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Tuesday, July 06, 2010
State Loses Bet on Advent Solar
By Michael Hartranft
Copyright © 2010 Albuquerque Journal Journal Staff Writer
Did New Mexico invest millions of state dollars in a solar start-up that in turn bought manufacturing equipment that ended up in China?
The former president of Advent Solar — once touted as a success story by the state and city — says that's what happened to the equipment after Advent fell on hard times and its assets were acquired by a California company.
Rusty Schmit said in an op-ed piece published in the Journal in March that the technology was developed at Sandia National Labs with taxpayer money, then commercialized in Albuquerque.
But Schmit, who did not return calls seeking comment for this story, wrote that when Advent was acquired by another company its equipment "was packed up and shipped to China."
The company that acquired Advent Solar's assets and intellectual property, Applied Materials, will only say the equipment was placed at the company's "appropriate global facility."
In addition to questions about exactly where the equipment from Albuquerque went after Advent shut down, it's uncertain what the state will recover from its near $17 million investment in the company. State officials have previously said the money was lost.
"That was an equity investment and, obviously, when you have an equity investment you don't get your money back ...," said Fred Mondragon, the state's Economic Development secretary, said in a recent interview. "It was not a loan. It was not an investment in facilities."
But Brian Birk, managing partner for Sun Mountain Capital which manages the state's NMSIC Co-Investment Fund, said the state and other investors will get some money back. How much is unclear.
"There's really no chance the state will get 100 cents on the dollar back, but it will have some recovery because this was an acquisition as opposed to the company going out of business," he said.
Mondragon, in a later interview, said he deferred to Birk's explanation.
The state also spent more than $750,000 in employee training funds it won't recover.
The equipment, when it was originally purchased, had a value of $25 million, said Deirdre Firth, who manages the City of Albuquerque's Economic Development Division.
Applied Materials of Sunnyvale, Calif., announced last November that it had acquired substantially all of Advent's assets and intellectual properties for an undisclosed price. Advent ceased to exist.
In an e-mail response to Journal questions, Applied Materials said Advent assets were transferred to the "appropriate Applied global facility" and that a number of Advent employees joined its company, including James Gee, one of Advent's founders.
The company said Gee was unavailable to be interviewed about Advent.
New Mexico announced Advent's arrival and opening with great fanfare.
In November of 2005, Advent announced it would be the first corporate tenant at Mesa del Sol.
The company had other suitors and Schmit, who left Advent in March 2008 and is now president of a solar design and installation company, attributed the decision to locate in New Mexico to the incentives offered by the state and the city.
The potential was tantalizing. Advent had expectations of employing 1,000 people by 2010 and reported it had raised $30 million in venture capital from numerous sources, including Battery Ventures, FireLake Capital Partners, EnerTech Capital Partners and the state.
With the city about to approve a $25 million industrial revenue bond, Advent broke ground on its new plant — an 87,000-square-foot building owned by Forest City Covington — in January 2006.
"This is a momentous day for Albuquerque, Bernalillo County and for the state of New Mexico," Lt. Gov. Diane Denish said at a ceremony that day attended by more than 100 dignitaries, business leaders, scientists and community leaders.
Thirteen months later, Advent celebrated a grand opening at the new factory, cranking up its first high-tech assembly line and running four shifts 24-7 with 162 employees. With the work force approaching 200 in June 2007, the company announced it had raised $70 million in investments, bringing its total capitalization to $110 million.
The city of Albuquerque made no direct investment in Advent but approved a $25 million industrial revenue bond issue for equipping the plant.
After an optimistic start in February 2007 at its brand-new plant at Mesa del Sol, the solar manufacturer's nearly 200-member work force had been whittled to less than 40 by early 2009.
In September of 2007, the company announced it would idle the production line for modifications and upgrades to make a new, larger solar cell, which would require a temporary layoff. The layoffs affected 27 workers that month. It was a decline that never stopped.
