DOE loan guarantee boost for Abound

LOVELAND – Abound Solar recently received a major boost from the U.S. Department of Energy, without which the company would have little chance of progressing in the increasingly competitive solar panel market.

“This is certainly the best news in the short history of our company,´ said President and CEO Tom Tiller. It also boosts confidence in Abound as a going concern.

Tiller explained that without the $400 million loan guarantee, Abound would probably never have gained enough of a foothold in the industry to scale up to a competitive size.

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While the loan guarantee is paramount to the company’s future, it hasn’t been the sole focus. In the first half of the year, Abound produced 10 megawatts worth of panels and orders are on track for 35 megawatts for the whole year.

“That’s excellent for our first year in production, but we have a lot more demand than that,” Tiller said, adding that total orders are four times more than existing manufacturing lines can produce.

That’s where the loan comes into play. The first $100 million of disbursements will be used to build out the Longmont production facility to a 200-megawatt capacity and will bring the company’s total Colorado workforce to 350 employees. Privately held Abound is headquartered in Loveland, with an R&D facility in Fort Collins as well as the Longmont factory.

The rest of the loan will be used to build a second, larger facility in Tipton, Ind. When finished, the site will have a production capacity of about 800 megawatts and will employ around 1,200.

The site was selected when Abound first applied for the guarantee in 2008. The company needed 800,000 to 1 million square feet close to its supply chain and transportation hubs and a qualified workforce, while the loan program requires an environmentally clean site.

“Tipton was the site that best met our needs,” Tiller said.

Long, slow process

After waiting for almost two years for a decision on its application, Abound isn’t going to receive the loan next week or probably even next month.

“The DOE is trying to make sure they are making a good investment,” Tiller said. “It was a little longer than we expected.”

The application process was very thorough, according to Tiller. The application itself was around 600 pages, and was followed by independent engineering reports and site visits. And the work isn’t over yet. The offer is conditional on Abound’s ability to meet many operational, legal and other terms and conditions.

“We have a lot of work over the next couple of months,” Tiller said, including raising another $50 million in private equity. “We have a very aggressive plan to grow and ramp up the company. This is just one more step in a long journey to building a top solar company.”

The loan guarantee program was envisioned as a step in building a strong new energy technology industry in the United States. However, it has been criticized for being slow to get the funding out to the market.

The loan guarantee program got off to a slow start after it was created in 2005. It wasn’t until 2007 that the program had guidelines and a director. Activity ramped up in 2008 when the DOE announced solicitations for two rounds of applications: $30.5 billion in guarantees for renewable energy and nuclear projects and $8 billion for clean coal technologies.

In March 2009 the first conditional commitment was finally made. The $353 million guarantee, finalized in September, went to Solyndra Inc. for construction of a commercial-scale manufacturing plant for its cylindrical solar photovoltaic panels. Since then, the DOE has offered 12 companies conditional guarantees.

Protecting resources

The delay has had less to do with funding than with other resources. DOE spokeswoman Ebony Meeks explained that the department doesn’t maintain a reserve fund to back a potential loss. In addition to the rigorous review process, risk is mediated by disbursing the loan in installments that carry certain conditions. If a loan goes into default, the DOE will be able to take over the project to protect its guarantee.

The guarantees also require a credit subsidy – like a down payment – that would be used to cover a portion of the loan in the event of a default. The American Recovery and Reinvestment Act appropriated about $4 billion to cover the credit subsidies. Though all of the current awardees, including Abound, applied before that appropriation was in place they will benefit from the funds.

With a goal of moving more loan guarantee applications through the system, the DOE ramped up its staffing – from 10 in early 2009 to 120 now – and late last year implemented the Financial Institution Partnership Program. The program eliminates a couple of steps by allowing companies to apply with a financial institution partner that will vet the loan.

Most of the companies that have applied so far have bypassed traditional lenders, instead tapping the Federal Financing Bank, which issues loans guaranteed by other federal agencies. In May, the most recent financial statement available, Solyndra tapped two loans – one for $22.39 million at an interest rate of 2.343 percent and $35.46 million at 2.42 percent.

Scale up for international market

Robert Stone, managing director and senior research analyst for Cowen and Co., feels that the program will be necessary to get U.S. companies up to speed in the international market.

“One of the elements to be competitive in solar these days is to reach a certain scale,” he said. “In an industry where the overall market is growing, in units, at high double-digit rates, to be an interesting competitor you must be at a certain scale and keep up with that growth rate.”

The industry is seeing rapid growth in the last few years, even in the midst of a global recession. Stone points out that there were 6 gigawatts installed in 2008 and 7.2 gigawatts in 2009, and estimates that 2010 will see installs of 11 to 12 gigawatts. Major players need to be able to fulfill large orders, which means more production capacity.

Scale, Stone said, will be the biggest determination of industry winners and losers, not technology. Big differentiators between solar platforms – such as price and efficiency – have become less of an issue as technology has advanced.

“While solar has been growing at a strong rate for a few years now, the cost has been coming down dramatically since late 2008,” he said.

The price of crystal silicon solar panels, which still account for about 80 percent of the market, is highly dependent on the cost of polysilicon. The cost of polysilicon peaked in 2008 at a spot price of $500 per kilogram and long-term, pre-paid contracts were at $100 per kilogram. Today, the spot and contract prices are within a dollar of each other at around $50 to $53 per kilogram.

At the same time, the relatively cheaper thin-film technology, like that used by Abound, has been making advances. Stone said decisions between technology will come down to the application and space available.

“They aren’t taking share from each other at this point,” he said. “I believe the range of applications and situations that give benefits to one over the other will remain.”

Even within technology platforms, there is enough work to go around, according to Stone. Abound’s thin-film panels are made using cadmium-telluride, the same as publicly traded First Solar, which led the industry last year in many categories, including shipments and market capacity. Stone feels that Abound stands to gain by following in the company’s footprints.

“It becomes easier to get people to give you a try (with an established technology),” he said, adding that the companies won’t necessarily compete. “For Abound to succeed, they don’t need to take anything away from First Solar.”

The only disadvantage Stone can see is that Abound has a long way to go to get to the manufacturing scale of First Solar. Of course, the loan guarantee helps to clear that hurdle.

“It seems like they have a pretty clever process,´ said Stone, who has made site visits to the Abound facility. If the company can scale up, Stone likes the company’s odds for success.