Sources, documents suggest government-subsidized Abound Solar was selling faulty product

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Michael Bastasch DCNF Managing Editor
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Seven months after calling themselves the “anti-Solyndra,” the Colorado-based solar panel manufacturer Abound Solar announced it was filing for chapter 7 bankruptcy liquidation, arguing that cheap Chinese solar panels flooding the market caused their demise.

“With over $30 billion in reported government subsidies, Chinese panel makers were able to sell below cost and put Abound out of business before we were big enough to pose a real competitive threat to China’s rapidly growing market share,” according to the prepared congressional testimony by Craig Witsoe, former CEO of Abound.

Abound Solar was given a $400 million loan guarantee by the Energy Department, and drew on about $70 million dollars of the guarantee before DOE cut them off in September 2011 — the same month the Solyndra scandal began.

After the massive failure of the solar panel manufacturer Solyndra, Energy Department loan guarantees came under increased media and congressional scrutiny. Other loan recipients felt the public pressure as well.

Internal documentation and testimony from sources within Abound show that the company was selling a faulty, underperforming product, and may have mislead lenders at one point in order to keep itself afloat.

“Our solar modules worked as long as you didn’t put them in the sun,” an internal source told The Daily Caller News Foundation.

The company knew its panels were faulty prior to obtaining taxpayer dollars, according to sources, but kept pushing product out the door in order to meet Department of Energy goals required for their $400 million loan guarantee.

“The DOE hurt us more than anything,” another source told The DC News Foundation, speaking of DOE production and revenue metrics.

The faulty solar panels would routinely burn up and virtually all of the panels Abound manufactured underperformed, meaning they did not put out the promised amount of power. Sources say that Abound panels would only put out between 80 and 85 percent of the promised wattage.

These problems led to tens of thousands of panels having to be replaced, especially towards the end of the company’s life.

Burning up and underperforming

In October of 2010, the company discovered that their panels were catching fire. One source said that this problem was brought to the company’s attention during a meeting in October 2010 with some company executives present and the suggestion was made to shut down the factory in order to address the problem.

“Our lead quality engineer… blew the whistle in a manager’s monthly review meeting, and he was basically told to shut up and sit down,” said another source.

One part of the solar panel called the buss bar, a piece of mechanical tape that conducts electricity, did not have the proper adhesion properties which caused it to crack out in the field, causing the panels to catch fire.

“That went on for three years,” another source familiar with the buss bars said. “That should have been everybody, hands on deck, fix this problem, but it wasn’t handled that way.”

A video obtained by The DC News Foundation shows a solar panel catching fire, which multiple sources identified as being one of Abound’s panels. In fact, the video was taken by one of Abound’s customers.

“Through the second half of 2010 what we realized was ‘oh shit, we have two problems’” that same source said. “What we were realizing is that the buss bar was failing and we were getting major underperformance in the field.”

The burning buss bar problem was apparently fixed in later models, but underperformance in the field still persisted as it did with earlier models.

Once panels were put in the field, they began to seriously underperform because the panels were “juiced” with copper. Copper makes the panels test better at the end of the production line, but perform worse in the fields.

“At room temperature, in a non-interrupted environment, the module ran at 80 watts,” said one source, referring to fact that the panels tested well.

“From the day we closed down we still didn’t know how to make a good module. But the one thing they did know was the more copper you put in it, the better it performed in the factory and the worse it performed out in the field,” another source added.

Copper moves when it’s heated and causes damage to the panel and underperformance. One source noted that copper had to be put into the solar modules, according to a source, but too much copper would hurt the panels performance.

One source noted that DOE had contractors monitoring production in Abounds facilities, and another source said DOE never went beyond that to do field testing, where all the problems were occurring, so it’s unclear to what extent they knew about this problem.

However, this behavior didn’t change even after the loan guarantee had been closed. The DOE revenue metrics and production goals were still in place and Abound kept pushing bad product out the door.

The company couldn’t afford to replace the panels, according to one source, because they needed to push all their panels out the door to meet revenue requirements.

Too many bad panels

In May, an internal Abound email was published revealing that back in November 2010, Abound sent an engineering technician to remove an entire rooftop of defective solar panels from the headquarters of Democratic benefactor Pat Stryker of Bohemian Companies, an early investor that got Abound about $300 million in start-up capital.

This, however, was just the tip of the iceberg as internal Abound documents obtained by The DC News Foundation show tens of thousands of solar panel replacement approvals for 2012, many of these panels were installed in 2011 or earlier.

One replacement approval from April  2012 was for BP Solar in California to replace 14,700 of the 15,000 solar modules sold to BP at an estimated cost of more than $1 million.

