SOLYNDRA CASTING SHADOWS
Middlemen in the Middle of a Disaster
Solyndra had an interesting way of marketing their thin film solar technology: they made it as expensive and as unpleasant/inconvenient as they possibly could. In my opinion their bizarre marketing techniques hid much darker matters - they needed to cook their books and solar power did not provide enough heat so they stirred up a scheme. Scheme heat is superior even to solar power. Now U. S. taxpayers will have to pay off more than $500 million in loans which Solyndra cannot pay. And, Solyndra's equity backers, venture capital investors, stand to lose more than one billion dollars. One could say that those books are at least well done, if not burnt.
My exposure to the solar industry tells me that the usual way things work is fairly straightforward. Someone with a roof and an energy appetite makes a deal with a solar contractor to install a solar system. Usually this involves using space on a roof but increasingly there are large solar arrays being set on the ground. The solar contractor makes money and the system owner receives federal rebates and/or tax advantages as well as lower cost electricity than what comes from utility sources. So far, so good.
The usual way of doing things is that the solar contractor selects the brand of solar panels he will use, designs the system and then orders the needed panels from the manufacturer. Even if there is a manufacturer's representative (broker) or other sales entity involved in the transaction the solar panels are shipped by the manufacturer from the factory direct to the installation company. This is not, however, how it worked with Solyndra and herein lies the scam, in my opinion.
Recently I was talking with a solar installer who has completed two systems locally and he told me that Solyndra's collapse had caused some concern on the part his two clients. Although there is an insured warranty on both systems, meaning that even if the original equipment maker is out of business there will be money available from an insurance fund to buy other panels as replacements for the Solyndra units that fail within the original warranty period. Still, I was curious when my friend told me that his company and the larger of his two clients were each buying the occasional pallet or two of Solyndra panels to hold in reserve for repairs.
How could this be? If Solyndra's plant is shut down and locked and if all its assets and inventory are tied up in a bankruptcy proceeding, how could anyone be buying new Solyndra panels? The answer is simple: Solyndra seldom sold direct to installers. In fact, I know of only one case of this happening and that was because the Solyndra CEO and the owner of a solar installation company are friends. I know of another case in which a major solar installation company backed by a nine-figure committment from a Wall Street investment bank stopped specifying Solyndra because Solyndra would not deal directly with them, because Solyndra would not extend standard credit terms and because Solyndra's prices were simply too high. This company installs utility-scale solar sytems. Would one not expect them to be precisely the type of client Solyndra would want and need?
Then I read something interesting; former Solyndra employees have told how at times things backed up at the plant because off-site warehouses were full of Solyndra product and could not accept more. Add to this the fact that the major installer already mentioned says that Solyndra expected his company to purchase Solyndra product from third parties such as home improvement centers and roofing suppliers and we see a disturbing pattern developing. First, this would mean adding an additional margin, or third-party costs and profit to a solar technology that was already not price-competitive with flat panel/monocrytsaline technology. Second, I believe Solyndra's scam was to claim sales which were actually not sales directly into the solar market but into the secondary supplier market.
We can say now that Solyndra would not extend industry standard credit terms because they simply could not afford to do so. We can also say that Solyndra's sales figures are at the very best misleading, at worst outright fraudulent. There is a huge difference between selling solar panels directly into the market by selling them to installation companies who are completing installation contracts - actually building solar systems - and selling them to a third party such as Home Depot or Lowes or a roofing supplier who then warehouses the product and attempts to add markup/handling costs, etc. and only then sell to the installers. This would be the equivalent of Boeing selling finished aircraft to a dealer who then attempts to convince an airline or a government to buy the planes.
By adopting this third-party marketing ploy Solyndra accomplished two things; they could keep their manufacturing operation at full capacity and they could show sales figures that would satisfy over-eager or simply stupid government monitors. The Solyndra practice of selling to middle men distorted not only the true scale of the U. S. solar market generally and the market for their product in particular, it also made it seem that demand for Solyndra technology was greater than it was and that the company was on track to service its debt and meet its projections. The only money coming into Solyndra that had any real value would have been money paid by actual installation companies. Money coming in from third-party sellers was actually money being paid by people betting that they could sell Solyndra's product. the results speak for themselves.
Solyndra speculated on the price of silicon and some large retailers speculated on the demand for Solyndra technology. The Obama administration agreed to cover a huge portion of the overall bet and now we all lose. It is time to see Solyndra's books, the real ones.
Copyright 2011 By Peter A. kenney