It was just last summer that SunEdison was a Wall Street darling, the very air around the fast-growing company seeming to shimmer with potential.
SunEdison was, after all, a red-hot company in a red-hot space — renewable energy. Its market capitalization reached nearly $10 billion, putting it on a par with the likes of Wynn Resorts of Las Vegas. Among the believers betting on its stock was the hedge-fund heavyweight David Einhorn of Greenlight Capital. With plans to buy Vivint Solar for $2.2 billion, SunEdison appeared unstoppable.
And then the company went supernova. Its shares fell from around $32 last summer to 34 cents this week. Mr. Einhorn furiously tried to dump his stake in recent weeks. In early March, Vivint said, “thanks, but no thanks” and exited the deal with SunEdison.
On Thursday, to the surprise of no one, SunEdison filed for bankruptcy — one of the largest in a series of recent green-energy failures.
There is a timeless element to SunEdison’s swift demise: an executive with an Icarus complex chasing a fast-growing market embarks on an aggressive strategy fueled by cheap debt. Soar. Crash. Burn. Repeat.
Yet the collapse raises a bigger question: Can renewable-energy companies be profitable? Can green make green?
The answer, of course, is yes. Just as soon as they cross over a fundamental hurdle: finding a strategy that actually works.
“We haven’t totally figured out exactly what the business models are going to look like, for who wins and who loses,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University.
Significantly, though, the sudden decline in oil prices isn’t largely to blame. The difficulties run much deeper, echoing industrial collapses of earlier eras — the telecom-industry boom and bust of the 1990s and early 2000s, and disruptive cycles before that.
On the surface, the various green-energy companies all seem to be pursuing different strategies. But there is a unifying problem they have yet to overcome: Finding enough customers to support the costly infrastructure they must first build.
SunEdison is far from being the only troubled green-energy business.
Abengoa, which grew from a small electrical equipment company in Seville, Spain, to a multinational solar and biofuel giant, is in restructuring proceedings in the United States and abroad. Solazyme, a once-promising maker of algae-based biofuels, has abandoned the energy markets and changed its name in favor of focusing on ingredients for personal care and food products for companies like Unilever and Hormel. And NRG has pulled back from its headlong rush into alternative energy as it restructures to focus on its conventional operations after the ouster of its chief executive, David Crane.
What’s remarkable is that these leading energy companies are struggling at a time when regulatory, public and investor support for the renewable-energy industry has arguably never been greater.
On Friday, world leaders are signing the Paris agreement on climate change, a sweeping commitment to lower carbon emissions that practically requires that renewable development be steeply ramped up. At the end of last year, American lawmakers extended important tax credits for green energy several more years, while in recent days, the Senate approved a broad energy bill that would further promote clean power.
Moreover, investors around the world sank hundreds of billions of dollars into clean-energy technologies last year even as the prices of competing fossil fuels — oil and natural gas — tumbled.
Though development in renewable energy climbed in the last 15 years, the industry is still widely considered to be in its early stages. Nonetheless, there has been a race among companies to develop, commercialize and eventually prosper from what many see as one of the largest tectonic economic shifts in decades.
Last year, China started construction on a massive solar farm in the Gobi desert that is expected to generate enough power to light up one million homes. Dong Energy is developing a multibillion-dollar wind farm off the Yorkshire coast that could eventually power even more.
And in the United States, the federal government recently approved a major new transmission line to move wind-generated electricity east from the Great Plains.
But all good bubbles burst. What is happening in renewable energy now has similarities to the telecommunications bubble of the 1990s. Led by hard-charging executives seeking big paydays, giants like WorldCom, Global Crossing and Adelphia started far-reaching acquisition and capital-expenditure programs — burning through billions of dollars — to buy cable companies or bury long-haul fiber-optic cable under land and sea. They were all chasing expected high demand and soaring revenues from the dawn of the Internet.
Those revenues eventually materialized, but they came too late for the first movers of the revolution. After creating a broadband glut, and buried under mountains of debt — let’s not forget the various accounting scandals and frauds — the many companies collapsed into bankruptcy.
But the infrastructure they created lived on. Last weekend, when you binge-watched the fourth season of “House of Cards” or streamed your own cooking show on Facebook Live, chances are better than not that your data zoomed through at least some of those networks.
In that case, it turned out that if you build it, they will indeed come. But as many renewable energy companies are learning, building it costs dearly.
