Facts about Solyndra Bankruptcy Case

Solyndra Inc. is back in the news and is now a hot political issue in the presidential election, sharply dividing Democrats and Republicans on the issue of wasteful spending, energy policy and the direction of economic policy. To understand this political debate and its implications for US energy policy, it is important to know the basic facts about Solyndra’s case.


Brief history of Solyndra Inc.

Solyndra Inc. was founded in Silicon Valley in 2004, producing specialized cylindrical solar panels for commercial rooftops. The company came up with an innovative technology of building solar panels without polysilicon. The idea behind this innovation was that due to exorbitant polysilicon prices, solar panels that were built without it would have a major advantage in the market. The other projected benefit of these solar panels was that they were supposed to be cheaper to install than their competitors.

Since the company seemed to have a promising future, in 2005 it was invited to apply for a government-guaranteed loan under the Energy Policy Act that was enacted that same year. This law was backed by bipartisan support under the the Bush administration and was designed to support innovative renewable energy technologies. In 2008, the Department of Energy started reviewing Solyndra’s application and in March 2009, Energy Secretary Steven Chu announced a $535 million conditional loan guarantee to Solyndra Inc. The loan was formally announced in September 2009, and was funded with stimulus money; the problem was that by that point Solyndra was already in deep financial trouble that eventually lead down the road to Solyndra’s bankruptcy.

Why Solyndra went bankrupt

There was a number of factors that converged together causing Solyndra’s collapse. The reality is that none of these factors could have been foreseen or prevented given the nature of the company’s product.  The first factor was that in February of 2008 the price of polysilicon began to fall sharply, taking away Solyndra’s solar panels’ advantage in the market place.


The second factor was a dramatic collapse in the price of solar panels that took place in 2011 and can in large part be attributed to the fact the Chinese solar panel manufacturers started to squeeze out American solar panel manufacturers like Solyndra out of the market. The company’s solar panels were relatively expensive from the start, but cheap solar panels from China made Solyndra’s prices super uncompetitive, and Solyndra did not have enough large commercial clients to create the necessary economies of scale.

Another contributing factor was that natural gas prices also fell during the same time frame, which made investments into a comparatively more risky and expensive solar industry a lot less attractive. This in turn contributed to the fact that the firms’ executives failed to raise required additional capital that would have kept the company afloat. Solyndra filed for bankruptcy in September of 2011, was forced to shut down its Fremont factory and fired around 1,100 workers.

Grounds for a Congressional investigation and subsequent scandal

image of Obama visiting Solyndra before bankruptcy A Republican Congressional committee has been investigating the loan allocated to Solyndra Inc. since 2010. Internal administration emails that have been released show the the White House was warned on numerous occasions and from numerous trusted sourced in the venture capital world the Solyndra is in trouble and will likely go under. Despite these warnings, the administration pressed on with the loan and internal administration emails reveal that the Energy Department asked Solyndra to delay layoffs until after 2010 midterm elections.

In December 2010, the firm failed to make a payment on its federal loan, thereby violating its terms. Despite this, the administration continued to financially support the struggling company, keeping it afloat. In February 2011, Department of Energy restructured Solyndra’s loan, and found new investors who gave the company an additional $75 million in financing. One of Solyndra’s largest investors was a major Obama supporter and financial bundler, George Kaiser. To be sure, the company had a number of key Republican investors as well. These actions by the White House came to be considered as misguided management of funds, and Mitt Romney went as far as accusing President Obama of cronyism and handing out money to his friend’s businesses.


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The Implications of Solyndra’s Scandal & Bankruptcy on Future US Renewable Energy Policy

image of Obama visiting Solyndra before bankruptcy For anybody keeping an eye on developments in the US solar industry, one thing is blatantly clear: solar industry and domestic renewable energy industry as a whole has become a hot political issue, fueled by the upcoming presidential election.

While president Obama saw the domestic renewable energy industry as paving the way for a cleaner environment, new jobs, new markets and investment opportunities, and a means to end our nation’s dependency on foreign oil, his efforts and policies have been vehemently criticized and opposed by the G.O.P. Solyndra’s case is a poignant example of the detrimental influence the current political climate has on the the renewable energy industry. The full implications of this political trend in Washington are hard to predict, but they will certainly set US many steps behind in the global renewable energy race.


Solyndra’s bankruptcy case is made into a political issue and used against Obama in the 2012 presidential race

So why was Solyndra’s case made into a political scandal, in which Obama has been accused of wasteful, irresponsible spending of taxpayer’s money, which was allegedly used to help his cronies? Is there any truth to these allegations or are they all political propaganda cleverly manipulated by the Republicans in the presidential election race?


