Sunburned
The Solyndra Story
By Kennedy Maize
September 4, 2009 was a classically lovely day in Fremont, California. Silicon Valley was graced by a cloudless blue sky and temperature in the mid-60s as a joyous crowd sat in folding chairs in the parking lot of Solyndra Corp.’s shiny factory. CEO Chris Gronet, a tall, dark-haired man in his late 40s, welcomed the crowd of employees and dignitaries, including California’s iconic Republican Gov. Arnold Schwarzenegger, to the groundbreaking of the company’s “Fab 2” assembly line designed to ramp up production of the company’s unique and proprietary cylindrical solar photovoltaic panels that turn sunlight into electricity.
But the event that day was more than a typical groundbreaking. While the governor, a body builder who was Mr. Universe and a Hollywood action hero before turning politician, stood on Gronet’s left, to his right was a slightly-built, unassuming Asian man in a dark suit. He was Steven Chu, U.S. energy secretary in the Obama administration. Further stage left was a large video screen and Gronet quickly got to the reason for the device: the event was hooked up to a live video feed from Washington and Gronet introduced Joe Biden, vice president of the United States, who had remarks to make to the gathering. Biden used the occasion to praise the administration for its record in quickly pouring federal money into projects designed to create jobs, which he said was working, and cited Solyndra as an example.
The event in Fremont[i] was also the occasion of the announcement of a $535 million Department of Energy loan to Solyndra for construction of its upgraded solar energy manufacturing plant. It was the first DOE loan ever using authority Congress provided in 2005 under Republican leadership, and also using economic stimulus funds, the “American Recovery and Reinvestment Act,” given to the Obama administration earlier in 2009 to help boost the country out of the most vicious recession since the Great Depression of the 1930s.
Optimism filled the parking lot in Fremont that day, as Biden claimed, “The recovery act is working and you are going to see it working right on that site.” Biden claimed that the funds were allowing the administration to create not only jobs for a bed-ridden economy, but good jobs, “jobs you can raise a family on, green jobs.” Chu framed the Solyndra loan in terms of other administration objectives. “This investment is part of a broad, aggressive effort to spark a new industrial revolution that will put Americans to work, end our dependence on foreign oil and cut carbon pollution,” he said.[ii] In his days running DOE’s Lawrence Berkeley National Laboratory, Chu pushed the organization to focus on renewable energy.
The administration was proud of its rapid choice of Solyndra to receive its first loan guarantee. When Chu appeared before the Senate Energy and Natural Resources Committee on Jan. 13, 2009, the senators noted that the Bush administration, which had pushed for the loan guarantee program, had been unable to push any loans out of the door of the DOE’s Forrestal Building headquarters. Chairman Jeff Bingaman, a New Mexico Democrat, expressed frustration about the slowness of getting the loan program moving under the 2005 law. “We still have no loan guarantees that have been made under that,” he complained. Chu responded, “Economic stimulus really means that one has to move quite fast. It is very important that I and the management team that I hope to assemble can actually move very rapidly in this direction.”[iii] The Solyndra loan guarantee was the administration’s proof that it could move money through the federal review system, which included not only DOE but the White House’s green eyeshades folks at the Office of Management and Budget and a skeptical Treasury Department, and out the door very rapidly.
At the groundbreaking in Fremont, Chu and Schwarzenegger wielded symbolic gold-colored shovels, digging into what they, and virtually everyone else at the ceremony, believed would be a golden and green future. Solyndra, with about $1 billion in venture capital investment and a $535 million vote of confidence from the U.S. Department of Energy in the form of a loan to build its new production line, was widely viewed as the poster child for the promising green energy business and the administration’s dedication to foster it with economic stimulus funds.
The administration basked in the solar glow from Fremont. In his January 27, 2010 “state of the union” address to the nation, President Obama made a veiled reference to Solyndra, as he touted “last year’s investments in clean energy” and “the California business that will put a thousand people to work making solar panels.”[iv] On May 26, Obama visited the plant, providing a series of photo opportunities linking the White House and the California solar manufacturer.[v]
Almost exactly two years after the high-profile groundbreaking for the Fab 2 production line, on August 31, 2011, Solyndra announced that had closed its doors and cashiered most of its workers. Production of its unique cells that converted sunlight to electricity stopped. Solyndra had spent $527 million of the $535 million loan from U.S. taxpayers, through the Treasury’s Federal Financing Bank. Rep. Cliff Stearns (R-Fla.), foreshadowing the coming political firestorm, trumpeted, “In an apparent rush to push stimulus dollars out the door, the Obama administration wasted $535 million in taxpayer funds in guaranteeing a loan to a firm that has proven to be unviable in the global market.”[vi] Within days, agents from the FBI had raided the Solyndra offices and the homes of current and former Solyndra executives, carting off numerous boxes of business and personal records.[vii] Solyndra had quickly morphed from the poster child for solar power to the face on a wanted poster. Time magazine reporter Michael Grunwald, in his book “The New New Deal” called it “a classic Washington pseudo-scandal.”[viii]
This is the story of Solyndra: how it was born, how it grew and prospered, how it failed, how it became a political football, and what all that might tell us about federal energy policy and broader issues of just what is the best role for government in research, demonstration and development.
The Foundation
In early 2005, Christian M. Gronet, a brilliant materials scientist, was determined to turn his specialized knowledge in semiconductor fabrication into a business turning sunlight into energy, also known as “photovoltaics” or PV technology. Scientists and engineers had long known about the photovoltaic effect, that sunlight striking some materials, including common silicon compounds, could excite electrons and create direct electric current. The French physicist Edmond Becquerel[ix] discovered the photovoltaic effect in 1839. By the turn of the 21st Century, PV technology long had been providing electric power to satellites and space probes, sending trickles of electricity through bridges and other structures to help prevent materials from degrading with age and weather, and giving the blessings of electricity to people living beyond the electrical grid, in the U.S. and elsewhere in the world.
Many wanted more from the ability to turn photons into current. Visionaries sought a world in which PV technology could become a major feature of mainstream electric markets. The advantages are enormous. Sunlight is free and creates no conventional pollution, rooftops provide an attractive place to locate devices that can collect solar energy, the electricity would be largely independent of the grid, the devices to capture sunlight are fairly easy to install and, where the grid is available, it can serve as a virtual storage device, minimizing the need for heavy, expensive batteries for storing the electricity produced by the solar panels.
But the challenges are also daunting. Sunlight is diffuse: the sun doesn’t deliver much energy to any specific point but spreads it out widely across the landscape. Conventional fuels used to generate electricity — coal, oil, natural gas, uranium — are tightly packed with energy needed to generate power. Their energy density is a desirable characteristic. Solar energy is not dense. The sun also passes overhead over time, meaning there is a curve of energy delivery that coincides with the passage of the sun as it rises in the east and sets in the west each day. As a result of these circumstances, and inherent in the materials used to convert sunlight to electricity, conventionally crystalline silicon, solar PV rooftop panels are inefficient. Very little of the solar energy that strikes their surface gets turned into useful electric current.
By 2005, there was great optimism about PV technology in the U.S. and elsewhere. The threat of global warming highlighted the value of generating electricity without producing carbon dioxide emissions as a byproduct. The U.S. Congress was considering ways to encourage new, carbon-free generating technologies, including wind, solar, and nuclear power. The administration of George W. Bush and the Republican majority in the House of Representatives, led by Rep. Joe Barton of Texas, chairman of the powerful House Committee on Energy and Commerce, were pushing provisions in the energy legislation that would provide “loan guarantees” to emerging non-fossil electric generation, including wind, solar, and nuclear. The law, which became the Energy Policy Act of 2005[x], passed the House in April 2005 by a vote of 249-183 and the Senate by a vote of 85-12 in late June. President Bush signed the bill into law in August after the House and Senate worked out differences between the two bills. The law included some $15 billion for loans to wind and solar energy projects (and $38 billion for nuclear) in Section XVII. The law also extended tax benefits for wind and solar projects, which originated in the 1992 Energy Policy Act as “temporary” measures but which Congress had routinely extended for over a decade.
As government policy moved to favor solar-generated electricity, technology developments and market forces seemed to be coalescing. Energy prices in general, including fossil fuel prices for electric generation, were rising, increasing the market opportunities for niche generation such as PV. Manufacturing of PV cells was becoming cheaper, driven by mass assembly line manufacturing techniques and economics of scale. New materials research was bringing on advanced solar technologies, using chemical compounds such as copper indium gallium selenide (CIGS), an advanced semiconductor material that can be applied as a thin, flexible film, rather than the rigid, heavy crystalline silicon in conventional PV arrays.[xi]
Chris Gronet was particularly well equipped to play in this emerging market. Born in 1962, Gronet earned a BS degree in materials science and a doctorate in semiconductor technology from Stanford University. His 1988 PhD dissertation was “Limited Reaction Processing: A New Technique for the Fabrication of VLSI Devices”[xii] VLSI is an acronym for “very large scale integration,” or technologies for putting ever larger numbers of transistors on a semiconductor substrate, leading to greater computer processing power.
Gronet was entrepreneurial from the beginning. In 1988, while still in graduate school, he founded G-Squared Technologies, which pioneered rapid manufacturing of silicon wafers for semiconductors. In 1991, the well-established firm of Applied Materials Inc. bought Gronet’s company. He remained at Applied Materials in a management role for 11 years, leaving in 2002 to become a facilitator for venture capital in the high-tech field.[xiii]
In 2005, Gronet became an “entrepreneur in residence” at US Venture Partners, a Menlo Park, Calif., venture capital firm founded in 1981.[xiv] Billionaire investor Bill Bowes[xv], a Stanford graduate and one of the original investors in computer hardware and software innovator Sun Microsystems, founded US Venture Partners. Gronet’s USVP in-house biography, no longer available on the firm’s website, stated, “His intention is to be a CEO of a high-growth technology business.” Gronet used his spot at the firm and the contacts he made there to launch that business, which became Solyndra.
Bowes was likely the most important of those contacts. Then in his late 70s, Bowes was an icon of Silicon Valley high-tech venture capitalism. In 2005, he was #384 on the Forbes magazine list of the 400 richest Americans, with a fortune estimated at $900 million.[xvi] The magazine’s profile of Bowes:
“Publicity-shy Bay Area venture capitalist began backing entrepreneurs in the 1950s as a hobby. Big scores with Amgen, Sun Microsystems. Founded U.S. Venture Partners 1981; invested $1.8 billion in more than 370 companies. Last year donated $1.3 million in Amgen stock to support Prop 71, a California bill backing use of stem cells in cancer, heart disease, diabetes research.”
Gronet also connected with USVP general partner Winston Wu, who shared a Stanford connection. Wu, according to his USVP bio,[xvii] earned a PhD in applied physics at Stanford after earning an undergraduate degree in physics at MIT. He also earned an MBA at Northwestern University’s Kellogg School of Management. As an undergraduate, Wu captained MIT’s intercollegiate championship volley ball team. He joined USVP in 1997 and specialized in investments in information technology and semiconductors. He became one of the original members of the Solyndra board of directors.
