Abound Solar plagued by defective panels

Abound Solar filed quarterly reports with the U.S. Department of Energy that reveal a history of defective products, equipment problems and repeatedly missed revenue and production goals.

Although the failed company’s financial results were redacted in the reports by the energy department, the documents make clear that the Loveland-based solar-panel maker’s revenue and production levels came in lower than it had anticipated in every quarter of 2011.

Abound’s highly publicized Chapter 7 bankruptcy this July resulted in the layoffs of 125 people, on top of the 280 it had laid off earlier in the year, and the closure of facilities in Larimer and Weld counties.

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Its bankruptcy came amid a year of tumult and spreading uncertainty in the solar industry, but has stood out because Abound, established in 2007, had drawn down $70 million on a $400 million DOE-backed loan. The loan — supported by members of Congress from both parties — was cut off in September 2011.

Taxpayers are expected to lose $40 million to $60 million in the bankruptcy, according to the energy department. Investors, including Pat Stryker’s Bohemian Cos., are also expected to lose big.

In media interviews and testimony before Congress, Abound has blamed competition from the Chinese for its failure. China’s government has, in fact, supported its solar industry with tens of billions of dollars in subsidies.

But the quarterly reports, obtained by the Business Report under the Freedom of Information Act, tell a far different story.

Rather than pointing to foreign competition, the Colorado State University spin-off told the DOE that it was having big problems with equipment and its products.

These problems appeared to have plagued the company even as it drew down on its DOE loan at least once during the third quarter. The company did not draw down on the loan during either the second or fourth quarters, but its reports leave it unclear whether it might have done so in January 2011.

The reports were signed by Abound Chief Financial Officer Steve Abely; Abely did not return phone messages seeking comment. Energy department spokesman Damien LaVera declined to comment on the reports.

In the report covering the first quarter of 2011, the company wrote it had experienced a drop in production that it blamed on the reconfiguration of semiconductor tools used to make its panels.

Subsequent tests, it told the government, confirmed it had “resolved a substantial portion of (its) products’ underperformance.” However, the production drop-offs led to excess overhead and “unusually high yield losses,” Abound said in its report to the government.

The report notes the company did not draw on the loan “pending analysis by DOE engineering of the company’s 2010 budget and technical solutions to our products’ underperformance for power.”

The company’s problems with its semiconductor systems cropped up anew in the second quarter.

Late timing of shipments compounded Abound’s difficulties. Offering a measure of optimism, the company reported that its second-quarter revenue came “close” to budget and that demand and backlog for subsequent quarters had increased with both new and existing customers.

However, Abound also noted it was seeing failures in the buss bars in its solar panels. Buss bars conduct electricity. At the same time, it tried to assure the DOE that “technical solutions are understood and being implemented.”

By the third quarter, Abound’s production issues were still a problem, though it told the energy department it had adequate inventory to meet anticipated orders. However, those orders failed to close and the company again missed its targets. It also warned the DOE it anticipated a steep decline in the fourth quarter.

Significantly, the company noted in its report that it was forced to spend money recycling panels with defective buss bars that it had produced in 2010, the year it received the loan guarantee.

Abound said it needed to book further “warranty reserves” for panels produced that year with faulty buss bars. The company drew down an undisclosed amount on its DOE loan guarantee that quarter, according to its third-quarter report.

Abound’s troubles continued in the fourth quarter, when it blamed low revenue on a “cyclical market decline.” It chose to cut production due to seasonally weak demand, and it spent still more money on recycling panels with defective buss bars.

The energy department, in releasing the documents, blacked out details on the private company’s revenues, production targets, loan amounts and terms of the loan agreement.

It declined to reveal those figures, it said, because doing so would harm the inactive solar panel manufacturer’s “competitive interests.”

Portions deleted from the documents include “sensitive commercial information,” the energy department told the Business Report.

“Public disclosure of this information would cause substantial harm to the applicant’s competitive interests,” the energy department said in an emailed statement. “Specifically, disclosing financing information strategies would provide an unfair advantage to competitors by enabling competing power suppliers to estimate supply costs and use this information to bid against the applicant.”

Rep. Cory Gardner, R-Yuma, doesn’t think that makes sense.

“The applicant’s out of business, so I don’t understand how they could hide behind that,” he said. “Maybe, at that point, it sounds like they do have something to hide because you’re talking about a business that is bankrupt.”

LaVera, the DOE spokesman, said releasing financial and other sensitive information could affect the interests of other companies involved in the bankruptcy or undermine the value of Abound’s remaining assets, undercutting the department’s efforts to recover taxpayer dollars.

Incorporated in 2007 as AVA Solar by CSU professor W.S. Sampath and two others, Abound began production in a Longmont facility in 2009. The company showed promise in its use of cadmium telluride thin films, technology that researchers still believe has potential. By 2010, it had reached $260 million in equity investment.

The company’s failure now draws comparisons to Solyndra, the California solar panel manufacturer that went bankrupt after receiving $528 million from the energy department’s loan-guarantee program, part of the Obama administration’s stimulus package. Solyndra has been liquidated, but its parent, 360 Degree Solar Holdings, is preparing to soon exit bankruptcy court protection.

Gardner and other members of the U.S. House Energy and Commerce Committee have been investigating Abound Solar and the energy department’s loan guarantee program.

Lawmakers are now trying to learn what — if anything — the energy department knew about Abound Solar’s manufacturing problems before it agreed to the $400 million loan guarantee.

House Republicans have suggested that a report from an engineering firm commissioned by the energy department in October 2010 – two months before it closed on the loan guarantee with Abound in December – indicated performance problems with Abound panels.

“We need to know why they went ahead with it if they knew there were technical problems with the product,” Gardner said.

“There’s hundreds of people in Northern Colorado out of work,” Gardner added. “We need answers for those people who are out of work.”

Weld County District Attorney Ken Buck also is looking into securities fraud allegations. That probe includes exploring whether representatives of the company knew that the company’s products were defective and then asked people to invest in the company without disclosing the deficiencies.

Meanwhile, Weld County, where Abound also had facilities, is seeking $1.8 million in property taxes Abound Solar failed to pay last year and part of this year.

Nearly half of the unpaid taxes would have funded St. Vrain Valley School District, Weld County Commission Chairman Sean Conway said.

“I think it’s unconscionable that any company would walk away from their responsibility to pay property taxes that impact K through 12 education,” he said. “This is money that’s been taken out of St. Vrain School District and impacts students.”

Conway, however, believes the county has positioned itself to recoup those losses through its participation in the bankruptcy court proceedings.

Abound declared bankruptcy in July. It sales had plunged from $26 million in 2010 to $22 million last year and just $1 million this year.

A recent auction to sell its property drew bidders from around the world. Proceeds are supposed to recoup a portion of taxpayers’ investment in the company, though not everyone will get their money back.