Why BrightSource ditched its solar IPO

Why did BrightSource Energy nix its IPO plan and did it so last minute on Wednesday night?
The solar power plant developer was supposed to go public on Thursday, so its decision to withdraw the IPO was surprising. The Oakland, Calif., company has been able to raised hundreds of millions of dollars in venture capital and succeeded in securing permits and raising a few more billions to build its first power plant, which is currently under construction in California’s Mojave Desert. In short, it’s succeeding at a time when many startups in the same space have faltered.
Here are some of our thoughts on why BrightSource’s IPO was a no go:
1. Solar stocks are risky: The solar business remains too small and the market too rough and tumble to assure investors that they won’t lose lots of money if they invest in solar. Many public solar companies have posted significant losses, scaled back production or filed for bankruptcies over the past year. Their share prices have tumbled – First Solar’s stock closed at $143.65 per share a year ago and at $22 Thursday. It doesn’t matter much that many of them are manufacturers and not power plant developers like BrightSource. Plus, government incentives have played a huge role in the growth of the solar market, and there is no assurance that the solar business will receive strong political support if Republicans — some of whom have been vocal critics of Solyndra and solar energy in general — gain control of the White House and win more seats in Congress.
2. Technology competition: Investors might be unsure about the cost of the type of technology used by BrightSource called concentrating solar thermal, which relies on mirrors to direct sunlight onto a water boiler or oil-filled tubes to produce steam. The steam then goes to a turbine to produce electricity. This type of technology has fallen out of favor among some project developers because it can be more expensive than photovoltaic technology, or the use of solar panels. Solar panel prices have fallen by more than 50 percent in the past year largely because production far outstripped supply. Plus, solar thermal power plants tend to require large tracks of land that are more easily found in remote regions with abundant wildlife. Several major environmental groups have taken to file lawsuits against solar projects proposed for land that they said would cause a significant threat to wildlife.
3. The natural gas effect: BrightSource pulled its IPO on the day when the futures price for natural gas fell to its lowest in a decade. Cheap natural gas has been an omnipresent threat to renewable energy development because it’s cheaper and more abundant and its proponents highlight its lower emissions than coal or oil. When Stuart Bernstein from Goldman Sachs spoke at the Cleantech Forum in San Francisco last month, he noted that cheap natural gas will cool interest in wind and solar stocks.
4. Setting the right price: The company had proposed to sell 6.9 million shares at $21-$23 per share. Were those prices too high? It’s no secret that solar stocks haven’t done well and cheap natural gas is on tap. Solar electronics maker Enphase Energy lowered its proposed price offering to $6-$7 per share from $10-$12 per share a few days before its finally priced its shares at $6 each to go public just two weeks ago.  As our GigaOm Pro analyst Adam Lesser points out, BrightSource didn’t do the same even though it most likely considered it. Perhaps the company didn’t think a lower price point would’ve drummed up that much more interest or it just didn’t want to offer them more cheaply.
5. Does BrightSource need the money? BrightSource was set to raise some $183 million if it had gone ahead with the IPO, but it might not need the money so urgently. The company was able to raise the roughly $2 billion from investors including NRG Energy and Google to build its first solar power plant, and it plans to complete the 392 MW project in California in 2013.  BrightSource has raised several hundred million dollars in venture capital, and it had over $200 million in cash as of the end of 2011, according to its regulatory filing. In his statement about the company’s decision to withdraw the IPO, CEO John Woolard said the company is “in a strong financial position and have the support of world-class investors and partners.”
Photo courtesy of John Hritz via Flickr