The Firm
In May 2005, Gronet incorporated his new company, named Gronet Technologies, Inc., in Delaware. In October, he filed a series of patent applications for a proprietary PV technology using a CIGS compound deposited on the inside of sealed glass tubes (CIGS compounds break up in water), which was the heart of the Solyndra approach to the difficulties of turning sunlight directly into electricity as a practical endeavor (the U.S. Patent and Trademark Office granted the patents in July 2008). In January, 2006, the company changed its name to Solyndra, Inc.[xviii]
In its SEC filing, Solyndra described its basic business strategy, in terms of what it was able to offer the solar PV market that distinguished it from its competitors, mostly firms offering the simpler, more robust crystalline silicon collectors.
“Our photovoltaic systems, which are comprised of panels and mounts, enhance sunlight collection by capturing direct, diffuse and reflected sunlight across a 360-degree photovoltaic surface. Unlike conventional panels that typically need to be tilted to achieve effective energy generation, the cylindrical shape of our modules allows our systems to achieve effective energy generation when mounted horizontally. Horizontal mounting allows our panels to be spaced significantly closer together than conventional panels on a typical rooftop, thereby enabling greater rooftop coverage and enhanced energy production over the system’s lifetime. The cylindrical shape allows modules to be spaced apart within our panels so that wind can blow through our panels, thus eliminating the need for the expensive mounting hardware and ballast typically required to secure conventional flat plate panels against uplift from the wind. As a result, our customers can achieve significantly reduced labor, hardware, design and other balance of system costs, which account for a substantial portion of the total installed cost of a conventional flat plate photovoltaic system, while maximizing the amount of electricity generated for a typical rooftop installation.”[xix]
Gronet’s ambition was large and the financial requirements for his company were also large. He was building his business through copious amounts of venture capital. An effective advocate and salesman, Gronet was able to line up an impressive array of deep venture capital pockets to create his business. Gronet was working mostly under cover, in an environment where many were seeking venture dollars for the potentially hot solar electricity business, and most were using publicity, including extensive leaks to specialized business-to-business publications, as a marketing tool.
While Gronet was trolling for dollars in Silicon Valley’s ocean of venture capital, he hired two former colleagues from Applied Materials to get Solyndra’s physical business off the ground. His first hire, in June 2005, was James Truman, a University of Florida PhD in materials science who had worked at Applied Materials from 1995 to 2003. Truman was in charge of sales and marketing. The second key hire, in August 2006, was Benjamin Bierman, an eight-year Applied Materials veteran, who was a general troubleshooter during the construction and operation of the initial “Fab 1” production line.[xx]
Gronet’s under the radar approach was working. Veteran solar analyst Eric Wesoff of Greentech Media picked up some clues in August 2008 from the patent applications, writing of “elongated PV cells in casings.” In October 2008, journalist Todd Woody in his Green Wombat blog, reported admiringly that Gronet had raised $600 million for his new firm: “‘You said $60 million, right?’ I ask. ‘$600 million,’ he replies.” Gronet told Woody he had a billion dollars in orders booked. Woody commented that “no company in recent memory has managed to hire more than 500 people and build a state-of-the-art thin-film solar factory — in plain view of one of the Valley’s busiest freeways — without attracting much attention beyond a few enterprising green business blogs.”[xxi]
Woody reported, “Solyndra bursts onto the scene with a factory operating 24/7 and a billion-dollar book of business. The reason for Solyndra’s secrecy — and success with investors and customers — is sitting in a bazooka-sized cylinder propped up beside Truman at the restaurant. He pulls out a long, black glass tube that is darkened by a coating of solar cells.”
Solyndra leased its facilities in Fremont — including 81,000 square feet of factory floor — in 2007 and shipped its first orders in July 2008. The Fremont location was well suited for Solyndra’s needs. A total of 183,000 square feet, the building had formerly housed a computer disk drive plant. In a filing to the Department of Energy in December 2006, Solyndra bragged about the site:
“The facility is ideal for Solyndra’s needs, as it is already equipped with all of the key utilities required to support the company’s manufacturing equipment. This includes 15 megawatts of electrical service, 1000 gallons per minute of process cooling water, 750 gallons per minute of de-ionized water and over 1000 gallons per minute of waste water treatment. Furthermore, the building is already zoned and rated for Solyndra’s 58 future manufacturing operations.”[xxii]
By the end of September 2008, the company had $1.5 million in sales, at a cost of $21.4 million. A year later, the company sales for the first nine months of 2009 totaled $58.8 million with associated costs of $108.3 million. The company reported it had sold 17.2 MW of equipment through September 2009. The sales focus was on selling systems to integrators and installers, which would then sell to ultimate customers. Following a trend in the global solar market, Solyndra was finding its greatest market in Germany, which accounted for 69% of sales. [xxiii]
By the time of his December 2009 SEC filing — which came after he lined up the DOE loan — Gronet had won more than $900 million in venture capital equity commitments in a series of investment tranches, and filled his board of directors with some of the most prominent names in high-tech investing. The key owners of Solyndra were Argonaut Ventures, the investment arm of Tulsa oil scion George Kaiser and his George Kaiser Family Foundation (35.74%), Madrone Partners (11%), U.S. Venture Partners (10.19%), Gronet (8.06%), CMEA Ventures VI (6.81 percent), RockPort Capital Partners (7.5%), Redpoint Ventures (5.94%).[xxiv]
As the biggest investor, Argonaut and Kaiser took the most active role on the board. Kaiser’s representative on the Solyndra board was Steven Mitchell, a lawyer for the businessman. Kaiser, a low-profile, 70-year-old entrepreneur, was worth about $10 billion in March 2012, according to Forbes.[xxv] The Kaiser family were Jewish refugees who fled Nazi Germany in the 1930s, settling in Tulsa, where an uncle and George’s parents founded the Kaiser-Francis Oil Company. George, born in 1943, took over the company in 1969, expanding the business considerably, renaming it GBK Corp. In 1990, he bought the Bank of Oklahoma, greatly expanding his financial reach. GBK is a major player in the Bakken oil and gas formation in North Dakota.
Kaiser, a major charitable contributor, formed the George Kaiser Family Foundation to support his charitable causes, including early childhood education.[xxvi] A Democrat, Kaiser was a “bundler” for the 2008 presidential campaign of Barack Obama. A bundler is a fund raiser who collects a large number of personal contributions, limited by law to $5000 each, from friends and acquaintances and bundles them together, maximizing their impact. While Republicans made much of this fact in the political fallout after Solyndra’s collapse, Kaiser’s status as a bundler hardly made him stand out among Obama’s biggest fundraisers. According to the non-partisan political fundraising tracker OpenSecrets.org,[xxvii] during the 2008 election cycle, 558 individuals raised a total of $76 million for the Obama campaign (536 individuals raised a similar amount for GOP nominee Sen. John McCain). Kaiser was in an OpenSecrets category of those who bundled $50,000 to $100,000 in contributions, the least significant of the bundlers.[xxviii]
It’s a pretty good bet that if George Kaiser walked into a White House reception with a name tag that read “Hi, I’m George Kaiser,” Barack Obama wouldn’t recognize him. The odds are only slightly higher that energy secretary Steve Chu would know what he was.
The Market
In 2005, Silicon Valley was abuzz about the business prospects for solar photovoltaics. Between 2005 and 2011, according to Solyndra bankruptcy restructuring officer R. Todd Neilson, 13 solar companies had each managed to raise at least $150 million in private equity and Solyndra was far from the largest. Nanosolar Inc. raised $3.5 billion in venture capital in that period and Brightsource Energy $3.8 billion.[xxix]
Solyndra’s business plan began with the inexorable growth in demand for electricity in the U.S. and around the world. From the beginning, Solyndra set its ambitious sights on markets beyond domestic borders. In its Securities and Exchange Commission registration filing, the company cited U.S. Energy Information Administration projections that global electricity demand would grow from 18 trillion KWh in 2006 to 31.8 trillion KWh in 2030. The U.S. share would grow from 3.9 trillion KWh to 4.8 trillion KWh over that period.
Given the worldwide movement to lessen the growth of greenhouse gases, particularly carbon dioxide, renewable sources of generation should be able to gain a significant share of that growing market. Solar energy would be an important resource in filling that demand, according to Solyndra’s calculations. Solar, said the company, “represents a vast resource to meet global energy demand. Solar energy is a highly attractive renewable solution because its peak energy generation typically occurs mid-day, closely matching peak energy demand of end users.”[xxx]
Solyndra had examined a study by Solarbuzz,[xxxi] a solar energy market research and analysis firm, which noted that the solar photovoltaic market had grown by a compound annual growth rate (CAGR) of 53% since 2004 and would see a future CAGR of 7% to 29%. All this was on top of a market that was starting quite small, with solar electricity accounting for a tiny 0.02% of world output in 2007.
Solyndra’s chief competition in this market would be the conventional crystalline silicon PV technology. Silicon solar cells are cheaper to make than the various thin film technologies, including Solyndra’s CIGS systems. But these systems are heavy and awkward to handle and install. In addition, beginning in 2003, the prices of the raw materials in the silicon cell supply chain, particularly for polysilicon (P-Si), were rising, creating a soft spot for alternative technologies. Bankruptcy restructuring officer Neilson noted, “Between 2004 and 2008, the prices for P-Si were moving towards a record high, making competitors (like Solyndra) that were not dependent on P-Si optimistic about their ability to overtake the solar market.”[xxxii]
According to Solyndra, “Commodity raw materials used by thin film manufacturers typically represent a significantly smaller percentage of cost of goods sold, so raw material price volatility has a relatively smaller impact on thin film solar panel manufacturing costs. Thin film technologies also generate more electrical energy across a variety of environments, including high temperature and low light, than crystalline silicon solar modules with the same nameplate panel power rating.”[xxxiii]
Solyndra had also determined that it would go after the market for rooftop solar electricity installations, not the opportunity for large, utility-scale solar farms built on the ground. A major factor in Solyndra’s reasoning was that central, utility-scale systems required grid connections, which often meant construction of new transmission infrastructure, at unpredictable costs and timing. Solyndra was aware of a study by Navigant Consulting PV Services[xxxiv] that found that a significant majority (61%) of grid-connected PV installations were done on rooftops. The company also cited data from the Department of Energy’s National Renewable Energy Laboratory that cumulative rooftop PV installations in the U.S. should grow at a compound annual rate of 34%.
