The Collapse of SunEdison

Does the failure of SunEdison, which has just filed for bankruptcy in the United States with debts of $16.1bn, tells us anything about the renewable energy in which it invested?

Perhaps not, perhaps we should exonerate the technologies and put the blame on financial engineering, which does appear to be one of the great misnomers of our time, and increasingly and perhaps deservedly unpopular. Such critics would say that the ‘structures’ created by so-called financial engineers are only vaguely substantial and scarcely correlated with the everyday datum that we call the world. In other words they are an offence against common, intersubjective, sense. Far from being products of the materially constructive intelligence, they are works of imaginative fiction, novels not machines, extravagant economic dramas in which all shall be well and all manner of things shall be well, and, as with other creative works, they are reliant on the ‘suspension of disbelief’, which is of course willingly given, for who can resist a world in which everyone wins and all is happy ever after. In justice, however, it must be admitted even by critics that from time to time these speculative, utopian fantasies land on some empirical foundation. In other words, they work. This might seem a cavalier justification for such hazardous management, but as a method for searching possibility-space financial poetry is perhaps no more wasteful than any other entrepreneurial gambit, and one can hardly blame people for trying (disappointed shareholders may obviously see this differently).

Nevertheless, even taking this tolerant view, there is clearly a powerful elective affinity between renewable energy and the sparkling visions of financial engineers. Both gain a large part of their attraction from the vigour with which they defy the Gods of the Copybook headings; wishes are horses, pigs have wings; and just around the corner are perpetual peace, the fuller life, and abundance for all. No wonder then that these two gravity defiers are not infrequently combined in the vast ambitions of companies such as SunEdison, and the almost unbounded confidence of their investors. But gravity, after all and in the end was stronger than the uplift of the beautiful commercial arrangements, and perhaps it will also pull the investments themselves back to earth. Naysayers, disagreeable though they are, have a very good track record.

All this has more than abstract interest in the United Kingdom, since SunEdison’s subsidiary, TerraForm Power, has 26 solar projects here, comprising some 376 MW of capacity. That makes it one of the larger solar portfolios in the UK, with about 3% of the countrywide total (now over 10 GW). Indeed, TerraForm has only 874 MW of solar capacity in the whole of the United States, so the company would appear to have decided that Britain was a particularly favourable location (for subsidies, obviously, not sunshine).

TerraForm’s UK sites would generate about 400 GWh of electrical energy per year, assuming a generous load factor of 12%, a quantity that is about 0.4% of the annual 110 TWh of electrical energy required towards meeting the EU 2020 Renewables Directive target. From this portfolio TerraForm would receive over £20m a year in subsidy, totaling about £300m over its lifetime, and, in addition, it would earn approximately £250m from the wholesale value of its electricity.

It is very difficult to be sure of TerraForm’s capital expenditure in the UK, but press comments by other solar developers suggest costs in the region of £800,000 per MW over the last few years, so TerraForm’s investment might be estimated at around £300m, perhaps rather less given SunEdison’s market power, suggesting that the probable £550m lifetime income should give a pleasing return, assuming that operations and maintenance costs are as expected.

SunEdison’s creditors are now scrambling to recover what they can, but the shareholders, it seems, can do very little to improve their situation. Similarly, the British consumers who pay the subsidies, and so in one sense are coerced investors without equity, are also left in a worrying position. If a company as titanic as SunEdison can prove to be no more than a fragile aspiration, the hope of wealth not wealth itself, is the same true of the climate saving projects it has left behind? Will the Gods of the Copybook Headings limp up and explain the answer all over again, or will the moon, coup de théâtre, prove to be made of cheese. Time will tell.