Is SunEdison The New WorldCom?

I read the news of the SunEdison bankruptcy and Jigar Shah's gracious note to his Ex SunEdison team from the offices of a nano-grid development company in Lagos Nigeria (picture below). Like everyone who is working, investing in and hoping on the impact that renewable energy can have on our lives I asked the question 'what happened? How does a company, any company, go from a stock price of $34 to (technically) $0 in about a year and a half? So what went wrong? The common understanding, at this point, is that SunEdison fell for three main reasons. The company
  • spent too much money on acquisitions
  • placed bets on Yieldcos (special vehicles that were essentially holding companies for renewable investments) but raised about 30% less funding than the1Bn it intended to raise selling more shares in the Yieldco than it intended to sell.
  • spent way more money than it was making. Much more. In Nov 2015 the company was11bn in debt, was generating2.4Bn in revenue and had net income of536M.
Summary? Icarus flew too close to the sun (hubris), lost the wax in his wings(money) and fell to his death (bankruptcy). But things are not as bad as it seems. We have seen this before and things actually turned out great for you and I. It is the story of WorldCom in the early days of the current telecommunications industry. WorldCom, which started off as a small long-distance telephone company, followed the same strategy of growth through acquisition completing
  • a mind-boggling 65 acquisitions in 6 years
  • to the tune of60Bn
  • incurring debt of41Bn!
The company bought MFS/UUNet and got into internet service provision to businesses (see where I'm going here?). The acquisitions came with managerial problems for the company and the high flying stock price led to hubris in decision making (more acquisitions and a feeling of invincibility). Like Worldcom SunEdison found accounting issues but unlike WorldCom, which gave loans to executives to load up on company stock, found

So what's the lesson from similar paths between two businesses in different industries in different eras but with the same outcome? The similarities are that all the work that WorldCom (better known to you and I as Verizon) did in the 1990's had a hand in you streaming Netflix and binge-watching Transparent on Amazon this morning. Yes, the wires that were laid, towers that were built and the infrastructure that was put in place during those early days of the telecomms industry as we know it now are critical to the benefits we enjoy close to 20 years later.

And that is the lesson here. The renewable energy sector is in its very early days. The bankruptcies and confusion come from the search for business models that will work in a new paradigm of energy provision. We will figure it out. But there will be blood. A lot of money will be spent, made and lost as we wade through the murky waters in the early stages of this young industry (the same way it works for the early days of any business). We, as an industry, will figure it out and the world will be better financially and sustainably for it.

So whenever you doubt whether the renewable energy industry will survive, just glance at your mobile phone and remember that the companies that laid the foundation for your enjoyment of #Lemonade mostly no longer exist. SunEdison may be struggling now but hundreds of businesses will take it's place and ensure the adoption of renewable energy continues.

Here I'll make a pitch for investing in renewable energy in Africa; The average cost of commercial power in the USA is ~12c/kWh, in Nigeria the average is ~36c/kWh (I'm looking at data from hundreds of commercial locations as I type this) and rises to closer to ~50c/kWh if you factor in diesel generators (which is a big part of the mix). With ~8 sun hours/day solar generation, at 12.2c/kWh, makes so much sense that it's surprising there aren't more investors diving into what is a ripe market. Reach out if you are interested...the adoption of renewable energy across the world is inevitable.
SunEdison has been a big part of that revolution.