SunEdison (OTCPK:SUNEQ) received its first grant under Section 1603 of the American Recovery and Reinvestment Act in September 2009. The company reported back then that the $992,000 grant was issued for a 443-kilowatt photovoltaic system at Owens Corning's facility in Kearny, N.J.
Following the award notification by the Department of Treasury, Treasury Secretary Tim Geithner and Energy Secretary Steven Chu invited Carlos Domenech, COO of SunEdison, to participate in a White House roundtable meeting of select industry executives. They discussed expanding development of clean, domestic sources of energy. Domench was quoted as saying, "We were honored to participate in the roundtable discussion. SunEdison's initial application was approved less than 3 weeks after we submitted our request. Given the streamlined application process, we expect to submit new projects from our pipeline almost weekly."
Right from the beginning, government support awarded to SunEdison showed entanglement between Washington, D.C.'s political elite and SunEdison. This is a topic that has been discussed in several dockets submitted to this Chapter 11 case by shareholders. It appears from Domenech's quote that the approval process had very little red tape surrounding it, which increased the risk of misuse. It seemed very easy to access tax funded financing.
In connection with the above-mentioned press release, SunEdison indicated that they expected in the coming years to have up to 200 MW of solar energy projects considered relevant for the Grant 1603 program. If SunEdison had received grant 1603 money per MW at the same level as mentioned in the very first grant, then the 200 MW equivalents' to $447,85 million. That was back in 2009.
Even though the U.S. Department of Energy regularly publishes a list titled "Section 1603 - Payments for Specified Renewable Energy Property in Lieu of Tax Credits" and the most recently updated list covers awardees as of Dec. 15, 2016, it is very difficult to link listed legal entities with SunEdison activities since 2009. The total awarded in the U.S. to solar projects amounts to $25.5 billion. SunEdison has received a fair share of this Grant 1603. Furthermore, it is important to notice that SunEdison has bought projects, merged with companies, sold projects to other companies and divested assets into the two yieldcos: TerraForm Power (TERP) and TerraForm Global (GLBL). It is therefore almost impossible to follow the awarded grants from 1603 and how they are distributed over the years.
To stress this point about tracing the taxpayer money, I believe it is relevant to pay attention to the fact that the Senate Finance Committee and the House Ways and Means Committee have sent letters to seven foreign and domestic companies involved in solar energy requesting information relating to tax credits and financing. SunEdison is one of the seven companies, but up until now the company has not come up with any public announcement about a reply to this letter. SunEdison's management has also declined to comment.
So what is the investigation about? Congressional investigators are examining the use of tax incentives for solar-power companies, third-party financing and how the companies determine the value of the credits. At issue is a Treasury Department's tax incentive for solar-power companies that give solar firms a 30% investment tax credit on the cost of acquiring a system. The tax credit provides a dollar-for-dollar reduction in income taxes otherwise owed by a taxpayer; the companies could also opt to get a grant instead of a credit.
It is particularly important to note the following: Since companies like SunEdison do not generate taxable income to apply the tax credit to, they typically transfer the credits to investors or end users. There is great uncertainty about how solar installations are valued, and this is critical to the creation of the tax credits as they are 30% of this value to first order. Another issue is that the government does not have a tracking mechanism to track which companies have received tax credits and if they have used them or transferred them to others. Since these credits can exist for a very long time, companies could use the same credits more than once and the government would have no way of knowing.
Here are some key questions with respect to the credits allowed to SunEdison:
How many credits has SunEdison received/created?
Has SunEdison credits been transferred to subsidiaries?
Has SunEdison's subsidiaries been sold with credits and if so was it done with the approval of the bankruptcy court?
It's time for SunEdison to tell the citizen/taxpayers/shareholders and other relevant stakeholders what is going on as it affects each and every one of the parties. SunEdison is now ignoring requests from senators and congressmen, after having ignored shareholders' requests for both valuations and financial reports. At least SunEdison must report its SEC filings for the pre-petition time span, and also needs to respond in a transparent way to Congress.
The American organization "Good Jobs First" has developed a subsidy tracker for major U.S. companies. The organization has for the parent company SunEdison and certain associated names tracked the number and amount of subsidies (see Table 1):
Number of Subsidies
Federal (grants and allocated tax credits)
Loan / Bailout Summary
Total Face Value
Number of Awards
State/Local loans, bond financing and venture capital
Federal loans, loan guarantees and bailout assistance (not including repayments)
Time Period for State and Local Awards: Earliest year of data is 1999. Availability of data for earlier years varies greatly from program to program. The majority of the listings for this parent company are for the period since 2009. Time Period for Federal Awards: FY 2000 to the present. Dollar totals do not include awards for which no subsidy value is available.
The majority of the projects and subsidiaries listed under SunEdison in the Good Jobs First's subsidy tracker are actually wind projects or wind-related activities. There is a fair chance that the tracker has not caught all the midsize solar projects that SunEdison has been developing in U.S. The following projects and subsidiaries are listed in the tracker: Milford Wind Corridor Phase I, LLC, Milford Wind Corridor Phase II, LLC, Kawailoa Wind, LLC, Palouse Wind, LLC, Evergreen Wind Power III, LLC, Canandaigua Power Partners, LLC, Evergreen Wind Power V, LLC, Vermont Wind, LLC, Canandaigua Power Partners II, LLC, Stetson Wind II, LLC, Solaicx, SunE B9 Holdings, LLC, Erie Wind, LLC, SunE CPS3, LLC, SunE CPS2, LLC, SunE CPS1, SunE CBRL1, LLC, LLC, Solaicx, SunE Solar VIII, LLC, SunE Solar VIII, LLC, SunE Solar VIII, LLC, MEMC Electronic Materials LLC, Greenray, SunEdison Residential Services, LLC and SunEdison, Inc.
