Even though I wrote these two stories “Solyndra Spells Disaster for DOE Loan Guarantee Program,” (Nov. 2010) and “Was the DOE Loan Guarantee for Solyndra a Mistake?” (May 2010), I was still shocked by the news this morning that Solyndra plans to file for bankruptcy. It’s about the worst outcome possible for a company that the Department of Energy has touted as a game-changing solar tech company, and which received an unusual amount of government support and attention.
The DOE gave Solyndra a flagship $535 million loan guarantee in 2009, and in September 2009, held a press conference and ground-breaking ceremony with speeches by Vice President Joe Biden, then-California Governor Arnold Schwarzenegger, and DOE Secretary Steven Chu (see photo above). Biden said to the audience back then: “These are jobs that won’t be exported,” and “You guys have figured it out” to Solyndra execs. Fast-forward about two years to this morning, and neither of those things are true.
A half-year after Solyndra’s ground breaking ceremony in 2009, President Obama visited the company’s factory in the spring of 2010. That was actually the spark for my original article wondering: If Solyndra has one of the highest manufacturing costs of its solar peers, and Obama attaches his administration to the company, what happens if those costs never come down? Something bad. We’ll start to see the full blow-out of that choice over the coming weeks, but it immediately means a whole lot of finger-pointing by the Republicans at President Obama, the DOE, the DOE’s clean power support programs, and in particular, the DOE’s loan guarantee program.
Loan guarantee program
The loan guarantee program by its nature picks winners and losers, in contrast to other subsidies programs that provide incentives for general sectors and not individual companies. Loan guarantees essentially serve as a promise by the government to make good on a loan if the company can’t, and typically enable better interest rates and lower costs than would otherwise be available to a company for project financing. Often, these loan guarantees have turned into a loan from the Treasury.
Even before the Solyndra disaster, the loan guarantee program has come under attack for a variety of reasons like that it hasn’t been keeping electronic records as detailed as it should. The Inspector General found earlier this year that the loan guarantee program could “not readily demonstrate … how it resolved or mitigated relevant risks prior to granting loan guarantees.” In other words, it couldn’t explain how it decided one company would be a more successful technology that should receive funding, vs, say, a competitor.
Frustratingly, the DOE hasn’t answered many questions about Solyndra. DOE loan chief Jonathan Silver previously maintained in interviews with us that the Solyndra deal was a solid one (see video of his talk at Green:Net 2011 below). And the DOE has also decided to not disclose much about the review process or terms of the Solyndra deal.
I predict that, unfortunately, Solyndra could be the nail in the coffin for the DOE loan guarantee program. The program itself is already controversial and is facing budget cuts by Republicans, and Solyndra’s bankruptcy is the perfect weapon to be used to make that cut.
Solyndra has also been the target of an investigation by House Republicans, spearheaded by the Energy Committee’s Republican chair, Rep. Fred Upton. Upton started an investigation into the DOE loan guarantee to Solyndra back in February. And in July of this year, the Committee approved a resolution to move forward with a subpoena for the Office of Management and Budget to get access to documents about the Department of Energy’s $535 million loan guarantee to Solyndra.
Upton is now loudly saying the equivalent of “I told you so.” In a statement released on Wednesday, he writes:
We smelled a rat from the onset. As the highly celebrated first stimulus loan guarantee awarded by the DOE, the $535 million loan for Solyndra was suspect from day one. Our investigation to protect American taxpayers has revealed that in the rush to get stimulus cash out the door, despite repeated claims by the Administration to the contrary, some bets were bad from the beginning. . . It is clear that Solyndra was a dubious investment, but DOE doubled down in March of this year and restructured the loan, possibly further increasing taxpayers’ liability. That is a question we want answered. In this time of record debt such disregard for taxpayer dollars cannot be tolerated.
Obama was supposed to talk about clean energy in a speech next week, and Vice President Joe Biden said at the National Clean Energy Summit in Las Vegas this week that the state of the clean power industry in the U.S. “is at a crossroads.” I am very interested to see how exactly the DOE will explain such a high-profile bad bet, that some in the media like myself, clearly saw as a mistake.