Even before SunEdison, the landscape of green energy companies was littered with failed strategies.
Dozens of solar-focused companies around the globe have disappeared, through bankruptcy, insolvency or just shutting their doors, since 2009 when prices for solar panels plunged as competition from China increased.
Among the high-profile failures was that of Solyndra, a solar module manufacturer, which became a symbol of green energy ambitions gone awry for the Obama administration after it burned through $527 million in government loans.
Part of the conundrum for these companies is that the most effective way to cut costs has been to grow, to take advantage of economies of scale, certain forms of financing and generous subsidies that were set to expire.
But with all that growth has come debt, and an inability to show a profit, even if the companies are creating value.
“Clearly in a market that has had a lot of growth, you are going to have some companies — and in this case many companies — that try to do too much, too fast,” said Shawn Kravetz, founder of Esplanade Capital, which invests in solar power. “We’re going to continue to see a shakeout.”
The vulnerability to shifting conditions has been evident for industry leaders like SolarCity and SunPower, companies whose stock prices can swing wildly with energy markets and policy changes.
But it is especially the case at SunEdison, where its chief executive, Ahmad R. Chatila, set about expanding, seemingly in all directions at once.
With roots in making components for solar panels, SunEdison aimed to become the world’s largest renewable energy development company. It bought ventures in wind and energy storage, looked to increase manufacturing, entered big new markets and created new subsidiaries known as yieldcos to help it raise cheaper financing by buying the projects it developed.
That strategy was further complicated by questionable accounting and opaque financial reporting — SunEdison has received an inquiry from the Securities and Exchange Commission and a subpoena from the Justice Department — that confounded even experts in the field.
”This is going to be a big industry globally, but we’re stumbling and bumbling to get there,” said Erik Gordon, a clinical assistant professor at the Ross School of Business at the University of Michigan. “If they weren’t trying to beat each other to the next rooftop they wouldn’t be needing to do this financial engineering.”
Still, industry analysts and executives say that despite the fall of SunEdison, the future for renewable energy is bright.
Indeed, there are a few stalwarts in the renewable-energy race.
Take First Solar. The company, which supplies solar panels and develops solar farms, has had its share of troubles. It has been the target of shareholder lawsuits claiming it hid big problems and misrepresented its prospects. Its stock, at $62 a share, is a far cry from its bubble-peak of $311 in the spring of 2008.
But by adopting a slower-growth strategy and reducing debt, First Solar is a rarity in the green-energy industry. It is profitable. Last year, the company made $546 million on $3.6 billion in revenue.
For now, First Solar may be an anomaly, particularly amid uncertainty around the presidential election and the policy stances of candidates like Hillary Clinton and Donald J. Trump on renewable energy sources. Some warn that a lull could settle over the industry in the short term.
“The Secretary Clinton perspective on lots of distributed clean energy couldn’t be more different than the Trump view,” said Daniel M. Kammen, the director of the Renewable and Appropriate Energy Laboratory at the University of California, Berkeley. “That could mean hugely different things for the growth of the industry.”
China could use an expected boom in electric vehicles to stabilize a grid that depends heavily on wind and solar energy, officials from an influential Chinese government planning agency said Monday in Washington D.C.
“In the future we think the electricity vehicle could be the big contribution for power systems’ stability, reliability,” said Wang Zhongying, director of the China National Renewable Energy Center and deputy director general of the Energy Research Institute at China’s National Development and Reform Commission.
The Chinese do not see the cost of renewable energy as a significant obstacle to its widespread adoption, Wang told a lunchtime gathering at Resources for the Future, a non-partisan environmental research organization in the Capitol.
“The biggest challenge for renewable energy development is not economic issues, it is technical issues. Variability. Variability is the biggest issue for us,” said Wang, who explained variability like so: “When we have wind we have electricity; when we have sun we have electricity. No wind and no sun, no electricity.”
But if the Chinese deploy enough electric vehicles—which could mean up to five million new electric vehicles in Beijing alone—the array of distributed batteries could collect energy when the sun is shining or the wind is blowing and feed it back to the grid when the skies are dark and the air is still.
Wang directed a study released this week, the “China 2050 High Renewable Energy Penetration Scenario and Roadmap Study,” which plots a route for China to drastically reduce reliance on coal, derive 85 percent of electricity from renewables, and cut greenhouse gas emissions 60 percent by mid-century .