Drilling down even further into the market, Solyndra focused on commercial rooftops. Its market research indicated that there are about 11 billion square meters of commercial rooftops worldwide. “Of the rooftop market,” Solyndra said, “we believe that commercial rooftops represent a significant opportunity.”[xxxv]
They key to competing in the commercial rooftop market, according to Solyndra’s analysis, was to offer the commercial customers the lowest long-term cost of electricity, factoring in all relevant costs. Solyndra’s high-tech PV tubes were “significantly” more expensive to make that the crystalline solar cells that dominated the market. But the Solyndra tubes offered real benefits over the long term. They were lighter and easier to install, not requiring penetrating the roof with the mounting hardware. They could be mounted on flat, rather than pitched, roofs. They were able to generate electricity longer during the day, because of the 360-degree exposure to light, and they were less subject to stresses from wind.
The key to the Solyndra pitch was what the firm defined as the “lowest levelized cost of electricity per kilowatt hour” or LCOE. This, explained Solyndra, was “the ratio of a system’s total life cycle cost to its total lifetime energy output.”[xxxvi]
This business proposition is somewhat more sophisticated than the rationale for rooftop solar pitched by conventional PV companies, which tended to focus on the lowest up-front cost of the installation, where Solyndra’s technology was not competitive. That’s a major reason why Solyndra decided to make its pitch to solar systems integrators and installers, rather than directly to building owners and operators.
At the beginning, Solyndra’s strategy worked as planned. With the production line, Fab 1, in operation in July 2008, Solyndra was able to make $6 million in sales during that year. By the end of 2009, Solyndra had the capacity to make 45 MW of Solyndra cells a year. Revenues had risen to $65 million, an order of magnitude increase in about a year. Some 85% of total sales were flowing to European buyers, and the recent change in value of the euro versus the dollar was making the Solyndra product even more attractive in the European market. At the end of 2008, Solyndra’s biggest customers were Geckologic GmbH (29% of total revenue) and Phoenix Solar AG (27%), both based in Germany. Other large customers were USE Umwelt Sonne Energie GmbH and Alwitra GmbH of Germany, and U.S. company Carlisle Syntec Incorporated.[xxxvii]
Of course, the company was losing copious amounts of money, which was anticipated in the company’s business plan. The company lost $27 million by the end of 2006, another $114 million in 2007 and $232 million in 2008.[xxxviii] Chief restructuring officer Todd Neilson’s analysis said, “By the end of 2008, Solyndra had incurred a total cumulative net loss of $385.1 million, and yet the company was eager to introduce its technology to the market and anticipated its future operations would yield a return.” [xxxix]
Because of its particularly complex manufacturing process, involving depositing its CIGS compound inside of glass tubes (made by the same companies that supply glassware to the pharmaceutical industry), hermetically sealing the tubes, and putting them into multi-tube arrays, Solyndra faced large startup and early manufacturing costs. Initial losses per sale were large, but the company’s strategy was to take advantage of economies of scale by increasing and improving its manufacturing line, which the company estimated would reduce the price of its panels, including mounting equipment, from $3.01/Watt-panel in 2010 to $2.52 by 2015.[xl] As the company told the Securities and Exchange Commission:
Our future success depends on our ability to significantly increase our production capacity through facility expansion and increased production throughput and yield in a cost-effective and efficient manner, mainly through the expansion of our first manufacturing facility, which we refer to as Fab 1, and through construction of additional manufacturing facilities, including our second manufacturing facility, which we refer to as Fab 2. Our ability to complete the expansion of Fab 1 and the planning, construction and equipping of both phases of Fab 2 and additional manufacturing facilities in the future are subject to significant risk and uncertainty….[xli]
The Government
Support from the federal government was also crucial to Solyndra’s long-term plan. The company was one of the first to apply for the loan guarantees created by the 2005 Energy Policy Act (PL 105-58), among 143 firms that submitted “pre-applications” in December 2006 to the Department of Energy’s August 2006 solicitation for applications. That flood of applications soon got boiled down to 16 serious projects, Solyndra among them.[xlii]
Some background is necessary at this point, including a definition of the difference between a federal loan guarantee and a federal loan, a brief look at the legislative history of the 2005 act, and a quick pass through the history of the DOE implementation of the program.
First, the meaning of terms. As George Orwell wrote in his seminal 1946 essay “Politics and the English Language,”[xliii] “In our time, political speech and writing are largely the defense of the indefensible.” So it is with the terms “loan guarantee” and “loan” when used to describe federal government programs aimed at aiding energy development. Both terms describe the same thing, which is use of federal dollars to directly subsidize energy firms and technologies that Congress and the executive branch believe are in the public interest when they are unable to persuade private investors of their worth.
The terms came into widespread political use among energy interests during the 1979 and 1980 congressional creation, at the behest of the Carter administration, of a program to make substitutes for Arab oil out of domestic resources, including coal and the oil shale resources of Colorado and Utah. The synfuels program, designed by bi-partisan interests in Congress, constructed a fiction called a “loan guarantee” to hide the fact that the government was lending taxpayer dollars, and putting taxpayers at risk, for uneconomic ventures.
As originally conceived, a loan guarantee would be simply the government agreeing to come to the rescue of a private lender who chose to risk its own money on an energy venture. The guarantee would put the “full faith and credit” of the U.S. government behind the private lender.[xliv] This concept from the 1980 Energy Policy Act became boiler plate in the 2005 law.
But when the U.S. government actually began to implement the loan guarantee authorities, both in the 1980s and again after 2005, it became clear that the “loan guarantee,” which created the impression that private-sector investors were shouldering the major risks, was a fraudulent concept. Under a federal loan guarantee, if the project succeeded and the loan were repaid, the private investor would have reaped the rewards, in terms of interest paid and the principal returned to the investor. The government would see no return. If, on the other hand, the project failed, the private lender would bear little of the risk. It would all flow to the government as the guarantor. While no money actually flowed out of the U.S. Synthetic Fuels Corp., when the Department of Energy started making awards under the 2005 law and its 2009 amendments contained in the Obama administration’s stimulus program, the loan guarantees had become direct loans, issued by the Treasury Department’s Federal Financing Bank.
In 2005, with Republicans in control of the White House and the 109th Congress, the Bush administration wanted to leave its signature on U.S. energy policy. The U.S. government had enacted no significant energy legislation since 1992 (the Energy Policy Act of 1992, PL 102-486) and the final days of the George H.W. Bush administration, working with a Democratic Congress. President George W. Bush and Vice President Dick Cheney were widely viewed as favorable to energy interests. The energy business saw an opportunity to use Republican ambitions and tendencies to shape the future of how the U.S. would approach energy development for years to come. The Bush administration had been working on energy policy since taking office in 2001, and finally managed to put the 2005 law into place.
A significant branch of that political policy Christmas tree was the loan guarantee provision for new energy production, Section XVII. The loan program was largely the result of pressure from the U.S. nuclear power industry and its champions in the House Energy and Commerce Committee. The particular champion of the loan program was Joe Barton of Texas, a veteran Republican legislator with a deep understanding of Washington energy politics coupled with an unfortunate (for Washington) tendency to speak frankly about his views and preferences.[xlv]
The nuclear industry had been pushing for years for a loan guarantee program, aiming at getting the Department of Energy to underwrite about $4 billion in capital costs for each new reactor. But the politics were such, as Barton has acknowledged,[xlvi] that in order to win the benefits for the nuclear industry, Congress had to include a loan guarantee program for other “non-carbon” generating technologies.[xlvii]
Getting the DOE loan program up and running proved difficult. In large part, that was the fault of Congress, which habitually creates programs through its authorizing committees and then fails to give executive branch agencies the money and personnel needed to implement the programs. In its detailed examination of the Solyndra fiasco, the House energy committee Republican staff noted:
“The DOE experienced a number of difficulties in establishing the Loan Programs Office (LPO). As the agency did not have an existing office or program for issuing loan guarantees, DOE had to start from scratch. Although the program was authorized in 2005, it did not receive funding until April 2007.”[xlviii]
Working with personnel detailed from established agency offices, DOE managed to issue its first solicitation for loan guarantees in August 2006, with the aim of determining the scope of interest in the program. The solicitation called for “pre-applications” in order to get a sense of the interest in the program, and because the agency still had no rules in place to govern how it would handle official applications. The notice predicted, “DOE will issue a Notice of Proposed Rulemaking to develop regulations in support of the loan guarantee program. The Department intends to issue future solicitations pursuant to the final regulations developed through the proposed rulemaking.”[xlix]
While the appropriators in Congress were dragging their feet on getting the loan program office running, the House energy committee was haranguing the Bush administration about the delays. In an April 2007 hearing, Barton said, “So this is a program that we need to get moving. I hope that this hearing facilitates some clear thinking and some re-emphasis and renewed commitment to make this program move forward.” At the same hearing, House Speaker Dennis Hastert (R-Ill.) said, “But the bottom line is that we need to get this loan guarantee program operational soon. Congress intended to have these loans guaranteed at a full 80 percent of the project cost, not to 80 percent of 80 percent that we are now hearing some spin. This full financing is essential for the future of energy innovation in this country.”[l]
On August 3, 2007, Energy Secretary Sam Bodman announced the hiring of a director for DOE’s new Loan Program Office. David G. Frantz, with 30 years’ experience, was a career civil servant who was serving as project finance director at the Overseas Private Investment Corporation. In making the announcement, Bodman said, “Having a Director of our Loan Guarantee office puts the Department one step closer to issuing guarantees for loans for clean energy projects that will help reduce our dependence on foreign energy.”[li]
Those DOE steps were slow, as the new office faced a heavy work load. Frantz later told congressional investigators that the quality of the 143 responses to the first solicitation “varied greatly” as his office whittled them down to the 16 worthy of further study, including the Solyndra proposal. At the same time, DOE was working on writing the regulations to govern the program. The Notice of Proposed Rulemaking came out in May 2007 and the final rules went into place in October.[lii]
Frantz was also working with a skeleton staff. By early 2008, he told congressional staff, the office had only four full-time federal professionals working in the loan program, even as he was facing calls from industry and the Congress to show progress in issuing federal loans to emerging projects.[liii]
In an April 2007 House energy committee hearing, James Cosgrove of the Government Accountability Office, the congressional watchdog agency, was critical of DOE’s early implementation of the loan program. His testimony also included an implicit criticism of Congress. Cosgrove noted that, in the absence of a congressional appropriation, DOE slipped $500,000 to the nascent loan program under the agency’s financial table from appropriations for three other offices. The money went to pay three employees detailed to the loan program from other agency programs and for contractors to develop a loan program website. Cosgrove concluded:
“DOE should not have begun implementation of the [loan program] without a specific appropriation. Nevertheless, DOE did begin implementation, and its approach to the LGP raised serious questions about whether this program and its financial risks would be well managed.”[liv]
Once the DOE loan program office had scaled back the responses to its initial request for applicants, the small staff under Frantz began looking at the applications, including Solyndra’s, seriously. It was the beginning of a process that was long, convoluted, and expensive, extending over two political administrations in Washington and ending in bankruptcy and political recrimination and finger-pointing. As Solyndra’s restructuring officer Todd Neilson summarized:
“Solyndra’s efforts to obtain the DOE Loan Guarantee were costly and time-consuming, and a significant portion of these efforts occurred during the Bush administration. The process took place over a period of 2 ½ years, during which numerous meetings and discussions were held with the DOE. In addition, thousands of pages of documents were provided to the DOE, including financial projections, historical financial performance analyses, market studies, sensitivity analyses, legal and engineering services documentation, and numerous meetings were held before the DOE finally approved the application.”[lv]
Solyndra was seeking federal support for its expanded manufacturing line, the first phase of Fab 2, which would give the company the ability to produce up to 210 MW of PV generating capacity per year. Solyndra was looking for a $535 million loan from the Treasury’s Federal Financing Bank, guaranteed by DOE’s loan program. Under the DOE regulations, that level of support required Solyndra to put up $178 million in equity (25%), for a total project cost of $713 million.
