Selling the Sun

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In 1975, when Shah was just a year old, his father, Hasmukh, a physician, moved the family from Gujarat, in India, to Chicago. Seven years later they moved again, 100 miles west to Sterling, Illinois, a whistle-stop on the Rock River. Shah discovered solar when he was 16. "I read a book, though I can't remember what it was called because I'm not a pack rat and probably got rid of it as soon as I finished it," he says. "But for some reason, I got solar stuck in my head, and it just stayed there." In high school he queried his teachers, wondering what he should study in college that would help him to get into the solar business. They were clueless. Shah visited the University of Illinois at Urbana-Champaign for an informational interview. An adviser there suggested mechanical engineering. "I wasn't really an engineer by personality," he confesses. But at the time solar was a technology, not a viable business, so Shah attended the university and earned an engineering degree. 

Shah took his first solar job, a summer internship between his junior and senior years, at AstroPower in Newark, Delaware. The company designed photovoltaic panels and made several key advances in the production of low-cost, silicon solar cells. (AstroPower filed for bankruptcy in 2004 and was acquired by General Electric.) Even then, in 1995, Shah was contemplating how to reinvent the solar industry. "When I was at AstroPower, I recognized that individuals couldn't come up with the money to install solar. It was clear everyone wanted it, but nobody wanted to pay for 20 years of electricity up front," he says. Shah also did a stint at a wind power company and faced the same problem. "I would get calls from farmers wanting to put up wind turbines in their fields, but when I told them it was $100,000, they lost interest."

It wasn't until he enrolled in an MBA program at the University of Maryland in College Park that academics engaged Shah meaningfully. "I'm a business guy at heart," he says. Shah wrote the plan for SunEdison while in graduate school, as part of a entrepreneurship class. "When my professor gave me an A, I thought maybe I had a pretty good idea. But the dot-com boom was going on, and people didn't want to invest in solar. It was much easier to give someone a couple hundred thousand dollars to put up a Web site," Shah says. He shelved the concept and, shortly before graduating, joined BP Solar as an analyst. "I pitched my idea to BP a couple of times, but they didn't have much interest either." In September 2003, tired of waiting, Shah, who had been put in charge of BP's commercial sales in North America, left the company. He took out a $93,000 line of credit on his home and embarked on a journey that would transform the solar industry. 

SunEdison began inking deals almost immediately. By the end of the year Shah had already locked in PPAs with Whole Foods and Ikea, and Staples signed on the dotted line in early 2004. Lining up customers was the easy part. "We quickly got into a situation where we had all these customers but needed to find financing," Shah says. He started pitching anyone he thought might be willing to gamble a few million dollars on his solar dream, including investment banks like Goldman Sachs, which was already financing similar deals to build wind farms. 

Shah felt that investors should give him money at a lower interest rate because solar was considerably less risky than other energy projects. In meetings, he evoked the teachings of the late Shimon Awerbuch, a renowned economist whose forte was energy markets. "Awerbuch often asked why investments in renewable energy projects were expected to get the exact same rate of return as natural gas and coal, when gas and coal are more risky," Shah says. Solar is much lower risk, his argument goes, because once you pay for the equipment, the sun is free and maintenance is low. A coal-fired power plant spends 20 percent of its life span off-line, undergoing repairs. For solar, that figure is less than 1 percent. "The amount of sun that hits a specific spot on earth varies by only 4 percent each year. It's very stable, very secure," Shah points out. The same can't be said for other sources of power. Not only do you need mountains of cash to design, build, operate, and maintain power plants that run on fossil fuels or nuclear fission, but you also need the fuel itself. Coal will last about 300 years. Oil might make it another century. Natural gas could squeak by until 2080, right around the time that uranium ore becomes impossible to mine using today's methods of extraction. The best ballpark estimate has the sun burning hot for another five billion years.

"I went to a bunch of investors and explained all this to them, and they laughed at me. They didn't care what Awerbuch said," Shah recalls. They just wanted the same rate of return they were getting on their other energy projects. This confounded him. But solar PPAs were a nascent, unproven concept, and most lenders couldn't care less about advancing the technology. For them, this was about securing profits, not saving the world.

Shah zealously pursued Goldman Sachs. "They said to me, 'Okay, we get your thesis, but we still want our standard rate of return,'" he says. Left with no alternative, Shah found a way to make it work. He structured his agreements to make the investors the legal owners of the solar panels, which SunEdison would acquire, install, and maintain on their behalf. This qualified investors for solar rebates and federal tax credits that, when combined with the income guaranteed under the PPAs SunEdison signed with its customers, added up to a package that met Goldman Sachs's financial demands. In June 2005 the bank gave Shah $60 million. Soon afterward he secured funding from HSH Nordbank, the Bank of Hawaii, and Wells Fargo, and then another $26 million from Goldman Sachs in 2006. 

Now that SunEdison is starting to look more like a utility company than a scrappy start-up, Shah is moving on. Shortly before we met in Washington, D.C., he decided to part ways with the company he founded.

"Ultimately the institutionalization of the business, while he knew it was necessary, narrowed his role and led to his leaving," explains Mark Cirilli of MissionPoint Capital, whose firm remains invested in SunEdison. "Jigar is a very talented, visionary entrepreneur, and typical of most business starters, he was happier in start-up mode than in growth mode."

Shah tells a similar story. "My own strength is building something new and innovative and solving problems that people think are unsolvable or intractable," he says. "SunEdison doesn't have those problems, and the adrenaline rush is gone because I accomplished what I wanted to do." Shah remains a major shareholder in SunEdison, though he wants me to know, "I didn't start SunEdison to become wealthy; I started it because I wanted solar to be successful." As for what's next, Shah's not telling. "At the advice of my wife," he says, "I'm taking a few months off just to do house husband things." 

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