The study gets there by relying on what has become known as Vehicle-to-Grid technology, which has emerged as almost a surprise side effect of inexpensive solar panels and clean-energy policies in places like California and Germany.
The Chinese have been watching the same developments, the report reveals, as clean energy experts in the West like Daniel Kammen, who described unexpected effects of the solar-energy boom last week in an appearance at the University of Chicago.
“Now in places with the greenest energy policies, there is a huge peak in afternoon power on the grid, exactly where power used to be the most expensive and the dirtiest,” he said. “We actually want people to charge up now in the late afternoon. It sounds very chaotic, it’s not what we thought at all, but in fact it represents what low-cost solar is now bringing to many parts of the world.”
Electricity consumers can store this abundant afternoon energy until supply goes down and demand goes up and then sell it back to the grid. And if they own electric vehicles, they needn’t buy extra equipment to do so.
“You can put a big battery in the basement of your home or business, but you can also have your electric vehicle, with its mobile storage system that you drive around and use as your car. They’re called Nissan Leafs, they’re called Chevy Volts, they’re called Teslas, they’re called Priuses, they have a variety of names. And now you can sell power back to the grid.”
An electric car with a range of 250 km can store 40 kWh of electricity, Wang said. Five million of those cars could stabilize Beijing’s grid to counteract variations in wind and sun, he said, and the number of automobiles in Beijing is expected to blossom from six million now to 10 million by 2030.
If the range of electric cars doubles to 500 km, he added, they will store enough electricity that only two million will be needed.
The cost of electric vehicles—about $40,000 in China, according to Wang—remains a hurdle, but China may slash the price by subsidizing vehicle batteries.
China’s High Renewable Energy Roadmap resembles several U.S. Dept. of Energy studies that have plotted the route for the U.S. to reduce greenhouse gas emissions more than 80 percent by 2050.
The U.S. studies anticipate that solar and wind will provide half of U.S. power needs by 2050, using pumped hydro and compressed-air storage systems to offset variability.
Bulk battery systems were deemed too expensive to be viable, said Samuel Baldwin, chief science officer in DOE’s Office of Energy Efficiency and Renewable Energy, but the U.S. studies did not anticipate the “distributed storage” option offered by electric vehicles.
“I expect that battery storage like the Chinese study, with electric vehicles or stationary storage, is going to play a more important role,” Baldwin said.
It remains uncertain, however, how important a role it will play in China. The country’s first priority is economic development, said Li Junfeng, director general of China’s National Center for Climate Change Strategy and International Cooperation, also an arm of the National Development and Reform Commission.
By 2049, the centennial year of the People’s Republic of China, the Chinese want to achieve a standard of living comparable to the most developed countries.
“China wants to be among the developed countries by 2050,” Li said. “That’s the first priority.”
China’s High Renewable Energy Roadmap is a “visionary scenario,” according to Joanna Lewis, an associate professor of science, technology and international affairs at Georgetown University. But it remains to be seen whether China’s Politburu shares the vision of its National Development and Reform Commission.
“We hope our study can influence the government’s 13th five-year plan and 2050 energy strategy,” said Wang. “That’s very important.”
Island regions and isolated communities represent an understudied area of not only clean energy development but also of innovation. Caribbean states have for some time shown interest in developing a regional sustainable energy policy and in implementing measures which could help to protect its member states from volatile oil markets while promoting reliance on local resources. Here we examine four case studies of renewable energy advancements being made by public utility companies and independent energy companies in the Caribbean. We attempt to locate renewable energy advances in a broader historical framework of energy sector development, indicating a few policy lessons. We find that different degrees of regulatory and legislative sophistication have evolved in different islands. Islands should have specialized policy focus, contrasting the ad-hoc nature of current regional energy policy discussion. We also conduct a cost benefit analysis which shows that these early, innovative alternative energy projects show themselves to be both profitable and significant sources of emissions reduction and job creation. This lends support to the potential benefits of regional energy policy.
IPCC, 2011: IPCC Special Report on Renewable Energy Sources and Climate Change Mitigation. Prepared by Working Group III of the Intergovernmental Panel on Climate Change [O. Edenhofer, R. Pichs-Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T. Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)]. Cambridge University Press, Cambridge, United Kingdom and New York, NY, USA, 1075 pp.