Several subsidiaries appear more than once with a subsidy: "Canandaigua Power Partners LLC" and "Canandaigua Power II Partners LLC " more than 16 times with a grant. The three largest grants paid out to Canandaigua Power are $52,352,334 (federal grant- 2009), $22,296,494 (federal grant - 2009) and $2,617,575 (federal grant - 2010). It indicates that the subsidiary Canandaigua Power Partners should have been developing projects for more than $225 million back in 2010.
It is a qualified guess that Good Jobs First's subsidy tracker primarily covers subsidiaries in the First Wind acquisition. Compare the listed project names mentioned above with First Wind Operating Projects listed as of Dec. 31, 2014, when SunEdison transferred the First Wind assets (See Table 2).
- Blue Sky East, LLC (Bull Hill) - 34mw - October 2012
- Canandaigua Power Partners, LLC and Canandaigua Power Partners II, LLC (together, Cohocton) - 125mw - January 2009
- Erie Wind, LLC (Steel Winds II) - 15mw - January 2012
- Evergreen Wind Power, LLC (Mars Hill)(2) - 42mw - March 2007
- Evergreen Wind Power III, LLC (Rollins) - 60mw - July 2011
- Niagara Wind Power, LLC (Steel Winds I) - 20mw - June 2007
- Stetson Holdings, LLC (Stetson I) - 57mw - January 2009
- Stetson Wind II, LLC (Stetson II) - 26mw - March 2010
- Vermont Wind, LLC (Sheffield) - 40mw - October 2011
- Milford Wind Corridor Phase I, LLC (Milford I) - 204mw - November 2009
- Milford Wind Corridor Phase II, LLC (Milford II) - 102mw - May 2011
- Kaheawa Wind Power, LLC (KWP I)(2) - 30mw - June 2006
- Kaheawa Wind Power II, LLC (KWP II)(1) - 21mw - July 2012
- Kahuku Wind Power, LLC (Kahuku)(1) - 30mw - March 2011
- Mass Solar 1, LLC (Mass Solar 1)(2) - 17mw - May 2014
The Good Jobs First's subsidy tracker has not caught all projects and several projects are listed with grants that have a value of zero because the amount paid out is unknown. Not all solar projects have been listed.
The above-mentioned tracking system has also listed federal loan and loan guarantees. SunEdison has been very active in obtaining loans and guarantees from the Overseas Private Investment Corporation (OPIC), the U.S. government's development finance institution. In the above tracking tool, some of these OPIC loans are listed. Below is a list of the loans provided to SunEdison that has been easy to identify because of public available press releases. There are probably more smaller loans that are not caught in the search that has been performed:
Thailand $250M (2011) - OPIC Board Approves $250 Million to Develop 51 Solar Projects in Thailand
South Africa $250 M (2012) - OPIC Board Approves $250 Million for 60MW Solar Power Project in South Africa
Chile $ 212,5M (2013) - SunEdison, IFC and OPIC Close $212.5M Project Financing arrangement for a 100 MWp Solar Power Plant in Chile
South Africa $185M (2013) - SunEdison Announces R1.8 Billion ($185 M) in Funding for 66mw Boshof Solar Park
Chile $ 100M (2013) - SunEdison, IFC and OPIC close US$100.4MM Project Financing Arrangement for the Largest Merchant Solar Plant in Latin America
Chile $190M (2014) - SunEdison, IDB, OPIC and CorpBanca close US$190 Million Project Financing for the Largest Merchant Solar Plant in Latin America9
Jordan $50M (2014) - SunEdison, EBRD and OPIC Close $50 Million Project Financing Arrangement for one of the Largest Solar Power Plants in Jordan10
In addition to OPIC, another government institution has been active in offering loans to private sector agents. It is the Export-Import Bank of the U.S. According to the Bloomberg article "Renewables to Get Most of $1 Billion ExIm Bank Credit" by Reed Landberg, the renewable energy developers have received "the vast majority" of a $1 billion credit line the Export-Import Bank of the U.S. extended to India. SunEdison has been the most active solar project developer in India, and it must be expected that SunEdison has received a significant portion the $1 billion ExIm Bank Credit.
The tracker and the information about SunEdison subsidies, loans and loan guarantees is really difficult to obtain from 2015 and onward. The reason for this change in pattern is difficult to understand.
Conclusion and Consequences
SunEdison has received billions of dollars in tax incentives, loans and loan guarantees from the U.S. government. The valuation of projects and subsidiaries has been critical when obtaining these loan. If Homer Parkhill's claim that there is almost no value to the assets in SunEdison is true, it must indicate that the money granted by the U.S. government has been misplaced or mishandled.
There are several factors that point to an Enron-type scenario, and it is a surprise that neither the U.S. Department of Justice nor the U.S. Securities and Exchange Commission have reacted to the situation. But at least the congressional investigations have indicated that some have started to wonder about what has happened and what is currently happening with the taxpayer money that SunEdison has already received.
It is in everyone's interest to get SunEdison's response to congress listed as a docket in this Chapter 11 case or as an SEC filling. In response to the collapse of Enron, Worldcom, and other corporations, the U.S. Congress passed the Sarbanes-Oxley Act of 2002. SunEdison has decided not to file the K-10 and Q-10 pre-petition, which is actually mandatory. Therefore, SunEdison has been successful in bypassing Sarbanes-Oxley regulation that should be a tool used to avoid a new Enron scandal.
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This article was written by
Disclosure: I am/we are long SUNEQ, TERP, GLBL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Thanks for the help please let me know if there is anything else I overlooked.