Despite the low prices of fossil fuels, the clean energy industry is still growing, with utility-scale wind power projects and residential solar installations catching on worldwide. And despite the oil and gas industry’s stranglehold on political power — evident in fossil fuel subsidies across the globe — clean energy companies overall still very much have the wind at their backs. Even stodgy organizations such as the International Monetary Fund (IMF) and the International Energy Agency (IEA) are bullish on the future prospects for renewables.
Nevertheless, the industry is still enduring its share of growing pains, as SunEdison’s current struggles demonstrate.
SunEdison had been riding high this year, with a market capitalization soaring to almost $10 billion just three months ago. But investors’ confidence had been wavering long before SunEdison reached what was a historic milestone for the company. Acquisitions of firms including First Wind and Vivint Solar worried analysts who saw that $4.6 billion buying spree create a sudden spike in SunEdison’s debt-to-equity ratio.
Not everyone was worried: The company attracted copious amounts of praise for becoming the world’s largest clean energy development company, and the MIT Technology Review, in fact, listed SunEdison as sixth in its rankings of the 50 Smartest Companies. But Wall Street became skittish over SunEdison’s fundamentals, and as July turned into August, its stock lurched into a rapid tumble.
In July, SunEdison’s stock price had hit an all-time high of $31.84 a share. It had fallen as low as $6.56 a share in late September before hovering at its current price of about $9; in turn, the company's market capitalization has taken a steep nosedive to what is now an estimated $2.6 billion.
Meanwhile, SunEdison’s transactions hardly slowed the company’s spending, whether it was to fund its countless divisions or to wow attendees at signature clean energy industry events. In addition to the financial strains, this newly assembled company also faced its share of work culture challenges as evident in the Vivint acquisition. Too many on the outside had become nervous about the rapid changes ongoing at SunEdison.
The recent pushback by investors has resulted in SunEdison’s decision to tighten its belt. Last week the company announced it would take several steps in an attempt to “optimize business operations in alignment with current and future market opportunities.” SunEdison has said it will focus on what it sees as lucrative markets in regions such as the U.S., China, India and Latin America. The company also promises it will “rationalize purchased services” in the name of greater efficiency. Furthermore, SunEdison has pledged to “remove duplicative activities.”
Key to this optimization is layoffs. SunEdison’s restructuring will result in a 15 percent reduction in its workforce. The company expects to take a short-term financial hit as it will incur charges of anywhere from $30 million to $40 million in the next quarter, with most of those funds going toward severance packages for fired employees.
The troubles besetting a marquee company such as SunEdison will certainly amp up catcalls from those who are skeptical about clean energy’s future. But reports of the demise of renewables are still far too early.
SunEdison simply became a company with too much on its plate. The organization had become many things, including a financier, a battery storage tech incubator, a project developer and an asset management company. Now SunEdison will have to sell off some its projects that are not a fit with this restructured firm, and that will certainly have an impact on a pipeline about which the company bragged comprised a total of 2 gigawatts of future clean energy capacity.
SunEdison’s recent foibles aside, many multinationals and governments will continue to invest in renewables in the coming decade and far into the future as they become more cost-effective and scalable. The private and public sectors are both intent on securing a lock in energy prices, keen on ensuring energy security and are determined to meet their sustainability goals. SunEdison’s setbacks, while certainly daunting, will most likely be a mere hiccup on clean energy’s slow but steady path toward becoming an even more relevant and lucrative industry.
Image credit: SunEdison