Under the procedure set up within DOE, the loan program office could not approve a loan on its own; it had to take a proposed award to a higher level of agency management, a “credit review committee” made up of technical experts and, if that group gave the loan a green light, a “credit review board” consisting of high-level agency officials and chaired by the deputy secretary. The job of the review board was to give technical and policy advice to the energy secretary, who would ultimately approve the award.
But DOE was not an independent actor in the process. The White House’s Office of Management and Budget had to approve the DOE loans, and was the guardian of the issue of the “credit subsidy cost” portion of the loan guarantee, which would become a choke point on the critical path. The 1990 Federal Credit Reform Act established the credit subsidy as a way to cover the potential costs to the government should a direct or guaranteed loan go sour. The borrower, or agency appropriations, depending on which legal provisions are in effect, pays the credit subsidy up front. OMB determines the amount of the subsidy for each transaction, on a case-by-case basis.
How OMB calculates the credit subsidy is not public knowledge, and it has turned into an item for intense negotiations between the borrower and the government during consideration of loans under the 2005 law. The Center for American Progress, a liberal lobbying group with ties to the Obama White House, explained the credit subsidy cost quite clearly in a March 2012 article discussing nuclear loan guarantees:
“The exact credit subsidy cost is impossible to project because it is determined by an Office of Management and Budget model that is not made public, but it is essentially the present value of the expected payouts that the government will have to make on the loan. This is determined by estimating a likelihood of default—the ‘default rate’—and the amount that the lender will recover in bankruptcy proceedings—the ‘recovery rate.’ The government makes up the difference so the lender receives all that is due. The payout is then discounted back to present dollars, taking account for the time value of money. The total cost is usually quoted as a percentage of the guarantee.”[lvi]
The 2005 law — what insiders term the “1703 program,” named for section 1703 of the act — required that the borrower pay the credit subsidy cost up front. The changes Congress included in the 2009 stimulus act — known as the “1705 program,” with a September 30, 2011 expiration — liberalized the requirement, allowing the borrower to also borrow the amount of the credit subsidy cost. But OMB had to calculate and approve the subsidy cost nonetheless.
The Treasury Department also gets involved in final determinations of most of the important loan guarantees, because they turn out to be direct loans and it is Treasury’s money that flows into the hands of the private sector. The conduit of federal money to private borrowers is Treasury’s Federal Financing Bank, known to the players as the FFB. Congress established the FFB in 1973 to create some order out of what had become a chaotic financial market. Here is how the FFB describes itself:
“The FFB was established to centralize and reduce the cost of federal borrowing, as well as federally-assisted borrowing from the public. The FFB was also established to deal with federal budget management issues which occurred when off-budget financing flooded the government securities market with offers of a variety of government-backed securities that were competing with Treasury securities. Today the FFB has statutory authority to purchase any obligation issued, sold, or guaranteed by a federal agency to ensure that fully guaranteed obligations are financed efficiently.”[lvii]
As the ultimate lender, Treasury had to approve DOE loan guarantees and quite reasonably felt it had to protect its interests, which were not necessarily those of DOE. The energy agency wanted to support projects that looked like they would accomplish the energy goals of the nation (and the administration of which they were part). The Treasury wanted to protect the nation’s taxpayers (and the administration of which they were part).
As those familiar with private-sector investment will quickly recognize, the government process is far more complex, with multiple and often competing goals, than faces venture capitalists looking at a new technology and a potential financial investment. While venture capitalists have real “skin in the game,” meaning that they are risking their own or their principals’ money, and the bureaucrats are not, the VCs also have a simpler equation to balance, with fewer variables that are easier to solve. The venture capitalists have no obligation to consider the “public interest” or the political appearances of their actions.
Once DOE’s loan office concluded that it wanted to move forward with the Solyndra award, the office also decided it wanted to move quickly. That proved an unrealistic aim as DOE worked through a process that was largely being created along the way. Solyndra submitted its formal application to DOE in three parts from May through August 2008, totaling over 1,500 pages, with an expectation of a decision in September 2008. When the firm first submitted a proposal to DOE in 2006, it was looking for an $80 million loan to build out its first production line, Fab 1. But the process was so slow, and DOE was so uncommunicative, that Solyndra raised the money needed for the first fabrication line on its own, with a loan from HSH Nordbank and venture capital equity. By the time of its full formal application in 2008, Solyndra was seeking $535 million for Phase I of Fab 2.[lviii]
Not long after Solyndra’s former August 2008 filing, the firm heard from DOE’s loan office that internal delays meant that the agency wouldn’t be able to close the loan before January 2009. DOE’s Frantz told Solyndra’s Gronet that the feds were experiencing “growing pains” and had to deal with “road bumps along the way.”[lix] The House energy committee report on the Solyndra failure pointed out that in late 2008, the OMB calculation of the credit subsidy cost was still an open item and the agency had not yet hired an independent engineering consultant — ultimately DOE would retain R.W. Beck, with its considerable fees paid by Solyndra — to help the agency evaluate the application.[lx]
The January 2009 estimate was too optimistic, as DOE recognized by the end of 2008. Frantz was indicating in a series of internal emails that his loan office would have to scramble madly to make a January presentation to the credit review board.[lxi] The timing also could not have been worse. The Democrats had won the November 2008 national elections and a new administration would be taking over the White House and DOE. Anyone who has followed what happens in Washington understands that the bureaucracy goes into what comedian and political scientist James Boren[lxii] called “full hunker,” a period of stasis as the bureaucracy awaits new orders. The Solyndra loan application went into this suspended animation.
Barack Obama took the oath of office as president of the United States on Tuesday, January 20 2009. Earlier, on December 16, 2008, president-elect Obama said he would nominate Steven Chu, 60, a Nobel Prize winner in physics and director of the Energy Department’s Lawrence Berkeley National Laboratory in California, to be his energy secretary.[lxiii] After facing complaints during his confirmation hearing about the agency’s failure to implement the loan guarantee program more rapidly, Chu moved quickly to boost the resources of the loan program and its profile in the energy agency.
When Chu took office, he got a briefing from Frantz and other DOE officials on the work of the loan program office, including the Solyndra application. Chu, according to the House committee report, pressed the office to “move much faster” on the pending loan business, but applied no specific deadlines for action.[lxiv] At this point, the DOE loan office still had only 16 federal employees facing a workload that was increasing rapidly.[lxv]
At the same time Chu was seeking to accelerate the bureaucratic process, Congress was adding to the time needed for the review. The American Recovery and Reinvestment Act of 2009 — the Obama stimulus program — passed Congress on strict party-line votes in both the House and Senate — on February 13, 2009 and the president signed it into law (PL 111-5) on February 17. The new law in Section 1705 made several changes to the 2005 loan guarantee provisions designed to boost renewable energy resources that make no contribution to carbon dioxide air emissions. Perhaps the most significant was a change in the burden of the credit subsidy cost. The change in the loan provisions now allowed the energy department to pay the credit subsidy cost out of its appropriated money.[lxvi]
DOE, OMB, and Solyndra engaged in a long-running battle over the credit subsidy cost, within a range of about 6% to 14% of the loan, or between $32 million and $75 million.[lxvii] The change in who would bear the credit subsidy cost contained in Section 1705 also changed the dynamics of the credit subsidy debate. When Solyndra was on the hook for the subsidy, it was a potential sink-or-swim issue for the company. Once the burden shifted to the government to pay the credit subsidy, Solyndra’s concern about the issue appears to have diminished.[lxviii] The issue increased in importance for DOE, since the money would now come out of its funds.
The terms of a final agreement went to DOE’s credit review board early in 2009 and the board approved the loan and issued a term sheet on March 20, 2009. The DOE loan program office issued a press release the same day, touting the decision and linking it to the creation of “thousands of new jobs in the U.S.” The press release quoted Chu (although the odds are vanishingly small that he actually said or wrote the words), “This investment is part of President Obama’s aggressive strategy to put Americans back to work and reduce our dependence on foreign oil by developing clean, renewable sources of energy,” an entirely anodyne remark. The press release also bragged, “This allows the Department of Energy to offer its first loan guarantee within the first two months of the Obama Administration,” a veiled slap at the previous Bush and Republican efforts. Deep in the news release, DOE noted that the award represented a “conditional commitment.” [lxix]
In its post-collapse analysis, the House committee’s Republican staff pointed to timing discussions around the award among officials at DOE and the political arms of the White House, including Vice President Biden’s office.[lxx] There is no indication that political considerations influenced the decision, only that there may have been interest among the political types in using the announcement for political purposes. The staff report makes much too much of the last-minute battle between DOE and the OMB over the size of the credit subsidy, an inconsequential matter in terms of the overall size of the loan that would have no impact on the amount taxpayers would ultimately have at risk in the loan. Similarly, the contention among the politicos in the White House, who wanted maximum impact from loan announcement, and the cautious bureaucrats in the OMB and Treasury represented nothing unusual. Given the vast experience of the Republican House staff, the charges of the committee staff about the initial award are either remarkably naïve or entirely disingenuous. A Republican administration likely would have behaved no differently.
As the DOE press release indicated, there was still more to be done by Solyndra and the government before the loan could close. Solyndra floated an offering of preferred stock in July 2009, raising $286 million ($130 million from Argonaut[lxxi]), of which $198 million went to meet the requirement in the government loan for 25% equity from the borrower. In August, the bond rating agency Fitch gave Solyndra a “BB-” rating, a below-investment-grade bond rating, as required in the loan agreement. The rating gave the odds of recovering the investment at 89%. DOE submitted its final credit subsidy recommendation to OMB (although it never shared that figure with Solyndra, as it was not the company’s money going to the credit subsidy).[lxxii]
DOE issued another press release, on September 4, 2009, announcing the final closing of the loan agreement and Biden’s appearance at the Fremont ground breaking.[lxxiii] A typically puffed-up Biden in the press release and in his live video hookup with California claimed that the loan guarantee was “part of the unprecedented investment this Administration is making in renewable energy and exactly what the Recovery Act is all about.”
The Failure
The Solyndra loan was the culmination of a process that began four years earlier with a Republican White House and Congress. Over that period, the nascent California firm waded through months of discussions, multiple dead ends, massive mounds of paperwork, and millions of dollars.
