 “rare earth elements” that are needed for everything from smart phones to solar panels to high tech weapons systems. My former colleague Michael Sandoval, now an investigative reporter with the Heritage Foundation, and I have written several columns on general issues with rare earth elements.
This email highlights the problem specific to Abound, and McCrea was right to be concerned. According to the December 2011 DOE Critical Materials Strategy the price of tellurium has been going up since 2007:
The price dropped in 2006, but in 2007 resumed its upward trend owing to increased production of cadmium telluride (CdTe) solar cells.
Furthermore, China controls the vast majority of rare earth elements. In August 2012, the Chinese announced an ambitious plan to increase its stranglehold on the world’s available supply of rare earths. According to China Daily the country:
launched a physical trading platform for rare earth metals as part of its efforts to regulate the sector and strengthen its pricing power for the resources.
As the world’s largest producer of rare earth metals, China now supplies more than 90 percent of the global demand for rare earth metals, although its reserves account for just 23 percent of the world’s total.
The article reiterated what Michael and I have said on numerous occasions, mining rare earths comes with a significant environmental cost that green zealots like Tyler completely ignore when claiming solar energy is free and clean:
Mining the metals greatly damages the environment. In recent years, China has come down heavily on illegal mining and smuggling, cut export quotas and imposed production caps, stricter emissions standards and higher resource taxes to control environmental damage and stave off resource depletion.
However, these measures have irked rare earth importers, who complained about rising prices and strained supplies.
But China did exactly what it said it would do in 2009. It drove up prices with reduced output as global demand increased.
China’s rare earth output fell 36 percent year on year to 40,000 tonnes in the first half of the year. Prices of major rare earth products in July remained twice as high as prices at the beginning of 2011, although down from the beginning of the year.
In July 2009, about a year before President Barack Obama announced a $400 million loan guarantee for Abound, Jack Lifton, an expert on sources and uses of rare minerals, wrote a lengthy article for Resource Investor about the availability of tellurium for First Solar, a global leader in cadmium telluride solar panel manufacturering. Lifton’s conclusion should have served as a prophetic warning for Abound and any hope of profitability:
A company such as First Solar, which is critically dependent on a secure supply of tellurium to exist and on an unsustainable growth in the supply to it of tellurium for it to grow and achieve competitive pricing is a big risk for short-term investors. The maximum supply and production levels attainable of tellurium are quantifiable even if the actual production figures are murky, and they do not bode well for the future of First Solar if it must make profits to survive.
The next time you hear a politician like Max Tyler tout the benefits of “free” and “clean” energy, remember Abound Solar because there is no such thing as a free lunch.
Lux Research, a self-described “independent research and advisory firm providing strategic advice and ongoing intelligence on emerging technologies” including solar, predicted that 2012 will not be kind to Colorado’s Abound Solar. Lux’s Matt Feinstein wrote in PV Magazine:
Abound. One of the more prominent CdTe start-ups, Abound has been plagued recently by several departures from its management team and industry rumors that its modules haven’t been performing as expected. Perhaps more importantly, First Solar has abandoned its research and development activities in CIGS to concentrate on its core CdTe technology.
This isn’t news to our readers. We already wrote about Abound’s management shakeups and First Solar’s double down on CdTe panels. However, the news story here is that a research company specializing in solar technology is predicting it, and PV Magazine, a trade publication for the “international photovoltaic community,” is publishing it. The question is whether advocates for Colorado’s new energy economy will acknowledge it.
Unfortunately for taxpayers who provided a $400 million loan guarantee for Abound, 2012 may be the year that the sun sets on Pat Stryker’s pet project.
Vestas, Green Energy Sold Short
By Jon Nicholas
Colorado has become a leader in government subsidizing green jobs. A major beneficiary of those state and local subsidies has been a Danish company, Vestas Wind Systems A/S. Vestas operates four manufacturing facilities in Colorado in Windsor, Brighton and Pueblo.
Democrats accuse Republicans of selling green energy short. Turns out they might be right. As of December 26, short sales of Vestas stock reached 17.6% of outstanding shares. In a short sale, an investor borrows stock, sells it, and then hopes to buy the stock later at a lower price. Short-sellers have no theoretical limit on their losses. That unlimited risk means that short sellers must be highly certain in their pessimism.
