Solar Subterfuge

By Daniel Scotto, Whitehall Financial Advisors LLC

The value of energy assets has taken a giant leap backward. What used to be simply bricks and mortar has transformed into billions of dollars’ worth of Research and Development that can now be acquired for nominal cost.

U.S. Companies invested vast sums in developing intellectual property and, as such, creating valuable intangible assets which can now be obtained for little or even zero consideration.  Substantial funding, with heavy contributions from the government in the form of loan guarantees, tax credits and political capital, have aided in the advancement of alternative energy assets and companies of all types.

Overlooked and Undervalued IP
These government subsidized commitments often reside on the balance sheet as undervalued tangible and/or intangible assets. This raises the question as to where the dollars from federal assistance programs have gone. The alternative energy industry now is struggling for financial stability, as exemplified by the proliferation of alternative energy company bankruptcies.

The future of alternative fuel technologies in theU.S.is bleak. The vulnerable financial status of manyU.S.alternative energy companies has provided a forum for non-U.S. companies to gain inexpensive access to federally funded proprietary technologies and developments often protected byU.S.patent laws.

The most glaring example of this poaching is in the area of solar power.  The high-profile bankruptcy of Solyndra, in which the government loaned $535 million prior to the company’s filing for a Chapter 7 liquidation brings to light a disturbing new trend – opening the door for other entities to gain intellectual energy advances at discounted prices (see Solyndra Debacle).  Solyndra has parceled up its assets in such a fashion that foreign buyers, notably the Chinese, can forgo the purchase of hard assets and instead focus on intellectual assets, arguably creating more wealth, on face value, for the bankruptcy estate.

A Win-Win for Foreign Bidders 

The U.S.Department of Energy has moved to block the sale of solar panel manufacturing patents to Chinese companies. Yet, Solyndra is a “win-win” for any foreigner seeking specific assets instead of the burden of having to take the traditional bundle of bankruptcy estate assets.  This approach only serves to give away the billions of federal investment in new technologies (see Solyndra Patents).

There is a growing failure rate of alternative energy companies, another example being Evergreen Solar (see Evergreen Patents) a manufacturer of solar panels. Evergreen is also in the process of liquidating (rather than reorganizing), raising again the question of who gets the patent rights and ultimately the patent protection.  Evergreen’s patents as well as other intangible assets have effectively been underwritten by the U.S. Government. Evergreen embarked on a reshuffling of its assets and cost cutting pending its demise. This has only served to reinforce the new “norm”.  Evergreen has already shifted some of its production to China and is expected to remain an ongoing business pending talks with Chinese investors.  Evergreen received a $58 million financial aid package from theU.S. government.

Exporting Innovation – Unintentionally

A clear trend appears to be developing here. It appears that domestic alternative producers cannot find viable domestic markets. Accordingly, the intangible benefits, more specifically patents and other intellectual property developed with the financial aid of Federal and State grants, are being exported to foreign (often unfriendly) countries at a deep discount, as the market for American alternative projects proves to be too costly.

A further example of an alternative energy supplier facing financial distress is Beacon Power Corp., a flywheel-based energy storage solution which has been forced into bankruptcy. On November 18^th a Bankruptcy Judge considered limiting the company’s use of $43 million in backing used as part of the Department of Energy’s Aide Program. The value of the patents in a sale is one of the points being argued by Beacon on behalf of the DOE (see Beacon Power Corp).

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Daniel Scotto is the founder and Chief Executive Officer of Whitehall Financial Advisors, which specializes in the economics of the energy and transportation industries.  Mr. Scotto has over 30 years of experience analyzing and advising energy companies, and has been an active participant in the forensic valuation of assets, rate case testimony and as a strategic advisor to both public utilities and alternative energy companies.

Mr. Scotto was ranked the #1 energy and utility analyst by Institutional Investor for an unprecedented 10 years. He has served as Director of Research for BNP Paribas, Bear Stearns, DLJ, L.F. Rothschild and Standard & Poor’s. scotto@whitehallfinancial.com.

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