It was this complex stew of mixed motives and objectives — created by an unwitting or simply incompetent Congress — that Solyndra’s executives faced when they entered the not-fully-formed DOE loan process in 2006 and found themselves in a regulatory and bureaucratic quagmire. Once the process was over, they may have wished they had never undergone the process, but at the time they believed it was their only path to business survival and growth. In retrospect, it is now clear that Solyndra was doomed as a business enterprise, a federal government loan to the contrary notwithstanding.
From a business standpoint, the timing of the Solyndra loan was remarkably wrong. But there was little evidence for that at the time. While it was negotiating with the government, Solyndra was going about its business with considerable apparent success. Sales in 2009 topped $100 million. The average sales price per panel (ASP), a key measure of the company’s position in the market, was hovering at around $3.30.[lxxiv] If that level had held, Solyndra might still be in business.
But something was rotten in Solyndra’s sunny world, and it was a rapidly deteriorating market for photovoltaic electricity, both at a macroeconomic and a microeconomic level. First, the big picture. By 2008, the U.S. economy, along with the rest of the world, had plunged into a deep recession, driven in large part by a frozen credit market. As Solyndra and DOE were negotiating the loan guarantee under the terms of the 2005 Energy Policy Act, in September 2008 Lehman Brothers filed for bankruptcy and Merrill Lynch announced its fire sale to Bank of America.[lxxv] One of the first orders of business of the new Obama administration and the 111th Congress was the stimulus, the American Recovery and Reinvestment Act.
The following chart from the St. Louis Federal Reserve shows the impact of the recession on access to credit:
As Solyndra’s chief restructuring officer observed, the credit crunch harmed Solyndra’s ability to raise new capital — the company withdrew its application for an initial public stock offering from the Securities and Exchange Commission in June 2010. It also meant that Solyndra’s customers had trouble financing their projects, including purchases of PV panels. Also, in Europe, Solyndra’s largest market, national restructurings included ending or scaling back subsidies for renewable energy programs.[lxxvi]
At a more specific level, Solyndra’s government loan guarantee came as the market for the crucial ingredient of its chief competitors — crystalline silicon, also known as “polysilicon” (P-Si), collapsed. At the same time, China entered the market to supply PV equipment to the rest of the world, at prices kept artificially low by subsidies from the Chinese government, according to a later decision by the World Trade Organization.
What happened to P-Si was a classic case of supply and demand. According to the Department of Energy[lxxvii] in 2008 P-Si accounted for about 80% of the market for photovoltaic equipment. The cost of that technology was the target for alternative technologies, such as Solyndra’s CIGS cells. While CIGS was more expensive than P-Si, as long as the difference remained small, the advanced thin-film technology could continue to make sales.
From 2004 to 2008, P-Si prices were rising steadily, driven by the robust, government-stimulated market for PV arrays in Europe and the U.S. Once the artificial demand began to diminish, and once the high prices induced new supply, the price for P-Si started to fall. It was Econ. 101. Pi-S was selling for $75/kilogram in 2005 and had at least tripled by 2008 on forecasts of demand for more than 70,000 metric tonnes. By 2009, according to estimates from the Department of Energy’s National Renewable Energy Laboratory, supply hit 90,000 tonnes and would reach 120,000 tonnes in 2010.[lxxviii]
Prices for P-Si collapsed, along with the ASP (average sales price per panel) for conventional PV technology:
According to Solyndra’s restructuring officer, the company was able to reduce its internal ASP as a result of the new production capacity resulting from the government’s loan. But the company was unable to turn the corner to profitability.
During that time period, China began making a big impact on the PV market. The country decided to make a major industrial push, building large capacity to make PV panels aimed, not at the domestic Chinese markets, but at the heavily-subsidized Western market, particularly the U.S. This was a boon to U.S. consumers, who saw the price of the technology plummet. But it produced havoc among U.S. providers of the technology, such as Solyndra, who claimed that China was “dumping” its panels in the U.S., selling them for less than it cost the already heavily-subsidized Chinese companies to produce the panels and flooding the market with low-priced solar equipment. With less than 10% of the market in 2005, China had captured half of the PV market by 2010.[lxxix]
The impact on Solyndra was devastating, coming as the company was trying to expand its production. The expanded production was absolutely critical to its success; within a week of the high-profile groundbreaking for Fab 2 in Fremont, thanks to the federal loan, Solyndra applied for a second DOE loan, to support Phase II of Fab 2. As Gronet commented in an email to Argonaut’s Steve Mitchell, “The Bank of Washington continues to help us.”[lxxx]
In November 2009, The company estimated the cost of the Phase II project at $642 million and sought $469 million from DOE. In its application, Solyndra said it “believes the combined scale of Phase I and Phase II are required to achieve the economies of scale that would result in a cost of goods sold that would support long-term competitiveness.” The company also filed its registration for a sale of stock at the Securities and Exchange Commission in December.[lxxxi]
In March 2010, with the market in retreat, Solyndra amended its SEC filing to reflect a pessimistic report by its auditors, PricewaterhouseCoopers, which noted “recurring losses from operations, negative cash flows since inception and ha[d] a net stockholders’ deficit that, among other concerns, raise[d] substantial doubt about its ability to continue as a going concern.”[lxxxii] The House committee staff report said that the filing “set off alarm bells” at DOE, where the information quickly rose to the office of the new director of the loan office, Jonathan Silver.[lxxxiii]
Silver was new to the job. Energy secretary Chu, seeking to raise the profile of the loan program inside the agency, named Silver in November 2009 as executive director of the loan office, as well as adding the agency’s advanced vehicle program, putting the political appointee over Frantz, the former agency loan chief. At this point, the Solyndra loan had already been approved and the company was taking payments from the Treasury’s FFB.
Silver was a co-founder and managing director of Core Capital Partners, a Silicon Valley venture capital firm and, before that, head of the Tiger Management hedge fund. He had served in the Clinton administration’s Energy, Treasury, Commerce and Interior departments.[lxxxiv] Under Chu’s reorganization of the loan program, Silver reported directly to him. In the press release announcing Silver’s appointment, DOE bragged:
“Within 60 days of taking over at the Department, Secretary Chu announced the first loan guarantee to Solyndra, Inc. to support the company’s construction of a commercial-scale manufacturing plant for its proprietary cylindrical solar photovoltaic panels. Since then, DOE has made additional conditional commitments to Beacon Power and Nordic Windpower and issued advanced technology vehicle loans to Nissan, Ford, Tesla, Fisker and Tenneco.”[lxxxv]
In its September 2009 application for the second loan, to build the second phase of Fab 2, Solyndra flashed its fiscal muscles to the energy department:
“The Sponsor [Solyndra] is financially strong. The Sponsor’s cash balance as of September 4, 2009 was $55.5 million, exclusive of $160.0 million of restricted cash which is irrevocably pledged as Sponsor’s Equity for Solyndra Fab 2 — Phase 1. The Sponsor’s total assets are over $250 million. The Sponsor enjoys the support of several large venture capital and institutional investors and private foundations which in aggregate manage billions of dollars of capital.”[lxxxvi]
But those bulging business biceps were rapidly turning to flab and Solyndra was soon pleading with the government to restructure the first loan and find other ways to rescue the company. Solyndra’s sales were evaporating and the company was running out of cash to keep itself upright.
Solyndra’s distress put the creditor, the U.S. government, in a nasty bind. It’s a familiar dilemma for lenders who have backed projects that are going South. Should the lender come up with additional funds, or take a haircut on the owed funds, in an attempt to turn the venture around? Or should the lender cut its losses and refuse the risk of spending good money after bad? As DOE’s Silver said later in a House energy subcommittee hearing:
“DOE faced a choice: whether to (1) refuse to allow the restructuring, thereby ensuring that Solyndra would close its doors immediately, and that the U.S. taxpayer would recover only a modest amount of the loan; or (2) allow the company to accept the emergency financing, thereby giving it and its almost 1,000 workers a fighting chance at success, and the government a higher expected recovery on its loan.”[lxxxvii]
Solyndra and the government soon were searching, often in what was a helter-skelter process, for ways to save the company. The House energy committee’s Republican staff report captures the chaotic process that occurred as Solyndra twisted in the market winds and the agency tried to rescue it.[lxxxviii]
As the turmoil over Solyndra was building in the bowels of the bureaucracy, apparently unaware of the back story the White House political image makers decided that the president should visit the Solyndra factory for a photo opportunity touting his stimulus program during a trip to California in late May 2010.[lxxxix]
During the trip planning, Obama political minder and close friend Valerie Jarrett got an email warning that something was rotten in Fremont from Steve Westly, former California controller and unsuccessful Democratic gubernatorial candidate.[xc] Now a Silicon Valley venture capitalist who had raised funds for Obama’s 2008 campaign, Westley warned Jarrett, “[a] number of us are concerned that the president is visiting Solyndra,” and that the company appeared to be headed toward insolvency. Jarrett passed the email on to DOE, which downplayed the concerns and told the White House that Solyndra would pass through some rough water and emerge intact.[xci] The president showed up in Fremont for a grip-and-grin with Gronet and said, “The true engine of economic growth will always be companies like Solyndra.”[xcii]
Those words turned out to be ill-chosen. At a board meeting a week before Obama’s visit to Fremont, director Steve Mitchell, representing Argonaut and the Kaiser interests, laid out a desperate rescue plan, involving floating another $350 million in debt to buy time to raise more equity capital, cut costs, and increase sales. Mitchell said that Solyndra could expire if it wasn’t able to turn around the financial condition by October 2010.
With some fancy financial footwork and only $10 million in cash on hand, Solyndra managed to sell $175 million in convertible notes to pay its immediate bills. That was only a temporary matter and the company was still outspending its income and running out of cash. In June 2010 the company pulled its application for sale of public stock off the table; by late in the year it had shelved plans for the second production line of Fab 2, which the company earlier said was critical to its future success.[xciii] In retrospect, at this point Solyndra’s future as a going concern was dead.
