Lessons from Evergreen Solar

Evergreen Solar is not sustainable—that is the conclusion of the Massachusetts Economic Assistance Coordinating Council, the Commonwealth board charged with overseeing tax breaks to business that voted May19, 2011 to end the 20-year, $15 million property tax break and terminate the $7.5 million in state tax credits for Evergreen Solar Inc., two months after the company shut its manufacturing plant in Devens, Massachusetts built with state aid and eliminated 800 jobs. Adding insult to injury Evergreen borrowed money to build a new solar manufacturing plant in China.

None of this should have surprised the Commonwealth of Massachusetts. Evergreen Solar disclosed all of it in its 2009 Annual Report for all to see.

Evergreen must repay the current year’s tax break value of about $1.5 million out of the $4.5 million in tax breaks received to date. Massachusetts has yet to decide whether any of the $21 million in other grants the company received to date must also be repaid.

In that 2009 Annual Report Evergreen Solar reported:

“Although solar power can provide a cost-effective alternative for off-grid applications, we believe the principal challenge to widespread adoption of solar power for on-grid applications is reducing manufacturing costs so that the cost of installed solar panels is equal to or less than the cost of grid-generated electricity without impairing product reliability. This concept is known as reaching grid parity.” (page 14)

“Many of our existing and potential competitors have substantially greater financial, manufacturing and other resources than we currently do. Our competitors’ greater size and, in some cases, longer operating histories provide them with a competitive advantage with respect to manufacturing costs because of their economies of scale, production facilities located in low cost manufacturing regions and their ability to purchase raw materials at lower prices. For example, those of our competitors that also manufacture semiconductors may source both semiconductor grade silicon wafers and solar grade silicon wafers from the same supplier. As a result, such competitors may have stronger bargaining power with the supplier and have an advantage over us in pricing as well as securing silicon wafer supplies at times of shortages.” (page 19)

“We may need to raise significant additional capital in order to continue to grow our business and fund our operations, as planned, which may not be available on acceptable terms or at all.” (page 20)

“We must continue to invest significantly in research and development to support our unique wafer technology, and these efforts may not result in continued and necessary improvement in our technology.” (page 20)

“The success of our business depends on the continuing contributions of our key personnel and our ability to attract and retain new qualified employees, especially in China.” (page 24)

Evergreen Solar thus described its risk position as being unable to assure investors that its business will generate sufficient cash flows from operations, or that future borrowings will be available in amounts sufficient and on terms reasonable to support liquidity needs. If Evergreen is ever unable to generate sufficient cash flow to service debt obligations, it may need to refinance or restructure debt, including senior convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. It may incur additional indebtedness. If it does so, increased debt service requirements may adversely affect the ability to meet payment obligations on currently outstanding senior convertible notes and otherwise successfully grow and operate the business.