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Indian projects face a high risk of losing module warranties: Abound Solar bankruptcy

Indian projects face a high risk of losing module warranties: Abound Solar bankruptcy

Mr. Jasmeet Khurana covers projects and financing as a consultant in the Market Intelligence team at BRIDGE TO INDIA. 

The bankruptcy announcement by Abound Solar has highlighted the risk of projects losing their module warranties as module manufacturers across the world fail. Two projects in India are using Abound Solar modules and they will have to face the liability if the technology does not perform as expected till the year 2036. As more manufacturers are expected to fail, a large number of projects in India may find themselves without warranties.

  • Abound Solar has decided to file bankruptcy and has blamed aggressive pricing actions from Chinese solar panel companies for its failure
  • As there is no track record for new technologies like CdTe, company accruals for warrantee claims on modules are based on guessing the cost of repair and replacement in 25 years
  • The continuously falling costs of c-Si puts the pressure on the financial health of thin film manufacturers and may cause some more to fail
  • Failing companies will leave projects with warranties that will not be honored in the future

On June 28th 2012, US based manufacturer of thin film cadmium telluride (CdTe) PV modules, Abound Solar, announced that the company intends to file a petition for protection under the U.S. Bankruptcy Code this week. According to the company, aggressive pricing actions from Chinese solar panel companies have made it very difficult for a startup company like Abound to scale in current market conditions.  In the past year, many companies like Solyndra and Evergreen Solar have failed. Most solar manufacturers are in a bad financial condition and more consolidation in the market is expected.

Most module suppliers have a 25 year power output guarantee. This guarantee and its terms are an important part of the purchase criteria for a project developer. Manufacturers set aside an adequate portion of their premiums at the time of sale in a reserve fund as accruals to service all claims arising out of these guarantees. CdTe is a new technology and its performance has not been proven over long periods of time. At the moment, company accruals for such modules are based on guessing the cost of repair and replacement in 25 years, and the frequency of such claims. As an example, another CdTe manufacturer, First Solar, had more than anticipated warranty expenses in 2010-11. Their claims reached levels as high a 1% and they announced an increase in their accruals to meet more future claims. There are very few solar manufacturers that actually insure their product warranties. Only a couple of companies like Canadian Solar and Suntech are known to have a warranty insurance mechanism in place.

A company writing 25 year warranties should have a 25 year reserve. Realistically, as Abound is a new company, their accruals will most likely not be able to meet future claims. In India, Abound has sold modules to Punj Lloyd for their 5MW project in Rajasthan and to Solarsis for their 2MW project in Andhra Pradesh. Modules also have higher claim rates in hot climatic conditions like India. This increases the financial liability of these projects. They will most likely receive pennies on the dollar for any claims that they might have and face full liability if the technology fails to perform during the long lifetime of the project. This makes the bankability of the module supplier an important part of all purchase conditions as most manufacturers have a bad financial health and many of them will exit the market in the coming months and years.

In India, 55% of all installed capacity is thin film. From a price perspective, thin film technologies like CdTe and CIGS enjoyed a cost advantage over c-Si modules in the past. In the last two years, the cost of c-Si modules has plummeted and the cost advantage enjoyed by less efficient thin film modules has diminished. According to the US Department of Energy, China offered more than $30 billion in government backed loans to its solar manufacturing companies in 2010 alone. We know that, most of the solar manufacturing in China is c-Si based. This gives c-Si an advantage in terms of scale and decrease in price over thin film as a technology. The new found cost advantage of c-Si, in turn, puts the pressure on the financial health of thin film manufacturers. If thin film suppliers find it difficult to compete and continue to fail, a large part of the installed capacity in India will find itself without warranties and guarantees on their modules.

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