But, as the cliché has it, hindsight is 20-20. In the summer of 2010, Solyndra was still scrambling and the government was starting to ask difficult questions. In July, in a classic case of how businesses behave when they are failing, the board sacked founder Chris Gronet and brought in new management. The new CEO was Brian Harrison, another Stanford alum, who came to Solyndra from Swiss semiconductor company Numonyx B.V., where he became CEO in 2008, after a long career in semiconductors at Intel Corp. In Solyndra’s press release announcing Harrison’s hiring, Argonaut’s Mitchell said, “Brian has proven he can ramp operations while aggressively driving down costs in a very competitive global industry.”[xciv]
But Harrison’s record to some outsiders didn’t inspire a lot of confidence. Veteran solar energy reporters Eric Wesoff and Michael Kanellos of Greentech Media wrote of Harrison’s time at flash memory maker Numonyx:
“Interestingly, Numonyx has been in a situation similar to that faced by Solyndra (over and above the crazy fixation with using ‘y’ as a vowel). Funded by well-known companies like Intel, Numonyx’s memory has shown great promise for improving computer performance and reducing power. However, the company has taken years to get its products to market. (In fact, the type of memory Numonyx makes was the next big thing according to Gordon Moore — in the early ‘70s. It’s as old as The Mary Tyler Moore Show.) The technology behind Numonyx was invented by Stan Ovshinsky, who came up with technology for amorphous silicon solar panels.”[xcv]
As it turned out, Harrison didn’t lead Solyndra out of the darkness and into a sunny future. Rather, he pointed the company to the business sign reading “Exit” and quickly left the theater himself. He departed Solyndra in October 2011, after the company had entered bankruptcy and after he had appeared at a House committee hearing, refusing to answer questions at the advice of his attorney. During Solyndra’s end game, it was clear that it wasn’t the chief executive officer who was making executive decisions, but the board members who represented the venture capital owners of the company’s increasingly worthless equity. A year after the bankruptcy filing, Harrison’s LinkedIn page said he was looking for “the next big thing.”[xcvi]
By the fall of 2010, with its commercial customers in retreat, Solyndra was focusing on reworking its government loan and trying to recruit Uncle Sam as a customer for its unique electric generating technology. Solyndra officers had noticed that the federal government has three things the company desperately needed: a lot of roofs, a lot of electricity use, and a lot of capital. This also aligned with a new marketing direction put in place by new CEO Harrison, which abandoned system integrators and resellers to focus on direct consumers — the owners of the rooftops.[xcvii] The Defense Department became the target of Solyndra’s government marketing campaign and Solyndra’s lobbyists, and those of its equity owners, persuaded Congress to change federal law to keep foreign solar panels off the military’s roofs. But Solyndra was unable to leverage that into a significant line of new business supplying Defense Department with PV equipment.[xcviii]
In September 2010, Solyndra notified DOE that it was failing to meet some of the production requirements contained in the government loan. That fall, Solyndra went to the Energy Department with its hand out, not for a shake, but for a restructuring of the federal loan. Without the government relaxing some of the terms of the loan — which were designed to protect taxpayer interests — Solyndra’s equity owners were making it clear that they would not reach into their pockets again.
At a two-day meeting in Washington September 15-16 2010, Solyndra disclosed its financial condition. Energy department officials, in the driver’s seat, told the company it would have to guarantee the entire balance of the loan to DOE and give the government a claim on the value of the company’s patents and other intellectual property. The parties understood that DOE could withhold loan payments to Solyndra unless the company came up with a plan to fix its problems. After a series of internal meetings, Solyndra rejected DOE’s approach and countered on October 12, 2010 with its own plan. Solyndra also included a prediction that, without federal forbearance, it would fail. The implicit threat was that such an event would embarrass the Obama administration, which had raised the visibility of the project into its stimulus poster child. Solyndra’s proposed restructuring came to be known as the “Consolidation Plan.”
The key elements of the plan, in addition to formally ending the second loan request, were:
* Solyndra’s payments on interest and principal on the loan would be delayed for a year to May 15, 2013;
* The term of the loan would be extended by three years to December 15, 2019;
* A $30 million “cost overrun” account — a charge to Solyndra — would vanish;
* Solyndra would immediately lay off 200 employees in Fremont to cut costs;
* DOE would be first in line for all of Solyndra’s assets in the case of liquidation;
* The venture capitalists would put up another $150 million in cash to carry the company into 2011.[xcix]
The Consolidation Plan got immediate attention in Washington, more for the possible public relations damage from the planned layoff of 200 workers (by shutting down Fab1 production and moving all it manufacturing to the more efficient Fab 2 line) than from the financial details. In late October, Harrison reminded DOE that Solyndra needed to hear from the feds soon, so it could warn its workers what was coming. That set off political alarms at DOE, which alerted the White House of the impending layoffs. The fear was that layoffs could come just days before the November 2, 2010 mid-term national elections, which were not looking good for the Democratic Party. After hurried communications among the White House, DOE, and Solyndra, the company agreed to wait until November 3, when it announced the layoffs.[c] Despite political huffing, puffing, and harrumphing from House Republicans, this behavior is about what one could expect from any administration.
As it turns out, the Solyndra job announcement generated barely a ripple on the national scene, coming after the Republican triumph in the election. In a low-key story inside the business section, the New York Times reported, “Solyndra, a Silicon Valley solar-panel maker that won half a billion dollars in federal aid to build a state-of-the-art robotic factory, plans to announce on Wednesday that it will shut down an older plant and lay off workers.”[ci]
The end of 2010 and beginning of 2011 featured a swirl of activity at Fremont, DOE and OMB over whether and how to save Solyndra. There was a political subtext among the government folks: how bad will it look if the administration’s first, highly-touted energy loan under the stimulus program is also the first to fail? But, from the record (mostly compiled by the House Republican committee staff), it is clear that this was very much a secondary consideration. For Solyndra’s venture capital investors, who by now were calling all the business shots, the interests were straightforward. If Solyndra went down, the heavy investments they had made likely would be flushed down the drain with the company. For DOE, the motivation was reputation. DOE put a lot of prestige and the reputation of its new management team into the proposition that it could run the loan program better than its Republican predecessors in the Bush administration. The haste at getting the Solyndra loan in place seemed to validate that sense of inflated ego. Failure would taste bitter.
Business writer Barry Ritholtz in the Washington Post discussed the problem of “reputational risk.” Here’s how he defined it: “Who suffers if this investment goes down the drain? Who gets fired or voted out of office if this blows up? Who suffers reputational risk?”[cii]
For the OMB, a different dynamic was at work, one that completely undercuts the House Republican claim that somehow the White House was pushing DOE to boost Solyndra for reasons related to partisan politics. While organizationally located in the Executive Office of the President and physically located near the White House grounds, the OMB is one of the least partisan executive branch agencies, with a core cadre of career civil servants who provide continuity (and a considerable amount of conservatism) from one administration to the next. The OMB careerists generally find their adversaries not from the ranks of the party in opposition to the sitting president, but among the mission-driven staff in the substantive agencies and the profligate spenders of both parties located at the other end of Pennsylvania Avenue in Congress.[ciii] One of the key jobs of the OMB is to tell other executive branch agencies, “No.” That was the case with Solyndra, where the OMB was asking the hardest questions of DOE officials who were seeking a loan workout for the California solar energy firm.
DOE faced a nasty dilemma with Solyndra, given that it wanted the company to succeed, both because this burnished the agency’s reputation and that of the administration, and also because failure would expose taxpayers to financial liability. In order to restructure the loan, DOE wanted to see more support from Solyndra’s venture funders. The equity investors, on the other hand, wanted to see a firm commitment from DOE for a loan workout before it would commit any additional equity or preferred stock.
Over the next couple of weeks, DOE and Solyndra’s owners came up with a complex deal involving enough working parts to challenge any financial mechanic.[civ] One element of that complex arrangement resulted in a red flag at OMB, and became a major focus of the political assault on the Obama administration that followed Solyndra’s collapse: subordination.
A fundamental element of government loans to the private sector is that the government should be first in line for recovery if anything goes wrong. The government’s claims become senior before bankruptcy courts, ahead of other creditors (with equity holders generally left holding an empty bag). This is generally both a matter of law — the 1990 Federal Credit Reform Act[cv] and the 2005 Energy Policy Act[cvi] — and internal government guidance — OMB Circular A-11.[cvii] In restructuring the Solyndra loan, DOE offered to subordinate its financial interest in a $75 million portion of the loan to that of the equity holders, giving the investors the first crack at recovering any of the value left in a Solyndra liquidation.
From the excellent detective work done by the House energy committee’s Republican staff, it appears that DOE’s loan office officials made the subordination offer to Solyndra in a December 7, 2010 meeting in order to unfreeze the discussions and reach a final agreement on the workout. With the agency and Solyndra agreed upon a course of action, DOE then began working on convincing OMB of the wisdom of its proposed actions on the loan.[cviii] The loan office asked DOE’s General Counsel and the loan office outside counsel, Morrison & Foerster, for its judgment on whether the terms of the deal were legal.
Ultimately, after an internal tug-of-war, DOE concluded that the restrictions on subordination of interest under the Energy Policy Act applied only to new government loans, not to a loan workout. Subordination was an issue that applied only to loan “origination,” according to the DOE analysis.[cix]
But DOE still had to convince the OMB of that position, and the budget guardians were unsure of their authority and skeptical of the DOE’s legal reasoning. The OMB has the authority under the 1990 law and Circular A-11 to review loan “modifications.” The question that faced the White House office was whether the Solyndra was a modification or a workout. This seemingly arcane dispute took nearly two months to resolve. But inside the inside-baseball wrangling over what to call the restructured loan was a significant issue: what action would minimize the exposure of the taxpayers, a loan modification (with no subordination of government interest) or a workout, where the government could change the rules of who gets what when if a borrower collapses.[cx]
As 2010 ended and 2011 began, DOE’s loan guarantee staff and the professional staff from the OMB engaged in repeated rounds of dispute and discussion over the Solyndra loan intricacies. At the heart of the bureaucratic dustup was whether an immediate liquidation or a rescued Solyndra would best protect the interest of U.S. taxpayers. DOE argued that keeping Solyndra on life support offered the best course for recovering the government dollars. OMB had serious doubts.[cxi]
Another aspect of the dispute that hinged on whether the DOE loan restructuring would be a modification or a workout was whether the OMB actually had a horse in the race. If what DOE was proposing was a loan workout, then the budget office didn’t have clear authority over the case. Traditionally, OMB’s budget examiners defer to the statutory executive branch cabinet agencies. At the staff level, the dispute between DOE and OMB reached an impasse, requiring the political leaders of the two institutions to break the analytical and legal logjam.
On January 31, 2011, Energy Secretary Chu and OMB Director Jacob Lew met to discuss the relative roles of the two agencies. It is not clear that Solyndra came up directly, although it was clearly on the minds of the DOE and OMB staff most interested in the outcome of the meeting. In any case, the record the House energy committee Republican staff compiled indicates that OMB staff believed they had won the dispute, that the loan restructuring was a modification, and that DOE could not subordinate the government’s priority in recovery.[cxii]
Nevertheless, DOE moved ahead, informing OMB on February 10, 2011, that it planned to go forward on the Solyndra loan restructuring, with a closing set for the next day or two. Chu on February 18 signed a memo authorizing the agency action. On February 23, OMB officially notified DOE that OMB had concluded that the restructuring was a workout. DOE had won the battle and Solyndra lived.[cxiii]
But the workout didn’t save the firm for long. Solyndra was in a classic business death spiral. It was selling its systems but, despite considerable cost-cutting, losing big on every sale. As the company’s bankruptcy restructuring office Todd Neilson demonstrated in his report, the company essentially failed to meet every financial projection for sales and profits as time passed, although it was meeting its estimates for number of panels it produced in Fremont.[cxiv]
Solyndra was scrambling for cash by the summer of 2011; the company got approval from DOE for the sale of its accounts receivable, raising $29 million. The company arranged a sale of its inventory, scheduled for July 29. DOE and the principal investor, Argonaut, spent August trying to work out a new infusion of capital, but, as Neilson put it, “Argonaut had lost the necessary internal support to move forward with such a transaction, and indicated it was no longer willing to underwrite any transaction without significant participation from a new investor.”[cxv]
As the company’s staggers continued, DOE was also questioning its continued support. The House committee Republican staff report captured this changing environment: “By August, however, documents produced to the Committee indicate that DOE’s willingness to help remedy the company’s working capital problems had changed.”[cxvi]
On August 30, the Solyndra board concluded that the end had arrived and bankruptcy was the only path that made business sense. It was time to “wind-down the business following a sale or liquidation of assets.”[cxvii] The next day, Solyndra filed papers initiating a Chapter 11 bankruptcy proceeding, leaving U.S. taxpayers holding an empty bag after disbursing some $528 million to the California company. The plant closed; 1,100 workers got pink slips.
