Flying Blind and Crashing

There is a need for quality data transparency in light of the solar market meltdown, writes Haresh Patel, CEO of Mercatus.
Published: Tue 05 Apr 2016

Last year’s solar market supernova-turned-black-hole left investors scratching their heads and the industry reeling. As it turns out, the new year has not alleviated the hard times for companies like SunEdison. As of last week, their once-bullish yieldco, Terraform, is now at serious risk of being delisted from the NASDAQ exchange. While many are searching for the tool to jump-start solar stocks, it’s been argued that the key lies in industry data, where, according to a recent article by Greentech Media, “it’s nearly impossible for an investor to find real industry data to include in underwriting models or to become more comfortable with the market.”

However, bigger isn’t always better. Having more data is not the answer, but having meaningful data that can provide real insights, is.  

SunEdison is blaming its current inability to file its SEC financials due to what it says are “deficient information technology controls in connection with newly implemented systems” that control its accounting. With hole-patched data infrastructure, Sun Edison, amongst other solar giants, had simply grown too fast and failed to establish checks and balances for data management and sharing.

Data – part of the problem

It’s clear that while a lack of data played a central role in the solar crash, data is only part of the problem. The claim that data can now save solar stocks holds water, but with a caveat: data alone will not save solar. Proper organization of data to both satisfy compliance and increase transparency was the missing factor. Data at best is meaningless unless the information gleaned is comforting to investors. What SunEdison really lacked were the tools and business processes to take their own internal data and illuminate it into meaningful information – information that would have allowed them to file on time and gain investor confidence.

Investors will feel comfortable again only when solar companies can show that they are growing responsibly. As Bronte Capital’s John Hempton put it, companies like SunEdison need to get “boring.” By setting their focus back to their basic functions, companies can show investors that they have returned to proven territory. When it comes to the acquisition of projects, particularly through yieldcos, better data would undoubtedly help investors determine if their money is safe. Investors could consider metrics such as PPA length, diversity of assets, and dispatchability, instead of just looking for high dividend percentage increase guarantees. This might attract a different (and perhaps more stable) type of investor, but there will always be investors if the data leads to encouraging information.

Lessons for the solar industry

With solar growing so rapidly, the industry’s major players need to provide what other mature industries show Wall Street: good data, transparency and punctual, accurate reporting. Once they can prove their assets are well-managed, solar companies should stimulate investment through data transparency. Since the purpose of data is to lead to information, there is a need for industry standards with which to interpret the data. If the solar market wishes to rebound, providing this data should be a major component of their strategy. Without it, there is no reason for investors to believe that a second chance would turn out any different than the first.

There’s a key lesson here for the solar industry. Since the distributed future is more complex than large-scale utility projects, it’s crucial for companies to implement IT tools and business processes early on in the business cycle. Because when growth accelerates too quickly without those two things in the beginning, it’s impossible to implement them effectively in the middle. It’s akin to changing engines on an A380 or Boeing 747, already at 10,000m in the air.

SunEdison happens to be one of the major players whose growth is outpacing the industry infrastructure, and discipline is required to maintain both operational control and financial transparency with Wall Street.

References

Investors’ Business Daily: Could Blistered SunEdison Yieldco TerraForm Power Face Delisting?

Greentech Media: Can Data Rescue Solar Stocks? Google Is Leading the Way

Forbes: SunEdison Offers Another Excuse For Its Missing Financials

Mercatus: Wall Street’s Message to US Solar Companies: ‘It’s the Profitability, Stupid!’

Bronte Capital: Sun Edison - some comments and a way forward