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Case Code: FINC125
Case Length: 12 Pages 
Period: 2015- 2016    
Pub Date: 2017
Teaching Note: Available
Organization : SunEdison
Industry : Solar Energy
Countries : U.S,World
Case Studies  
Business Strategy
Human Resource Management
IT and Systems
Leadership & Entrepreneurship

The Fall of SunEdison-A Solar Eclipse?

This case won the Second prize in the oikos Global Writing Competition 2017 (Sustainable Finance track), organized by oikos Foundation for Economy and Ecology, University of St. Gallen, Switzerland.
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MEMC was founded in 1959 by Monsanto Chemical Company to manufacture silicon wafers. In 1989, Hüls AG of Germany purchased MEMC. In 1995, MEMC launched an IPO and in 2001, the Texas Pacific Group acquired MEMC. MEMC kept on expanding, anticipating serving the growing electronic chip industry. But, by the late 2000s, the cyclical downswings of the chip industry had taken their toll on MEMC, and it started to report losses.

In 2009, MEMC, which had forayed into Photovoltaics (PV) manufacturing to be a part of the burgeoning solar market, wanted to be a more vertically integrated player in the industry – that is, manufacture PV cells and also install solar projects. It therefore eyed SunEdison, by then North America’s largest solar services provider, with a generating capacity of 80MW. The deal worked out to be $200 million....

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Continuing to grow globally, in 2011, SunEdison secured funds to set up solar plants in India, looking to make the country one of its biggest markets for solar projects. It raised $100 million to build solar plants in power-hungry states like Gujarat and Rajasthan. “We are proud of our robust history of financing solar photovoltaic projects with strong long-term returns for investors in many countries and now in India,” SunEdison Managing Director (South Asia and Sub-Saharan Africa), Pashupathy Gopalan (Gopalan), had said at the time...
In developed economies, SunEdison had a stable substrate to grow; debt financing coupled with PPAs and rebates propelled growth. But even in developed economies, PPAs only made sense in geographies with significant solar rebate programs which could off-set the cost of capital and the high upfront investment costs. By 2014, after a decade of high growth, nations like Germany, Italy, and Greece were rolling back solar incentives. In the Czech Republic and Spain, the solar industry had suddenly come to a standstill when Feed-in-Tariffs were rolled back...

By the end of 2015, the cumulative capacity of solar had hit the 200GW mark, which was roughly more than 1% of the world’s total power consumption. It was estimated that 66GW of solar capacity would be added by the end of 2016. The world was building more solar power plants than ever because they were getting cheaper. Since 1975, the cost of installing 1MW of solar had dropped by 150 times. There was more than an 80% fall in the price of solar panels since 2010. But the industry was largely ailing from low profitability owing to the commoditized nature of the business . Without technological innovation, there was very little to differentiate between the offerings of the solar companies. ..
By December 2013, SunEdison had total installed capacity of 1.3 GW through its 816 solar plants while 540 MW was under construction and 3.4 GW capacity projects were in the pipeline . Given SunEdison’s strategic shift, the upstream business (historically seen as the core of MEMC) of manufacturing solar panels now focused on internal consumption for the downstream business of solar project development. SunEdison focused on select markets across the globe, namely North America, South America, Europe, the Middle East, South Africa, India, Malaysia, Thailand, and China. Depending on the region, it deployed a different ownership model of the assets which it built. For instance, in the US, it was either the sale-leaseback model or sale to a strategic buyer after completion of the project....
On December 12, 2013, SunEdison announced its plans to monetize its assets through a dividend growth-oriented subsidiary. Holding solar assets was more profitable in the long run than selling them on completion. The plan was to aggregate finished projects and sell them to a subsidiary which would pay for the assets by raising equity. Such yield-based companies were popularly called Yieldcos. The proceeds of a Yieldco would then be used for funding expansion of SunEdison. The stable operational solar project would later sell electricity and generate fixed yield for its investors and promised long-term value. “So while we forgo higher short-term gross margins, giving up about $25 million in Q1 gross margins, we create higher long-term value of more than $120 million in those same projects for SunEdison shareholders,” explained Ahmad on the company’s first quarter 2014 conference call....
It appeared that there was no stopping Ahmad. In a presentation to analysts in February 2016, he indicated that SunEdison was poised to become the world’s most valuable company and added, SunEdison is the next ExxonMobil whose value is around $400bn. “That’s what we’re going after.”....
In July 2015, SunEdison announced the acquisition of Vivint Solar, the second largest residential (distributed power) PV installer in the US, for $2.2 billion in cash, stock, and convertible notes. “We are building the next generation of the biggest energy companies on earth,” said Julie Blunden, SunEdison's chief strategy officer. “We're not waiting to find out who they'll be – we want it to be us.” ...
The ripples of SunEdison’s fall were felt across the globe. After showing a promising 13-year growth, receiving around $1.5 billion of tax payers’ support (combination of grants, loans, and tax credits), the $10 billion dollar company had collapsed to become a $150 million company and was liquidating its assets as quickly as possible. SunEdison had around $20 billion of debt and $16 billion of assets....
Exhibit I: Share price slump of SunEdison, Terraform Power and Terraform Global.
Exhibit II : SunEdison P & L and Balance Sheet.
Exhibit III : LCOE (Levelized Cost of Energy) for Various Sources of Electricity in the US
Exhibit IV : Electricity Costs in USD/MWh in Emerging Markets (Green Bars)and LCOE of Solar.