But that was far from the end of the tale.
The Politics
Solyndra’s collapse, highlighted by the bankruptcy filing, made headlines and television screens across the country. In the New York Times, veteran energy reporter Matt Wald commented, “The failure of the company — and the loss to taxpayers — is likely to renew the debate in Washington about the wisdom of clean energy subsidies and loan guarantees.”[cxviii] Wald’s speculation was dead accurate. Solyndra would be the target of Republican attacks on the Obama administration’s fixation on wind and solar power for the next year.
Another word in the Wald article was also very important: renew. Republicans in the House had been on the Solyndra hunt for months before the bankruptcy filing, with little impact. But the collapse was tangible evidence that the GOP critique of the Obama administration’s energy policy had weight. David Brooks, the Times’ conservative columnist, saw in the Solyndra failure the larger Republican message, “The gigantic public investments in green energy may be stimulating innovation and helping the environment. But they are not evidence that the government knows how to create private-sector jobs.”[cxix]
The public image of the Obama policies took a further beating just days later, when FBI agents, working with officials from DOE’s Inspector General’s office, raided Solyndra’s Fremont office, hauling away boxes of records and business documents as news photographers captured the event. At the same time, the leadership of the House Energy and Commerce Committee announced they would hold hearings within the next week, with Obama administration figures at DOE and Solyndra executives called to testify. Rep. Cliff Stearns of Florida, chairman of the committee’s oversight and investigations subcommittee, said a goal of the hearings was to get the DOE to slow down further awards, as the loan guarantee authority (section 1703) in the stimulus legislation terminated September 30. “The last thing we can afford from the Obama administration are more of the same sloppy, poor investments in the final rush to get the cash out the door,” Stearns said.[cxx] It was, of course, an empty statement; on Sept 30, DOE awarded $1.46 billion to the 550-MW Desert Sunlight photovoltaic venture, a utility-scale project, with power to be sold to Pacific Gas and Electric and Southern California Edison.[cxxi]
As Republicans increased the profile of their hunt for Solyndra scalps, they raised the charge of “crony capitalism,” citing the connections among Argonaut, Solyndra, George Kaiser, and the 2008 Obama campaign. Washington Post conservative Republican columnist Jennifer Rubin quickly pounced, pronouncing the Solyndra unraveling “the quintessential crony capitalism story that personifies the unseemly conflict of interests that arise between pols and donors.” Rubin quoted Rep. Fred Upton, the Michigan Republican newly chairing the House Energy and Commerce Committee: This is not right. This is not good.”[cxxii]
But Upton quickly calculated that it was good for the Republican right. The Solyndra affair was an embarrassment for the administration; the GOP, predictably, was prepared to rub the administration’s nose in its green mess. Upton and Stearns, his failed rival for the committee chairmanship in January, in early September announced a full-fledged investigative initiative designed to accomplish that task.
Upton and investigations subcommittee chairman Stearns September 1 wrote the White House, trolling for Solyndra-related documents.[cxxiii] Upton scheduled a full committee hearing for September 14 to hear from Obama officials. Stearns set a hearing at his subcommittee for Solyndra executives for September 23. For those who have spent time in Congressional hearings, the event with the DOE and White House was familiar. It was an event without substance, typical Washington political Kabuki.
Acting OMB director Jeffrey Zients and DOE loan program chief Jonathan Silver on September 14 took political shots from the committee Republicans while denying anything inappropriate took place during the Solyndra fiasco. The committee released various White House documents indicating that there was a kerfuffle between OMB and DOE over Solyndra.[cxxiv] There was innuendo, implication, but nothing approaching a smoking gun.
Piling on gleefully, House Judiciary Committee chairman Lamar Smith of Texas followed up a few days later with a letter to Attorney General Eric Holder calling for a Justice Department “special examiner” to look into the Solyndra events. Smith said in the letter that press accounts “have raised suspicion about the extent to which the Obama Administration may have singled out Solyndra for special treatment . . . because of the president’s political relationship with one of the company’s major investors, George Kaiser.”[cxxv] There was, of course, no chance for the kind of investigation Smith called for, and the odds are excellent that he and his staff knew that when they wrote the letter. The Justice Department’s FBI was already on the case.[cxxvi]
The Stearns subcommittee hearing with the Solyndra executives was more dramatic than the appearance of the Obama administration officials, although no more revealing. When Stearns first scheduled the hearing, Solyndra executives promised to appear and answer the solons’ questions fully. But then their lawyers whispered in their ears. When Solyndra CEO Brian Harrison and chief financial officer Bill Stover appeared, they had already informed Stearns that they would refuse to answer questions and, given the FBI raid on the company, would assert their right under the Fifth Amendment of the U.S. Constitution to remain silent. As Republicans in high political dudgeon assailed them for lying, stealing and other slanders (for which the legislators are immune from legal challenge), Harrison and Stover grimly took the tongue lashings. “I have tremendous respect for this subcommittee. As much as I wish to answer the committee’s questions, I have been advised it is the better course” not to, said Harrison.[cxxvii]
Upton’s squad was well armed for its September Solyndra shootout; the committee Republicans had been gunning for the Solyndra loan and the Obama administration’s role in it since shortly after the GOP took control of the House of Representatives in January 2011. In February, The Hill, a newspaper that covers Congress exclusively, reported that Upton and Stearns had sent Energy Secretary Steven Chu a letter requesting information on the Solyndra loan. The letter did not raise questions about political influence, but suggested that the committee was interested in micro-managing the executive branch: “While we understand that the purpose of the Loan Guarantee Program is to help private companies engaging in clean energy projects to obtain financing by providing loan guarantees, subsequent events raise questions about whether Solyndra was the right candidate to receive a loan guarantee in excess of half of a billion dollars.” A committee staffer told reporter Andrew Restuccia, “We’ll be taking a close look at DOE, as well as other stimulus funding within our jurisdiction.”[cxxviii]
The February letter ironically came as President Obama was in Silicon Valley, meeting with high-tech industry leaders, including Apple’s legendary Steve Jobs (who died in October 2011) and Facebook founder Mark Zuckerberg.[cxxix] The only person at the dinner meeting (closed to the press) with a Solyndra connection was the political venture capitalist Steve Westly, who had earlier warned the White House about the business prospects of Solyndra prior to Obama’s visit in May 2010.
Following the Solyndra loan restructuring and the company’s further business stumbles, the House committee began planning a more detailed inquiry into the whole mess. On March 14, 2011, the committee wrote to OMB, requesting a briefing on Solyndra and related documents. The letter raised “concerns” about the restructured loan.[cxxx]
The committee staff and OMB officials worked together following the letter, but the committee leaders felt OMB was still holding out on full disclosure. On Wednesday, June 22, claiming that OMB had stonewalled the document demand, Stearns announced that his investigations subcommittee would hold a hearing that Friday, with OMB officials in the witness chair. The title of the hearing, Stearns said in a press release, would be “OMB’s Role in the DOE Loan Guarantee Process.”[cxxxi]
Unfortunately for Stearns, it is difficult to hold a congressional hearing without a witness. Nobody from OMB showed up for the Stearns hearing; acting OMB head Jeff Zients claimed that the agency didn’t have sufficient notice and could not schedule around the hastily-called hearing. An apparently nonplussed Stearns claimed he’d notified Zients a week before and added that he was more interested in getting OMB’s files than its oral testimony. Zients denied that he was stonewalling Stearns on documents and OMB’s general counsel said the only issue between the subcommittee and the administration was email traffic, which the agency viewed as intruding into the deliberative process.[cxxxii]
Three weeks later, on a straight 14-8 party line vote, the full energy committee voted to subpoena the OMB documents. Henry Waxman, the California Democrat who was the ranking minority member on the committee (and a former chairman) predictably denounced the subpoena as a “fishing expedition,” which was undoubtedly true and also completely irrelevant.[cxxxiii]
More relevant is that once the committee got the documents it needed — and after a year of fishing, and interrogating scores of witnesses — the committee caught no big fish. On August 2, 2012, the committee issued “The Solyndra Failure,” the majority staff report on its investigation. The report said its investigation “included reviewing over 300,000 pages of documents, interviewing numerous individuals who played a role in the Solyndra loan guarantee, and holding five hearings before the Subcommittee on Oversight and Investigations.”[cxxxiv]
Despite the magnitude of the effort, and the usefulness of the document for those seeking the intricate details of the Solyndra affair, the report produced nothing to support the Republican charges of political intrigue and influence peddling in the DOE program. Instead, it portrays a hurried, harried process implementing bad law produced equally by both parties in Congress. Slate blogger Will Oremus summed up the report succinctly: “An attempt to turn the White House’s bad bet into a corruption scandal has fizzled since a Congressional investigation has failed to uncover any bombshells.”[cxxxv]
Nor has the GOP single-minded attempt to tie the Obama administration to the failed solar company paid off in political dividends. Just two weeks after the committee staff report, Cliff Stearns, a 24-year veteran of the House and stalwart Solyndra soldier, lost a primary election in his central Florida district to little-known veterinarian Ted Yoo. Stearns had vastly more money than Yoo, plus the endorsements of important House Republicans including Minnesota’s Michelle Bachman, Florida’s Alan West, and Wisconsin’s Paul Ryan, who would become the party’s vice presidential nominee.[cxxxvi] The Washington Post account commented, “Stearns had a national platform as chairman of the key House and Energy Subcommittee on Oversight and Investigations. He used it to maximum effect to antagonize the Obama White House over its support of loan guarantees for the bankrupt solar energy company Solyndra.”[cxxxvii]
Nonetheless, the House Republicans continued to hammer the administration with Solyndra. Slate’s Oremus reported, “The liberal media-watchdog site Media Matters counts 107 mentions of Solyndra during primetime newscasts by the major broadcast and cable networks just since January. Of those, 84 were on Fox News.” [cxxxviii]
The GOP tactics included pushing a feckless piece of legislation — the Upton-Stearns “No More Solyndras Act” (H.R. 6213) — which would amend Section XVII of the 2005 Energy Policy Act for projects submitted to DOE after 2011.[cxxxix] Politico headlined the legislation as “Rep. Cliff Stearns’s last stand.” The Solyndra bill passed the House on September 14, 2012, by a vote of 245 in favor and 161 against (22 Democrats voted for the bill and four Republicans voted against).[cxl]
The bill would ban new loan guarantees filed after the end of 2011. Pending applications would get special scrutiny from the Treasury; DOE would have to share more information on the pending loans with Congress; subordination of taxpayer interest in loan recovery would be banned. While the bill originally had support from conservative organizations such as The Heritage Foundation and the Competitive Enterprise Institute, the New York Times and Politico reported that conservative ardor cooled because the bill would allow projects already in the review process to move forward.[cxli]
The legislation has little chance of even getting onto the Senate’s legislative agenda this year. California Democrat Henry Waxman said, “This is not serious legislation. It’s a political bill.”[cxlii] Indeed, a fair reading of the record shows that the bill that passed the House is more political than the administrative process that resulted in the Solyndra fiasco.