The reality is that the administration’s decisions in Solyndra’s case do seem to have political considerations, rather than pure economics in mind. As early as March of 2010, an independent audit by Price Waterhouse Coopers raised concerns whether Solyndra was financially viable. Similarly, internal administration emails reveal that administration staff and Obama’s allies in the venture capital world warned the White House that the company may not be a good investment.

However, despite these warning signs, Obama’s administration pressed on and administration officials pushed for the DOE to hasten its final decision on approving Solyndra’s loan just in time for Vice President Joe Biden to announce it on his planned trip to California. Obama also visited the company in a high-profile press event in May 2010, making an already troubled company an example of his successful energy and economic policy. Internal administration emails also reveal that to save face, the Energy Department convinced Solyndra to delay layoffs until after the 2010 midterm elections, according to those emails.

From private sources the DOE was aware that the firm was in danger of bankruptcy, and in December 2010 Solyndra violated its federal loan deal terms by failing to make a payment on its loan. Despite this, the administration put in more effort and money into saving the company. In February 2011, the department restructured the loan, and found investors who provided Solyndra $75 million more in financing. One of the largest investors in Solyndra who also backed this new loan, was George Kaiser (one of the biggest fundraising bundlers for Obama). Part of this deal was that private investors, would be paid back before the government if Solyndra collapsed.

So did Obama want to use Solyndra to help his own political agenda and public image in light of the upcoming election? It seems that they answer is yes. Was  it an economically misguided decision? Yes. However, there is a lot of hypocrisy at play here: a renewable energy company’s ties to the administration are considered cronyism, but the fossil fuels companies’ ties to the G.O.P party and the previous Bush administration, which have afforded this industry lavish financial returns for decades pass with flying colors.

Understanding Solyndra’s case from the perspective of overall US energy policy

While Solyndra’s bankruptcy has been portrayed by most major media outlets as a political scandal, it is important to understand this case in light of the overall US energy policy. While the president has been accused of wasting tax payers’ money during a recession, the reality is that the federal government actually spends a minimal amount on renewable energy, compared to other sectors. A 2009 American Energy Innovation Council Report states that the federal government spent only about $3 billion on energy research (which included help in commercializing the products for start-up companies like Solyndra), compared with the lavish sums of $36.5 billion spent on the National Institutes of Health, and $77 billion spent on defense research. 

Moreover, taking a closer look at the Department of Energy’s 2005 Federal Loan Guarantees Program reveals that it backed close to $38 billion in loans for 40 projects around the country. Just a small fraction of these loans has been allocated to solar. In fact, the program’s largest beneficiary to date is an $8.33 billion loan guarantee for a nuclear plant in Georgia. Solyndra’s loan represents just 1.3 percent of the total program portfolio, but more significantly as of yet, it is the only loan that has soured.  Other solar beneficiaries, such as SunPower and First Solar, are still in business and doing well.

What is important to understand about this program is that it is specifically meant to allocate money to more than average risk start up companies, in which private investors would be too cautious to invest. This is the job that the government takes upon itself in propelling forward industries, such as renewable energy, that have a larger benefit to society than just financial profit. A job, that we as citizens need to be done.

What does it all mean? It means that while there may have been neglect and oversight on the part of the administration in analyzing Solyndra’s application for the loan, Obama’s administration can hardly be accused of cronyism and waste of money solely on the basis of one company’s failure. Numbers clearly show that this failure was an exception rather that a rule.


Politicizing Solyndra’s bankruptcy has potential to negatively effect the future growth and development of domestic renewable energy industry 

Renewable energy industry in this country has a potential for growing and prospering only in the climate of stable government support. Government policy not only directly aids the industry with financial incentives, but also signals to private investors that they can invest large amounts of capital into the industry. In previous years, US solar investments and support for the renewable energy industry in the US has been for the most part bipartisan, where both Republicans and Democrats saw renewable energy as being good for the country and for the environment in the long run. This mind set in Washington allowed President Obama to implement a number of important incentives programs such as the Production Tax Credit (PTC) the Investment Tax Credit (ITC) and others,  that have tremendously helped the growth of both solar and wind sectors of the renewable energy industry.

A number of these key incentives are due to expire both at the end of 2012 and in 2013. In the current political climate, where renewable energy has become a deeply divisive issue for Republicans and Democrats it is highly unlikely that these will be renewed.  Solyndra’s scandal has really added fuel to the fire, further denigrating the whole industry’s worthiness both in the eyes of Washington’s policy makers and the general public. A telling comment by Rep. Cliff Stearns, who chairs the oversight subcommittee of the House Energy and Commerce Committee, sums it all up:” Solyndra’s downfall proves that green energy isn’t going to be the solution”  (Washington Post). How these sentiments will dictate our nation’s future energy policy remains to be seen.

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