• In March 2008, the company announced it would have to lay off another 68 employees, conceding the transition to the larger solar cells was taking longer than expected.
• In January 2009, Advent laid off 55 more people, saying it was unable to raise the money needed to move into commercial-scale production. It said it had been seeking capital to acquire manufacturing equipment since the previous summer.
"But very early in September, the credit crisis was upon us and it just got worse," Advent chief financial officer Richard Trueblood said at the time. The reduction left the company with 39 employees.
• In November 2009, Applied Material announced its acquisition and Advent Solar was no more. Last month, two solar research and testing companies were introduced as new tenants in the building that once housed Advent.
While Applied Materials would not reveal the acquisition price, solar industry analysts said it very likely got a bargain on the innovative module production technology developed by Advent and the equipment it used to manufacture solar panels.
Undeniably, Advent's misfortune paralleled the nation's financial crisis — but it also fell victim to a development in the solar market that hit the industry particularly hard.
Founded in 2002, Advent received $8 million in venture capital in December 2004 and began pilot production in June 2005 of solar cells using a patented technology licensed from Sandia National Laboratories. Unlike conventional solar cells, Advent's products had all their electrical contacts on the back of each wafer, reportedly allowing for absorption of more sunlight and greater efficiency than previous photovoltaic systems. The company also said it had a simpler, less costly way to produce them.
Among its top suitors was the state of Texas, which "was putting millions of dollars on the table" to lure Advent, Firth said.
State and city officials in New Mexico, however, responded with their own deal sweeteners, including $4.5 million sunk into the venture by the State Investment Council. The state's investment eventually swelled in two subsequent rounds to about $17 million.
The city and state also contributed funds to the University extension and Rio Bravo intersection projects, improving access to Mesa del Sol.
Clawing back a bit
The $25 million industrial revenue bond issue by the city didn't expose the city to liability if the venture failed, but it exempted the company from property taxes and sales taxes on the equipment purchases.
The city and Advent eventually negotiated a settlement that resulted in a $900,000 clawback payment, half of what the city was entitled to collect.
"We deducted from that the attorney's fees for our attorney's expenses and, in addition, we required that they make good or pay any outstanding invoices they might have to any local contractors or businesses," Firth said.
Firth said the negotiated settlement was a better option for the city than waiting for the company to possibly file for bankruptcy.
"If a company files for bankruptcy, the city is considered an unsecured creditor and generally will receive no payment," she said.
Firth doesn't have doubts about the efforts to land Advent and suggests those trying to get the company would do the same thing again under the same circumstances — including a still-robust economy at the time and the fact that others were chasing Advent.
"I know there have been some who have criticized the deal," she said. "I think it was a reasonable risk to take. I don't think anyone could have predicted the change in the financial market that came about."
Supply and demand
But Johanna Schmidtke, a Lux Research analyst familiar with Advent, says the financial crisis wasn't Advent's only problem.
"In solar, you had the added problem that the number of modules available on the market suddenly surged past the amount of demand that existed on the market," she said. "Part of that was the financial crisis, but part of it was the fundamental build-out that took some time. It takes a year or two to build their facilities and when polysilicon prices were really high in late 2006, early 2007, you had high prices for modules, high prices for cells, and everybody got very excited and threw money into building facilities.
"Come a year or two later, at the end of 2008, early 2009, all the facilities came on line, but it far exceeded what was needed on the market. Then you bring in the financial crisis and it was a horrible, horrible two or three quarters for everyone. That was the time period they (Advent) were trying to raise money."
Lux Research, the company Schmidtke works for, offers market intelligence services in the solar industry.
Charles Wollmann, State Investment Council spokesman, said only a small part of the state's permanent fund is invested in private equity in New Mexico, which was legislatively authorized to boost the economy and create a core industry.
"What you try to do is build a portfolio with as many quality companies as you can," he said.
"There are some success stories in that portfolio, then obviously there are Eclipse and Advent," he said, the former being the airplane maker that went into bankruptcy.
"There are some high-profile places where things did not go as expected."