By Raphael Minder, The New York Times, March 17, 2016
|Recent Abengoa SA stock price. Chart: CNBC|
Announcing government support for clean-energy projects, President Obama hailed a Spanish company, saying its new solar technology would supply tens of thousands of American homes with renewable power, while spurring local employment.
“It’s good news,” Mr. Obama said in 2010, “that we’ve attracted a company to our shores to build a plant and create jobs right here in America.”
Since then, the Spanish company, Abengoa, has built two American plants, in Arizona and California, supplying electricity to more than 160,000 homes. It is the world leader in a technology known as solar thermal, with operations from Algeria to Latin America.
But Abengoa’s global ambitions are now the source of its troubles.
Saddled with debt from its expansion, the company is scrambling to avoid what would be the largest bankruptcy in Spanish corporate history. Creditors and shareholders are taking the company to court as losses mount and crucial financial support disappears.
The company’s changing fortunes, from industry darling to financial invalid, are an extreme example of the challenges facing players in the renewable energy business.
Clean-energy technologies will play a crucial role as countries try to meet the ambitious targets set by the United Nations climate accord last December. But many of the technologies underpinning renewables are proving economically unsustainable in the short term, particularly with oil prices declining and governments reducing incentives.
The financial reality is forcing companies globally to adjust. A big British utility, SSE, is rethinking its wind farms, as the country cuts subsidies. SolarCity and other American renewable companies left Nevada after the state withdrew its support of rooftop systems.
In Abengoa’s case, its signature American projects still have around $2 billion in outstanding loans guaranteed by the United States government, and the company benefited heavily from subsidies in Spain. But its solar thermal projects have been slow to turn a profit and generate little income in the interim, amplifying its cash squeeze.
Its fall from grace, said Valeriano Ruiz Hernández, a retired professor at Seville University who taught many of the company’s engineers, is “a genuine hammer blow” for Spain and its renewable energy sector.
“I always had the intuition that so much corporate ambition would end up bursting at the seams,” he said.
Founded by two engineers in Seville in 1941, Abengoa initially set out to manufacture a type of electricity meter. Though the meter never gained traction, the company began installing auxiliary panels for power stations and electrical systems for buildings.
By the 1960s, it began expanding overseas to Central and South America, with projects like erecting transmission lines in Argentina. It made its first foray into renewables in the 1980s.
In 2007, the company established the world’s first commercial solar thermal power plant in Sanlúcar la Mayor. On the outskirts of Seville, a handful of towers dominate the farming landscape, rising above sunflower and cattle fields like modern obelisks to solar energy.
In a solar thermal power plant, mirrors reflect the sun’s rays toward the top of each tower, concentrating the light and generating high enough temperatures to heat up a transfer fluid. That heat creates steam to power a turbine, generating electricity.
Abengoa now accounts for more than a quarter of the five gigawatts produced worldwide by solar thermal plants. Unlike conventional solar power, the thermal technology allows energy to be stored, meaning the turbines can generate power for hours after the sun sets.
The same year the Sanlúcar plant opened, Abengoa’s stock price hit a record high of 7.39 euros a share. By November, when it began insolvency proceedings, it had fallen below 40 euro cents. It now sits at 71 euro cents.
Since then, Abengoa has been looking for a lifeline to restructure its $10.3 billion of debt.
Spanish law gives the company four months to right the ship. And last week, Abengoa said it had reached an agreement with creditors, a deal that requires final approval.
As part of the restructuring, Abengoa’s global activities — from transmission lines across the Amazon, to water desalination plants in Algeria and Ghana — could all be up for grabs.
“My expectation is that a lot of Spanish know-how will end up in foreign hands,” said Javier García Breva, a renewable energy expert who is president of N2E, a consultancy.
For now, Abengoa says the deal will not affect its operations in the United States, where the company holds a 42 percent stake in Atlantica Yield, which runs two solar thermal plants in Gila Bend, Ariz., and near Barstow, Calif.
The plants, known as Solana and Mojave, have drawn criticism for years over the American government’s backing.
The projects were partly financed by $605 million in federal grants and tax credits, according to Good Jobs First, a research center that tracks public subsidies. Abengoa also received a combined $2.9 billion in loan guarantees from the United States.
“The whole reason Abengoa Solar had to get the guarantee from the government is that no private lender thought the risk was worth it,” the Institute of Energy Research, a prominent renewables critic that has received financing from the oil industry, said in 2011.
Abengoa says that nearly $1 billion of the federally guaranteed loans has been repaid. American taxpayers, it says, will incur no costs for the projects as long as they continue operating normally.
Abengoa’s problems extend from the balance sheet to the courtroom.
It is facing lawsuits in the United States and Spain from shareholders and creditors. The suits make a variety of claims, with one accusing the company of misleading investors about downplaying its capital needs and another accusing individual executives of acting against investor interests.
An Abengoa spokeswoman said the company would not comment on the cases.
At home, crucial revenue supports that Abengoa and other clean-power producers relied on have been removed.
Looking to cut its debt load, Spain slashed subsidies for renewables. In particular, companies that signed long-term deals to sell green power to customers at guaranteed rates saw those prices cut. The move, which applies retroactively to the summer of 2013, has prompted legal action from international investors who say it is a breach of their contracts.
The multitude of problems is amplifying the pain for Abengoa, which lost $1.3 billion last year. In February, its employees were paid late and, as part of the negotiations with creditors, it asked for more time to repay one of its bonds.
The ripple effects are being felt beyond the company.
A short drive away from Sanlúcar, a research and business park was meant to feed off Abengoa’s presence. Regional authorities originally set aside $22.4 million to develop the area as a hub for clean technology and environmentally focused companies. But three years after opening, only $3.6 million has been spent on it, and it has failed to attract other companies.
Abengoa’s problems have also cast a pall on Spain’s renewables sector. Industry groups, fearful of a withdrawal of government support, are on the defense.
“The problem of Abengoa is not the failure of a sector, far from it,” said Luis Crespo, the president of Estela, the European solar thermal electricity association. “We really hope policy makers don’t start mixing up cost and value.”