On Thursday, Vestas announced a major sale to Brazil, but the order still left Vestas short of earlier 2011 sales estimates. Vestas still has until Saturday to reach its annual estimate, but the shorts appear skeptical. Earlier this month, Vestas testified in the U.S. Senate in favor of extending a U.S. Production Tax Credit beyond the end of 2012. Wind energy benefits from a 2.1 cent per kilowatt-hour tax credit. Vestas claims that if the tax credit expires, 80,000 U.S. jobs are at risk, including thousands in Colorado.
Some investors doubt the value of other green energy stocks as well. The solar panel company Solyndra has received lots of press attention. The Department of Energy provided the company massive loans despite the likelihood of a business failure. Political considerations apparently trumped common sense. Solyndra is just the tip of the melting iceberg.
Vestas doesn’t even make the top fifty stocks in terms of short interest as a percentage of the total stock float. Consider some of the other stocks subjected to short interest. Number two on the list is Tesla Motors, Inc. As of Tuesday, short interest in the stock was 52.1%. Tesla plans to release its Tesla Model S Sedan in the summer of 2012 at a net base price of $49,900—after deducting a $7,500 federal tax credit.
A stock analyst recently reduced estimates of the global market for electric cars. By 2025, the analyst expects electric cars to be just 4.5% of the global car market, instead of 8.6%. That has huge implications for Tesla, as well as the whole notion of government subsidies re-inventing the auto market. The Department of Energy extended $465 million in loans to Tesla as part of the Advanced Technology Vehicle Manufacturing Program. Every car sold will also benefit from that federal tax credit.
Lithium battery maker Ener1 was one of thirty electric car battery makers to receive a DOE grant. In 2009, Ener1 was scheduled to receive $118.5 million in stimulus money, but only receive about half. In January, Vice-President Biden visited an Ener1 plant in Indiana to highlight the administration’s commitment to electric cars. Indiana Republicans shared the Obama Administration’s commitment, and the company had received over $10 million in DOE and Defense Department research grants during the Bush Administration. In October, NASDAQ de-listed the stock. A Bloomberg stock analyst believes Japan and South Korea will dominate the electric car battery market. That’s bad news for taxpayers.
Number 18 on the list of short interests on Tuesday was First Solar, Inc., with 35% of its outstanding shares shorted. First Solar is approaching its all-time low and still hasn’t cleared out the short sellers. GreenStocksCentral.com reported in Mid-December that the company is in “serious disarray” after being a “darling” among green energy stocks.
First Solar now plans to flee the U.S. market for other countries that do not depend on subsidies. Selling stocks short is risky business. First Solar concluded that depending upon government subsidies for success is a far greater risk.
None of the above should be construed as investment advice.
With prices tanking along with sales, First Solar, the world’s largest manufacturer of thin-filmed solar panels, “slashed its profit and sales forecast today and said it will fire about 100 employees, most of them at a Santa Clara, California, research center, the Tempe, Arizona-based company said today in a filing,” Bloomberg reports.
In addition, First Solar is abandoning its quest to develop copper-indium-gallium-selenide technology, or CIGS, the same type of solar panel that Solyndra produced before its infamous bankruptcy.
In a column titled “First Solar Sounds Alarm Bells,” the Motley Fool reports that the world is catching on to the fact that thin-filmed solar panels are woefully inefficient:
First Solar is beginning to be hit hard by falling module prices and a generally weak solar market right now. If I had to read between the lines, I would say that more efficient modules from competitors like Trina Solar ( ) , Yingli Green Energy ( ) , and Suntech Power ( ) are beginning to become more favored as sales prices fall.
As a result, First Solar’s stock is dropping like a stone, down more than 20 percent just today.
Why is this bad news for Colorado-based Abound Solar?
Because First Solar now plans to “double-down” on its production of cadmium-telluride solar panels, the same kind that Abound produces. As we reported a few weeks ago, Abound cannot compete with First Solar on either volume or price, so First Solar’s plans to “double-down” on cadmium-telluride, thin-filmed production can’t be welcome news within the walls of Abound Solar. It also isn’t good news for taxpayers, since they are on the hook for a $400 million Department of Energy loan guarantee.
