Solyndra Bankruptcy Raises Questions About Federal Loan Guarantees
High risk was essentially the nature of the ill-fated Solyndra investment from its conception, but it's really only now--after what could potentially amount to a scandal for either the bankrupt solar company, the Obama administration, or both--that the risks taken by the Department of Energy's Loan Guarantee Program are coming to the forefront.
Solyndra, a solar manufacturing company based in Fremont, Calif. that specializes in producing a new type of cylindrical solar photovoltaic panels, was the Obama administration's clean-energy poster child back in September 2009 when it finalized a loan guarantee deal with the Energy Department. Early this month, however, after receiving $527 million in federal funds over two years, the company filed for bankruptcy.
[Read about how Obama abandoned clean energy in his recent jobs speech.]
With the half billion in taxpayer dollars loaned to Solyndra mostly likely lost for good, Americans now have to ask themselves whether the loan guarantee program is worth the gamble, and whether they should trust the administration with managing the risks involved.
Democrats have been quick to point out that it was the Republican Bush administration that set the loan guarantee program in motion and first began to process Solyndra's application; it was the Obama administration, however, that ultimately moved forward on Solyndra's loan guarantee with money set aside by the American Recovery and Reinvestment Act, better known as the 2009 stimulus. According to the Energy Department, more than two years of due diligence were completed before the loan guarantees were first offered conditionally in March 2009, and then finally closed later that year. At the time, Solyndra's new rolled-tube technology seemed like it had potential. Though it was more expensive to deploy than other more traditional solar panels already in the market, it didn't have to account for the price of polysilicon--which was fairly high at the time--and it was also much cheaper and easier for consumers to install.
However, after the deal was signed, the global solar market changed unexpectedly, significantly changing Solyndra's business prospects. A large influx of Chinese state loans to domestic silicon producers and a decline in demand in the European market drove down the price of polysilicon and it continues to fall--as much as 42 percent just since the beginning of 2011, according to the DOE. Though this benefited consumers, Solyndra lost its competitive advantage with other solar manufacturers around the world, something that even a new facility built with the money backed by the loan guarantees couldn't overcome.
According to the head of the Department of Energy's Loan Programs Office, Jonathan Silver, who testified before members of Congress Wednesday, these changes came as a surprise. After all, the department wasn't the only one to bet on Solyndra. Private investors also dumped hundreds of millions of dollars into Solyndra's new manufacturing facility, and the company had been hyped by other credible sources, like the Massachusetts Institute of Technology's Technology Review and the Wall Street Journal. "Silicon just went way, way down and it became less of a compelling technology because of the price of silicon just changing completely," said Kate Gordon, vice president for energy policy at the Democratic-leaning Center for American Progress. "That's the piece that nobody could have really predicted, neither the DOE or all the private investors who put their money in this project."
Also, compared with other DOE loan guarantee projects, the very nature of Solyndra's project might have made it a greater risk for taxpayers. Unlike the majority of the solar projects in the department's portfolio, which are built for solar power generation, Solyndra was building a facility to manufacture solar panels, a commodity susceptible to global competition and market swings. According to Damien LaVera, spokesman for the Energy Department, the solar generation projects are "good for the taxpayer because they tend to carry less risk" than the manufacturing projects, due to power purchasing agreements that generally guarantee revenue after a project is completed. And indeed, such solar projects are thriving due to the cheaper price of photovoltaics worldwide. In contrast to the bust of Solyndra, the U.S. solar industry as a whole is on track to double its solar capacity in 2011 from 2010 to almost 2,000 megawatts, according to the Solar Energy Industries Association.
[Check out our Energy Intelligence blog.]
As a House subcommittee explored Wednesday, there may have also been flags to suggest that looming problems at the company itself, rather than the energy market, were apparent even before the Solyndra deal was signed. An E-mail among DOE staff dated August 20, 2009, obtained by Republicans on the subcommittee, suggests that there had been reservations about the company's internal cashflow. "The issue of working capital remains unresolved... the issue is cash balances, not cost. [Solyndra] seems to agree that the model runs out of cash in Sept. 2011 even in the base case without any stress," the E-mail said. And even before the Obama administration offered the $535 million loan guarantee to Solyndra on March 20, 2009 (of which they used $527 million), another E-mail was sent between administration staff at the Office of Management and Budget, claiming that "this deal is NOT ready for prime time.".Republicans have also exposed E-mails between the budget office and Vice President Joe Biden's office that suggest there was some pressure to push through the loan guarantee to coordinate with Biden's plans for a speech regarding Solyndra. According to the E-mail excerpts released by Republicans, an OMB staff member asked that the announcement be postponed, adding, "This is the first loan guarantee and we should have full review with all hands on deck to make sure we get it right."
Executives from Solyndra are scheduled to testify to members of the House next Friday, when more about the interactions between the company and the administration should become clearer.
For those on the right, especially the Republican National Committee which is responsible for leading the charge against President Obama's 2012 reelection campaign, the failure of Solyndra has already provided a political weapon against the president's stimulus-based jobs policies and the clean energy loan guarantee program itself. Earlier this week, the RNC unveiled a 15-page memo charging the administration with corruption based on the White House's political connections to Solyndra's investors. The company's failure also brings to light the reality that the stimulus-funded loan program is indeed a risky venture and can be a drain on taxpayer money, says Nick Loris, a energy policy analyst at the Heritage Foundation, a conservative Washington-based think tank. And, he says, it also demonstrates that the global market often moves faster than the federal government. "This just goes to show that it isn't the role of the government to pick winners and losers, and usually the government's picking the losers because the winners can compete in the marketplace without the subsidies," says Loris.
[Read: Obama's Green Jobs Agenda Already Proven to Be Ineffective.]
Still, however, Solyndra is the first and only of the loan guarantee recipients to go bankrupt, and the $527 million it lost is less than 2 percent of the total $38.6 billion committed by the program for all clean energy projects. The DOE insists the risks have been worth it, since it's helped the United States compete with other clean energy producers abroad in areas that it wouldn't otherwise. "If we can deploy these sorts of innovative technologies, it strengthens our industry across the board. So, there's more risk associated with them, but there's very high reward associated with them," LaVera says.
The Energy Department has until the end of the month to finalize the remaining 15 loan guarantees that it has committed, and it says all pending deals will be closed, if they are ready, before the deadline. As the details of the Solyndra deal become clearer, the Obama administration will have not only taxpayer dollars, but its political reputation, on the line.
--Read about how Obama abandoned clean energy in his recent jobs speech.
--Check out our Energy Intelligence blog.
--See an opinion slideshow of 10 wasteful stimulus projects.