In another case, two replacements of 18,150 solar modules for GP Joule PV Gmbh — out of more than 57,000 sold to the company — were signed in March for a project in Germany.

Another German customer, Wirsol Solar AG, had replacement approvals signed in April to replace 18,350 solar modules out of about 34,000 sold to the company.

Their customers in India were not faring much better, as an approval was signed in February 2012 for Vivaswan Technologies to replace 7600 modules at a cost of about $465,000. Another replacement of 25,050 panels for Vivaswan was signed in April with an estimated cost of $1.3 million, citing a “catastrophic buss bar failure and “degraded” performance.

Another Indian customer, Punj Lloyd had an approval signed in February 2012 to replace 7,800 solar modules, and another one in April to replace 22,650 modules, and both times Punj cited catastrophic buss bar failure and degraded performance.

More documents show that Abound also had high expected failure rates. For example, solar modules in India using a Chomerics-made buss bar had a predictive failure rate as high as 55 percent in five years. For European customers using panels with a buss bar built by 3M, the expected failure rate was nearly as high as 77 percent in five years.

Furthermore, when it comes to known failures, internal Abound documents show more than 38,000 solar module replacements in the first quarter of 2012 alone. The second quarter saw 53,500 replacements, and the third saw 45,300.

Because Abound filed for bankruptcy before the conclusion of 2012, the total known and estimated failures for the whole year was put at 156,983.

Abound only sold 620,106 solar modules, and one source said that “the first million panels built” by Abound were bound to fail.

In total, one Abound financial spreadsheet shows that Abound had an estimated $45 million in total warranty obligations over 25 years, which is how long the warranty on their panels lasted for.

Misleading finances

As December 2010 drew near, it became apparent that the cash strapped company may not make it to sign the DOE agreement because “virtually all sales had been stopped or cancelled,” according to one internal source.

“Q2 2010 was a huge sales month but in October 2010 the proverbial shit hit the fan and customer complaints and internal testing came back to show that all product should be recalled if not simply replaced with working product,” one source wrote in an email.

They obtained a bridge loan from Silicon Valley Bank to keep them on their feet until the DOE loan closed. As collateral for the bridge loan they put up their accounts receivable from sales as well as their inventory.

Except that the accounts receivable were fake, according to a source, as they were cancelled orders that were not reversed on the company’s books, making it look like revenue was still flowing into the company when it wasn’t.

“We collateralized the loan with fake [accounts receivable] (the customer had canceled the order so the revenue should have be reversed but we kept it on the books for the banks benefits),” wrote one source in an email to the DC News Foundation.

“In my professional opinion I think that was fraud because there was no accounts receivable, it was a cancelled sale,” that same source later told the DC News Foundation in an interview.

Abound got the bridge loan from the bank, closed the loan guarantee with the DOE in December of 2010, and after the DOE loan guarantee went through the company fixed its books and prepared for an initial public offering.

“I was like holy shit. I can’t believe they did that,” said the source.

The End

Sales became harder and harder to come by as dissatisfied customers refused to buy from them because of their underperforming panels. In fact, one source noted that the reason they moved into the Indian market in 2011 was because virtually no one would do business with them in Europe.

“By 2011 we all saw the writing on the wall,” said one source,

“They did keep the money flowing as long as we provided records until Sep. 2011 and the Solyndra scandal hit,” according to the source’s email. “At that point we were just off on a Davis-Bacon infraction as well as we didn’t hit our ‘production metrics.’”

By 2012, Abound’s burn rate — the rate at which the company spent its operating capital — was $2 million per week. This was confirmed by a source and one source noted that it had gone up previously from $1 million per week

Earlier in 2012, Abound announced it was cutting 280 permanent and part-time jobs to retool its factory and introduce a new second generation solar module which could deliver 85 watts. However, one source also noted that this panel still performed badly.

In March of this year, an internal Abound email was published detailing that the company had shut down production with no advance warning in December and January.

On June 28 2012, Abound sought bankruptcy protection which impacted approximately 125 employees. In its bankruptcy filings, Abound listed assets of $136.1 million and liabilities of $82 million, including $70.9 million of liabilities owed to the DOE.

Chinese competition did hurt the company’s success, but that only added to Abound’s existing problems with their panels, according to sources. One source specifically said it was DOE metrics that caused Abound to keep producing and selling bad product.

“The DOE hurt us more than anything,” the source said, adding that had the DOE loan not been an issue, they could have turned the company around.

“In my opinion Abound and the DOE put so much effort into meeting the metrics they paid no attention to the lack of quality,” said another source.

“The other issues I take are the small Northern Colorado Vendors that were left high and dry by the bankruptcy and well as all the customers that were promised to be made whole but never were,” the source added.

Todd Shepherd contributed to this report.

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