Taxpayers may have been forced to invest in solar panels, but private investors with a choice aren’t quite so foolish. From today’s Motley Fool column titled “Here are some American eco-investments to avoid” including thin-filmed solar:
I’m dogging (oo-er! — Ed) one of my own investments here, First Solar (NASDAQ: FSLR.US), but outside of that one success story, it’s hard to find anyone who has made any real progress in thin-film solar. Ascent Solar and Energy Conversion Devices at least made it to the public markets before running into problems, and likely an eventual bankruptcy. Solyndra, which was based on thin-film technology, was a colossal failure, and the CIGS technology it used has failed to live up to industry expectations.
But the biggest reason thin-film solar is a money pit is that there are too many higher-efficiency modules on the market at attractive prices making thin-film uncompetitive. Thin-film solar is lower efficiency requiring more land, and other installation costs versus competitors. For a look at how important these balance of system costs are becoming, check out my article about these costs here.
Ouch! Right now Ascent Solar’s stock is sitting at .63 cents, and Energy Conversion Devices’ stock price is up to .36 cents. ECD is where you’ll find former Abound Solar VP Julian Hawkins. Abound, which also makes thin-filmed solar modules, isn’t listed because its not a publicly traded company. Based on what Motley Fool said above, Abound likely would be a foolish investment too.
Update: Eric Wesoff of GreenTechSolar corrected something we quoted him on regarding Abound Solar’s $400 million DOE loan guarantee. “Abound has drawn down much of its $400 million DOE loan guarantee only $70 million of its $400 million loan guarantee in order to fund its factory buildout.”
Eric Wesoff of GreenTechSolar is curious about what is going on at Abound Solar. Are top executives just finding sunnier pastures elsewhere or are they jumping ship before it goes down Solyndra style?
In July 2010, President Obama announced that Colorado-based Abound Solar was the recipient of a $400 million taxpayer guaranteed loan as part of the Department of Energy’s (DOE) now infamous loan program. Abound would use the money to expand production in Colorado and open another manufacturing plant in Tipton, Indiana, promising at least an additional 850 jobs.
Fast forward to fall 2011, the demand and price for solar panels have plummeted, and three top executives have left the thin-film solar panel manufacturer. Wesoff spoke with all three before their announced departures and all were optimistic about Abound Solar and the industry:
I spoke with Tom Tiller, Abound Solar’s CEO a few months ago. He expressed optimism for the future of the VC and DOE-enabled cadmium telluride solar startup. That was shortly before he left his CEO post because of what he said were “unexpected issues in our family.”
Tiller will remain as Chairman while Craig Witsoe replaces him as CEO. According to Tiller, his new role will have less of a day-to-day involvement. Wesoff continues:
I spoke with Russ Kanjorski, VP of Marketing at the Colorado-based Abound Solar, at the Intersolar show in San Francisco in July about the trajectory of his firm. Kanjorski was sanguine about Abound’s technology and manufacturing ramp. Kanjorski has since jumped ship to early-stage Concentrated PV firm Semprius.
Kanjorski has a history with another failing energy company that also received taxpayer money. Fred Barnes reported in the Weekly Standard in July 2010:
Russell Kanjorski, the vice president for marketing at Abound Solar, was one of the principals in another energy company in northeast Pennsylvania, called Cornerstone Technologies LLC, which attracted $9 million in federal grants before it halted operations in 2003 and later filed for Chapter 7 bankruptcy. As reported by the Wilkes-Barre Times Leader, “Cornerstone reported $14,100 in assets compared with $1.34 million in debt” in its bankruptcy filing. The $9 million in federal grants to Cornerstone were earmarked by Kanjorski’s uncle, Representative Paul Kanjorski of Pennsylvania, chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.
