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

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 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, that 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 the 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 taxpayers’ 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 startup 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 startup 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 affect 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. Federal 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 worthiness of the entire renewables industry, 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.