Heat of financial crisis too much for solar company

MATHEW MURPHY AND ADAM MORTON September 9, 2009

A RETREAT towards safer investments prompted by the global financial crisis, bigger solar companies undercutting on price, and rising costs combined in ''a perfect storm'' to bring Solar Systems unstuck.

The company that was to build the world's largest solar power station near Mildura went into voluntary administration on Monday, putting 150 jobs at risk and leading to doubt over the viability of solar projects. Despite having the support and $125 million from the Victorian and federal governments as well as a cornerstone investor in Hong Kong energy giant China Light & Power, Solar Systems could not raise the extra $50 million to $100 million needed to keep it afloat.

Its administrator, Stephen Longley of PricewaterhouseCoopers, said Solar Systems had ''fallen between the cracks'' of asking for more funding than venture capitalists would normally contribute and scaring private equity firms away because of the risks of funding a start-up company.

Mr Longley said Solar Systems had spent about $150 million over 15 years working towards developing the 154-megawatt solar power station, including a demonstration plant at Bridgewater in central Victoria.

The plant was to use concentrated photovoltaic solar power to generate electricity to feed into the national grid.

An announcement is expected on Friday on the future of the company's 150 staff. Mr Longley said up to 100 jobs could be lost. Sources close to the project said the technology was not the problem, but rather frozen capital markets and cost pressures.

''A lot of the project financing has retreated to established technologies. I think it was struggling to be cost competitive with some of the bigger players in the market like the Japanese solar companies. The rising capital costs also combined to produce a perfect storm that Solar Systems was unable to weather,'' one source said.

The Victorian Premier, John Brumby, blamed the collapse on the financial crisis, but backed the technology and said the plant could be picked up by another company.

PricewaterhouseCoopers will spend the next three months searching for a buyer.

The chief executive of the Clean Energy Council, Matthew Warren, said governments needed to change the rules to make it easier for investors to back unproven technologies that would not yield a return for five or 10 years.