The latest top executive to leave Abound is senior vice president Julian Hawkins, and Wesoff spoke with him before his announced departure as well:
Last month at the Solar Power International show in Dallas, TX, I spoke with Julian Hawkins, Senior VP at Abound Solar. Hawkins was enthusiastic about Abound’s prospects. But not enthusiastic enough to keep him from joining the precariously functioning Energy Conversion Devices as CEO. Energy Conversion Devices…is a long-struggling supplier of flexible amorphous silicon (a-Si) photovoltaic laminates, with a deflated stock price amidst a “Restructuring Plan” and recent suspension of its manufacturing operations. It is difficult to envision ECD surviving much longer as an independent public entity.
Why would three enthusiastic top executives with $400 million in taxpayer guaranteed loans leave their positions just as the company is expanding its Colorado manufacturing and just ahead of an expected major build out in Indiana? Wesoff sarcastically suggests suicide missions or…
perhaps these executives have read the writing on the wall and want to get out of Abound before it becomes another Solyndra and attracts the attention of Fox News and the Tea Party. Recipients (Beacon Power) or even applicants (Next Autoworks) of DOE loans have had a run of bad luck lately.
Abound has problems besides revolving door executives. In December 2010, then CEO Tom Tiller told the Indianapolis Business Journal that “90 percent of Abound’s sales are in Europe, and most of the production from the expanded factories will be exported to the European region.” Since then, solar panel prices have plummeted and so has demand from its major market Europe. The European financial crisis has forced countries to slash subsidies. In Germany, the largest purchaser of solar panels in Europe, sales are expected to drop by 30 percent.
The Economist reports that the market is seriously oversaturated. Capacity has tripled over the last two years in response to European demand and now much of that is being shut down. Mountains of unwanted solar panels are forcing manufacturers to slash margins in order to avoid being stuck with dated product.
Early this year the average panel price was around $1.75 per watt; by the year’s end it could be as low as $1.10. That is less than the cost price for many Western manufacturers and small Asian ones, several of which have already gone bust. They include Solyndra…
In September Hawkins told Bloomberg that with expected ramped up manufacturing to 200 megawatts, Abound could near the $1 per watt by the end of 2012. Still that may not be enough. Jenny Chase, lead solar analyst for Bloomberg New Energy Finance said Abound will need to be near .91 cents per watt.
But the only way to get there is volume, and Abound, which produced 30 megawatts in 2010, didn’t even crack the top ten thin-filmed solar panel manufacturers. Solyndra was number seven.
At 1,400 megawatts, First Solar is the world’s largest thin-filmed solar panel manufacturer. It’s next closet competitor pumps out a mere 195 megawatts. Also, First Solar produces the same type of cadmium-telluride (CdTe), thin-filmed panel as Abound only much cheaper, and the panel itself is more efficient. This is a problem for Abound as Wesoff warns:
Abound still has to contend with thin-film leader First Solar. First Solar’s 87-watt CdTe panels have an 11.7 percent conversion efficiency and a cost of $0.74 per watt with expectations of reaching the mid $0.60s in 2012.
Wesoff also writes that Abound already has “drawn down much of its $400 million DOE loan guarantee” and Indiana based plant is not expected online until 2014. The Kokomo Tribune reports that in the wake of the Solyndra bankruptcy some Tipton residents are concerned about whether or not the expansion will happen.
Less than a year ago, Abound relied heavily upon the European market. Now, it anticipates shipping “half its 45 megawatts of sales this year” to its new market in India. But that’s First Solar territory, which announced its shipments to India will be 200 megawatts for five projects in 2012. GigaOM explains that CdTe panels produced by both manufacturers are well-suited for India, but First Solar’s size gives it an advantage:
First Solar’s ability to produce solar panels more cheaply than others is its true advantage because the national solar program seeks competitive bids and selects those who promise to complete projects at lower prices. Manufacturing at a large scale makes it possible to keep solar panel prices low, and at this point, First Solar is the largest non-silicon solar panel maker worldwide and the only one with an army of factories and big sales team.
Bottom line is that for Abound to compete, it must expand. It received a $400 million taxpayer guaranteed loan to do so, yet as of today it isn’t hiring. It currently has zero job openings and the Tipton plant isn’t even listed as a possible location. Perhaps that’s because demand for and price of its product both have dropped. Maybe that’s why the three executives have different positions.