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 were 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 the company 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 period, 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

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 sources in the venture capital world the Solyndra was 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, the 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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