Partial Eclipse of the Sun: Cloudy Days Ahead for Solar Energy Sector

5610790324_54773b2ee0_bJust hours before trading was to begin, BrightSource Energy cancelled its I.P.O. Is the light of the sun dimming on the solar industry?

On Wednesday night, the Oakland-based solar power-plant developer BrightSource Energy suddenly killed its initial public offering, just hours before trading started. The firm, which received $1.6 billion in federal money for its first major project, said it intends to withdraw its registration statement on Form S-1 that it had filed with the Securities and Exchange Commission.

"While we received significant interest from potential investors, the continued market and economic volatility are not optimal conditions for an IPO," said John Woolard, president and CEO of BrightSource, in a statement released on Business Wire. "As a company, we've consistently made decisions in the best interest of our shareholders, employees and customers, and we will continue to do so. Fortunately, we're in a strong financial position and have the support of world-class investors and partners."

"The surprise move killed what had been the most hotly anticipated clean-tech IPO this spring," wrote David R. Baker in the San Francisco Chronicle. "And it cast doubt on investor appetite for similar offerings in the future."

NO CLEAR POLICY MEANS CLOUDY DAYS AHEAD

But while the move was a shock to solar industry investors and watchers, it is just a recent episode in a series of setbacks within an industry that, while based on the most potent and lasting of all green/clean/renewable energy sources (the sun produces enough energy in one second to fuel our current needs for 500,000 years), has to contend with the high relative price of solar cells (though prices are coming down) and the lack of cheap and efficient storage systems (though there have been advancements in this area: BrightSource signed a deal with Southern California Edison to implement an energy storage system using molten salt.) Also, last year's backlash following the Solyndra loan scandal still lingers.

Another major issue, according to Dean Solon, president and CEO of the Portland, Tennessee-based Shoals Technology Group, is the fact that the United States does not have a clear policy regarding solar energy. Consumers are hesitant about adding solar energy, he said, because utilities aren't required to purchase that electricity at prices that would make such investments practical.

"Do you want to spend $20,000 putting a photovoltaic system on your house when you don't know if the local utility is going to pay you for the power?" Solon asked.

GOODBYE SECTION 1603: SENATE KILLS FEDERAL GRANT PROGRAM FOR SOLAR

Last month, Senator Debbie Stabenow's (D-Mich.) proposed amendment to S. 1813 (Moving Ahead for Progress in the 21st Century or "MAP-21") did not pass. It would have reinstated the Section 1603 Treasury Program, a grant program established in 2009 that gave solar and other renewable energy companies the ability to receive a direct federal grant instead of the Section 48 Investment Tax Credit (ITC).

According to the Solar Energy Industries Association (SEAI), Section 1603 "awarded over 4,700 grants totaling $2.09 billion for more than 22,000 individual solar projects in 47 states and has supported over $4.87 billion in private investment." Now, the solar industry will have to make do without this big piece of the financing pie. The amendment needed 60 votes to pass. Split across party lines, with Democrats voting to keep the grant and Republicans voting to kill it, the final roll call was 49-49. Democrats argue that the renewable energy sector needs government help to compete with cheaper fossil fuel. Republicans want to curb public spending and let market forces figure it out.

AMID UNCERTAINTY, CLEAN ENERGY INVESTMENT DROPS SHARPLY

To make matters worse, even leading solar firms have experienced slumping stock prices. "Shares of First Solar, for example, are down 93 percent from their 2008 high, closing at $22 on Thursday," notes Diane Cardwell in The New York Times. "Shares of Suntech have dropped 96 percent from their 2007 peak, closing at $2.80 on Thursday. The I.P.O.'s of two alternative energy companies have run into trouble, and the American subsidiaries of Solar Millennium, a German solar thermal power company that is in insolvency proceedings, recently filed for bankruptcy protection."

Figures also released on Thursday by Bloomberg New Energy Finance support the sobering market news, revealing a steep drop in clean energy investment in the first quarter of 2012, with new financial investment down 28 percent from Q4 2011 to $27 billion, 22 percent lower than the same period last year.

"The weak Q1 2012 number reflects the destabilising uncertainty over future clean energy support in both the European Union—driven by the financial crisis—and the US—driven by the expiry of stimulus programmes and the electoral cycle," said Michael Liebreich, chief executive of Bloomberg New Energy Finance.

"There is no sign of a rapid turnaround in either of these regions in the next 12 months. Clean energy technologies, particularly solar photovoltaics and onshore wind, continue to fall in price and approach competitiveness with fossil-fuel power—but politicians in many countries appear to be ducking the decisions that would ensure that the sector maintains its growth trajectory. We are seeing growth in some of the non-core markets around the world, but they will have a tough job replacing weakening demand in the developed world."

THE SUN'LL COME OUT TOMORROW: BRIGHTSOURCE COMMITS TO GROWTH

BrightSource's expertise is in designing and deploying "concentrating solar thermal technology to produce high-value steam for electric power, petroleum and industrial-process markets worldwide." Concentrated solar power (CSP) is a technology that uses computer controlled mirrors to focus a large area of sunlight onto a small area to produce enough heat to boil water that in turn powers a steam engine. It's similar to using a magnifying glass to focus sunlight to start a fire.

It's a system that hold much promise for the solar sector. But after this latest jolt, what's next for BrightSource? According to Woolard, growth is still the mantra. "With our pipeline of U.S. contracts and our flagship Ivanpah project, we have established a leading position in the domestic solar thermal energy space," he said. "We will continue to execute on our business plan to grow domestically and expand internationally to meet the growing demand for our technology."

To be sure, there are opportunities for growth out there. But windows are also closing. "The rapidly improving cost-competitiveness of renewable energy technologies is stimulating activity, particularly in developing countries," said Leibrich. "However, it is becoming harder to see the sector worldwide beating last year's record, unless the storm-clouds lift in Europe and US Congress stops bickering and sends some clear signals about the importance of new energy technologies. Meanwhile, continuing improvements in the sector's economics mean companies that survive these next few years, whether on the industry's supply or demand side, will be well positioned for the next growth phase."

For cutting-edge solar firms like Brightsource, rocky roads are ahead, but as one tough little fighter who faced hard knocks with optimism famously sang, "The sun'll come out tomorrow, so ya gotta hang on 'til tomorrow, come what may."

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NOTES

Business Wire. BrightSource Energy Withdraws Initial Public Offering Due to Adverse Market Conditions. April 11, 2012. Accessed April 13, 2012.
Baker, David R. Oakland's BrightSource cancels IPO at 11th hour San Francisco Chronicle. April 13, 2012. Accessed April 13, 2012.
Boston Globe. How much energy does the sun produce? September 5, 2005. Accessed April 13, 2012.
The Economist. Packing some power. Technology Quarterly Q1 2012. March 3, 2012. Accessed April 14, 2012.
Sainz, Adrian. New solar farms in West Tenn. signal growth. April 13, 2012. Accessed April 14, 2012.
Solar Energy Industries Association. 1603 Treasury Program - Solar Tax Policy. November 2011. Accessed April 14, 2012.
Cardwell, Diane. Clouds on Solar’s Horizon. The New York Times. April 12, 2012. Accessed April 13, 2012.
Bloomberg New Energy Finance. Q1 2012 Clean Energy Investment Squeezed by Policy Uncertaintuy. April 12, 2012. Accessed April 14, 2012.
BrightSource Energy. About Us. April 20, 2011. Accessed April 13, 2012.
Ibid., 1.
Ibid., 8.

image: As seen from Austria, the partial solar eclipse on January 4, 2011, started soon after sunrise. (credit: H. Raab Flickr Creative Commons)

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