Author: Robert Dydo

Right after the US anti-subsidy and anti-dumping duties have been announced by the DoC, lawyers representing bankrupt Solyndra had filed antitrust litigation against Chinese manufactures and banks in the amount of $1.5B, which equals to $1B in venture capital investments and $535M in DOE funding.This was the amount this American manufacturer managed to waste in its existence.

The filing had used the background of the US tariffs as additional proof,strengthening thealready establishedcause of the bankruptcy resulting fromlow price and overflow of modules from China. 

Alongwith SolarWorld USA, which uses political leverage to survive the industry’s fierce competition,Solyndra-involved venture capitalists are using the bandwagon to get money back from its failed enterprise. In acourt sessionon Wednesday, the IRS opposed Solyndra's bankruptcy plan as another attempt to do same. If approved by creditors, a holding company would emerge from bankruptcy with $350M in tax breaks that could be used by Solyndra's investors, including Argonaut Ventures.  Argonaut is the investment arm of a foundation tied to aDemocratic fundraiser, Oklahoma billionaire George Kaiser.Most of the tax breaks would be in the form of Net Operating Losses (NOLs), which could be used to offset future taxable income. Any reason seems a good reason. In December 2010, in the middle of the high flying boom for the solar industry, Solyndra was feared to go bankrupt.  The date used in the courts’ documents has a quite interesting impact. It demonstrates that Solyndra was dead in the eyes of its investors, long before any competitive pricing and so-called flooding took place. Under this caveat the company’s management was told not to complete transactions, which would lead to a loss of $100M in NOLs, apparently the only thing of value left.

The litigators have also argued that the Chinese have access to free loans and unlimited support from China’s banks.  Adding all lines of credit, which were offered to Trina Solar (NYSE:TSL),Suntech Power Holdings Co, (NYSE:STP) and Yingli Green Energy Hold. Co. (NYSE:YGE), a total of $18B were made available in the form of guarantees. However,the companies themselves claimed the money was taken only at a fractional level, if at all.  Since those involved are US-listed, their borrowing practices have a transparency. Their balance sheets show average interest rates at 4.65% by the end of Q2, 2012, far from free and a lot higher than any borrowings of companies in Taiwan.  If we assume interest rates are a form of support, then 1.05% from the DOE should paint a picture of support for solar manufacturingin the US. That was the interest rate given to Solyndra.

Based on data from the International Energy Agency in 2010, the last year before the great solar depression, the module and cell manufacturing capacity in the USwas at a 1.09GW for cellsand 1.2GW for modules. Since then, bankruptcies had taken out 25%. The only dominant manufacturer left from the list isSolarWorld USA with around 200MW.

Based on the data from the US Department of Energy, Loan Guarantee Programs Office, $12B was given in loans to solar projects in the US by the end of 2011. An additional $1.2B was given to manufacturing projects including the largest, Solyndra, at $535M and Abound Solar Power at $400M. Only $70M has been drawn in the case of Abound, which became insolvent in 2012. Another company on the list was SoloPower with $197M, a company which started production in September 2012 in its future-400MW plant of flexible CIGS, a requirement among many to receive funding. Based on Solyndra’s capacity of 110MW, the debt-to-capacity expenditure per watt was $4.80 using just this federal loan. Solyndra,at the top of the governmental support, received over $1B in venture funding.  To erect its capacity, the company had used $9 per watt of private money, adding to a total of $13.80 per watt when including the DOE loan. In comparison to Yingli Solar’s 2.4GW capacity, the Chinesewould have to spend $33B to match the expense spree manifested by Solyndra. Using rough mathematical calculation showing amount of debt to solar capacity (module only), Suntech, Yingli and Trina accumulated $6.2B in debt to reach 7.2GW of module capacity by the end of Q2, 2012.The debt-to-capacity ratio is at $0.86 per watt. The actual costs would be higher if like Solyndra, theChinese did not have revenues. So let’s compare that as well. 

Between 2009 and 2010, Solyndra earned revenue of $240M and produced no net income. The three Chinese companies mentioned, in the period of 2010 and 2011, had $14B in revenues. By Q2 of 2012, cash and equivalents of the three totalled $2.4B (Suntech Q1).  Using the balance between revenues and cash left, an additional $11.6B would add $1.61 per watt to the cost of Chinese capacity, or $2.47 per watt in total with their current debt.This is 5.5 times less than Solyndra. At this point nobody can have a doubt that Solyndra was absolutely a waste of time and money in comparison to global standardsin the industry.  The notion that Solyndra’s failure had anything to do with the Chinese is completely absurd.

SolarWorld received $82M in C48 tax credits from the US government for expansion, supposedly to bring 500MW to Oregon by 2011. Despite the tariffs, business is dwindling.  Sometime during the investigation, SolarWorld and its lawyers figured out that they cannot produce cells cheaper than not only the Chinese, but pretty much anyone else.  Even with cells made in Malaysia or Taiwan, Chinese modules are being sold, on average,in the $0.80/w range, a lot less than SolarWorld can produce them.  The irony here is that as part of its victim attitude, SolarWorld decided to sell its panels at below cost, which is the very definition ofdumping.  Unlike the German company, its Chinese competitors’gross margins remained positive throughout the entire crisis.  SolarWorld had alsofailed on its home turf, as well. This is despite 130M Euro in subsidies received between 2004 and 2011, an amount summarizedby Handelsblatt, a Germany-based financialpublication.  

The largest mockery of all is that the tariffs invoked to supposedly protect local American manufacturing had no benefit for two American leaders, FirstSolar Inc. (NASDAQ:FSLR) and SunPower Corp. (NASDAQ:SPWR).Both companies manufacture abroad, in the Philippines and Malaysia. Moreover,Frist Solar had shut down its capacity this year in Germany as being too expensive, but made no attempts to move it to the US. The costs are evidently not favorable. The same applies to the AUO-SunPower venture in Malaysia, and Mexican operations of Sanyo and Kyocera, who prefer exporting to the US ($500M in 2011 from Mexico). The political crusade to save SolarWorld in the USA has been largely lost.ProSun, the EU hybrid of CASM was born in September to deliver a message of mistreatment to Brussels in another attempt to save SolarWorld, this time in Europe. Germany, as a country in the EU, had distanced itself from duties and proposed other solutions. Large companies like Bosch had said the same. In the threat of alleged retaliation, ProSun members remain anonymous.  Originally,the founders of CASM had also remained anonymous, but they are no longer in operation today. Their parent European companies are suspected to be part of ProSun.

The crisis in the industry had affected every entity. While American companies die to the sound of political drumroll and media frenzy, 50% of Chinese companies operating just two years ago died in the silence afforded by their private status. This is despite alleged subsidies, a condition that does not seem to change the view held by protectionists. 

Since frivolous lawsuit is the topic here, perhaps another irony could be considered.  Maybe shareholders of Chinese US-listed companies can consider legal action against thegovernment for all the losses to date endured as a result of support of the SolarWorld monopoly? Since 2010, the combined market value of $3.5B for Trina, Suntech and Yingli had deteriorated to less than $650M. $2.9B seems like a reasonable amount. As part of the compromise,they would be willing to forgetthe mediacrusade against solar, which cost a bundle alone.