The End
In Mid-December 2009, as Solyndra was preparing for its filing of an application for an initial public offering with the Securities and Exchange Commission, Brad Jones, a principal with Redpoint Ventures,[cxliii] one of the original Solyndra investors, wrote an email to Larry Summers, head of the Obama administration’s National Economic Council, expressing some doubts about the government’s role in investing in emerging markets. Jones said that “the government is just not well equipped to decide which companies should get money and how much.” Of Solyndra, Jones noted that the company looked quite weak to be the recipient of half a billion dollars in a government loan and that “every administration seems to feel like it knows better than the private markets how to allocate capital, and I’ve just never seen that to be true.”
Summers, among the most experienced economists then advising the administration, responded, “I relate well to your view that gov is a crappy vc and if u were closer to it you’d feel more strongly.”[cxliv]
Solyndra provides compelling evidence that Summers’ wisecrack was on the mark. The government, at least in this case, was a “crappy” venture capitalist. And the Summers remark raises a series of questions and concerns that remain, even as the details of the Solyndra failure fade.
After all the politics, the business drama, the interactions of the market and government, what is the meaning of the whole Solyndra mess? The events, starting with the provisions of the 2005 energy law and ending with the posturing of the 2012 “No More Solyndras” bill, raise a number of questions worth pondering, even if the answers aren’t entirely clear. Among the topics that resonate in the discussion of the history of the Solyndra fiasco:
* What is the proper role of the government in fostering in markets?
* Is renewable energy a practical component of the U.S. energy system?
* How should political considerations influence government practices?
* Should Congress second guess detailed executive branch implementation of law?
* What are reasonable goals for U.S. energy laws?
* Can and should the government boost and protect U.S. firms playing in global markets?
The Larry Summers comment highlights the ambivalent role of the government as a venture capitalist. The premise of the loan provisions of the Republicans’ 2005 energy law and the Democrats’ 2009 stimulus act — as well as numerous acts of Congress going back decades and centuries — is that government can make better decisions than the market, at least in some cases. Supporters of this role for government often speak of “market failure,” where free markets don’t deliver goods or services of value to society as a whole. Here is a common definition of market failure:
“Market failure occurs when freely-functioning markets, fail to deliver an efficient allocation of resources. The result is a loss of economic and social welfare. Market failure exists when the competitive outcome of markets is not efficient from the point of view of society as a whole. This is usually because the benefits that the free-market confers on individuals or businesses carrying out a particular activity diverge from the benefits to society as a whole.”[cxlv]
In the 2005 Energy Policy Act, Congress decided (even when not explicitly acknowledging it) that society was being harmed because some energy technologies were victims of market failure. Specifically, these technologies — nuclear, clean coal, solar, wind, and other technologies that could reduce emissions of greenhouse gases — were unable to attract private-sector investors because of conventional risks. The most graphic illustration was nuclear power, where private sector investors were so wary of the risks that no new nuclear plants had been built in the U.S. in over a generation. But it was in the broader interests of society that these advanced generating technologies play a greater role in supplying power to the American people. So Congress established a program in the Department of Energy to overcome the reluctance of the private sector to commit the money necessary to develop these desirable technologies.
One of the problems of this approach is that it requires the government to walk in two directions at the same time. One the one leg, they want to take risks beyond where private investors are willing to go. On the other leg, they have to hold back to protect the taxpayers, their ultimate paymasters, from undue risk, which exposes them to charges that they weren’t creative or daring enough. The bureaucratic capitalists aren’t playing with just their own and their investors’ money, but with the dollars of unwitting taxpayers, both Republicans and Democrats and folks in between and on the fringes.
Toward the end of 2010, Ron Klain, Vice President Biden’s chief of staff, shared some thoughts about these bifurcated responsibilities in an email exchange with an unnamed reporter. Klain observed that “loan guarantees present harder problems than just giving people cash…[b]ecause with a loan guarantee, we are presumably expecting to get paid back.” Klain pointed out the problem of making just the right pick: “If you loan money to people doing super risky things, like Solyndra (a plant to build a new kind of solar collector never used before) there’s some chance (a decent chance) you won’t get paid back. If you loan money to people doing proven (but larger) things like [REDACTED], folks argue, ‘hey, that’s just an old technology, those guys could get bank funding if they really tried to.’ So on loan guarantees, you are searching for Goldilocks projects — too risky for banks, but safe enough to have a high likelihood of repayment. That’s a pretty narrow fit.”[cxlvi]
This ambulatory problem does not afflict venture capitalists, who put their own or their investors’ money at risk in pursuit of only one goal: profit. In the case of Solyndra, the largest investor was George Kaiser, who was putting his own capital into the venture simply because he and his advisors believed the potential rewards were worth the very considerable risks. If the investment failed — and it did — then he and his money would move on to other ventures.
In the 2005 law, Congress and the Bush administration made a decision to put taxpayer dollars into play in ventures riskier than many of them imagined, based on an explicit and implicit conclusion about market failure. In 2009, for a variety of reasons, some ideological, that journalist Michael Grunwald spells out well in his 2012 book “The New New Deal,” the Obama administration doubled down. Seeing that the economy desperately needed a shot of stimulus, and that there simply were not enough “shovel ready” projects in the economic pipeline, the White House decided to couple its need for big stimulus spending with its views about how to reshape the nation’s energy landscape into what it viewed as a cleaner and greener place. The mantra became “shovel worthy.”
This was a decided change from the words of candidate Obama during the 2008 campaign. He said then, “The goal should be to lessen the pain that would occur from an economy-wide slowdown, not to use economic hardship as a rationale for enacting an ideologically driven policy agenda.” Grunwald observed drily, “Those words would resonate a year later, too.”[cxlvii]
Indeed, the 2009 stimulus bill was precisely the opposite of what the campaigning Obama said was required. Here’s how Grunwald described the 2009 ARRA’s energy provisions:
“It was the biggest and most transformative energy bill in U.S. history, financing unprecedented government investments in a smarter grid; cleaner coal; energy efficiency in every imaginable form; ‘green-collar’ job training; electric vehicles and the infrastructure to support them; advanced biofuels and the refineries to brew them; renewable power from the sun, the wind, and the heat below the earth’ and factories to manufacture all that green stuff in the United States.”[cxlviii]
So Congress created a difficult task, requiring the bureaucrats at DOE, the OMB, and Treasury to walk in two different directions at the same time. But the bureaucrats, particularly at DOE, contributed to the difficulties. Their chief failure was to over-value their own skills and abilities and not to seek out advice from others — particularly from other federal government agencies that had far more experience issuing and managing federal loans than the energy department. When it issued the original Solyndra loan guarantee, DOE bragged that it was the first energy loan guarantee in over 30 years. That wasn’t quite true, although the DOE officials don’t appear to have known that.
Located not far down Washington’s stately Independence Ave. from the DOE’s Forrestal Building is the headquarters of the U.S. Department of Agriculture. USDA has been making large loans for major energy projects for over 70 years, accumulating considerable experience and expertise in the process. The agriculture department has been financing rural electric cooperative generating projects since long before the energy department was born. The Rural Electrification Administration (now known as the Rural Utilities Service) came into existence in May 1935, a result of an executive order by President Franklin D. Roosevelt,[cxlix] with a mission of providing electric service to vast areas of the U.S. that private, investor-owned utilities found too expensive to serve (a true case of market failure).[cl] Congress followed the White House lead a year later, passing the Rural Electrification Act of 1936 (7 U.S.C. 901 et. seq.).
Over the years, RUS and its REA predecessor have issued billions of dollars in loans for electric projects in rural America. According to the agency, the program level of the electric direct loan program in fiscal year 2010 was $7.1 billion.[cli]
While there is controversy over the continuation of the USDA electric programs, in that rural America is now as fully provided with electric service as the rest of the nation and, arguably, market failure is no longer in play, there is no doubt about the success and careful administration of the program. As is the case with the DOE loan program, RUS loans are made through the Federal Financing Bank. Because the loan default rate is so low, notes a 2010 Congressional Research Service analysis, “the FFB loan guarantee program has a zero subsidy cost.”[clii]
DOE could have benefitted from the experience at RUS. When Steven Chu decided to elevate the status of the loan program office, he chose a man, Jonathan Silver, whose basic and most recent experience was in venture capitalism. That’s not a criticism, as DOE was taking on at least part of the role of a venture capitalist. But Silver’s limited experience in government, and that as a political appointee, and his private-sector background may have biased him toward putting maximum effort into saving Solyndra when the company came for its loan workout. Workouts are common in the private sector; less so in the case of government loans. While the first loan program director, David Frantz, supervised the original loan (and stayed on as second in line when Silver was named), Silver was in charge during the restructuring of the loan and he clearly had saving the company as his major focus. “It’s a good project [that] we’ll make work,” he told a trade publication at the time of the workout, citing the company’s “growing pains.”[cliii]
When Solyndra’s equity owners said they would not put up additional capital unless the government subordinated its interest, that should have been an immediate red flag. While there was nothing venal or political about Silver’s decision to agree to the subordination, and it was arguably (weakly arguable, depending in part of the definition of what “is” is) legal, it was a mistake. DOE should have walked away from the loan at that point, and taken whatever political hits would have resulted. They certainly would have been less politically damaging than what happened when DOE reworked the loan and Solyndra collapsed anyhow.
Silver, it is worth noting, walked the plank (most likely not a voluntary voyage) shortly after the Solyndra bankruptcy, and the end of the 1705 program in the stimulus law. Greentech Media’s Eric Wesoff commented, “Somebody’s head had to roll,” adding that Silver’s departure “has the appearance of someone falling on their sword and deflecting the spotlight from Energy Secretary Chu or President Barack Obama.”[cliv]
At a more fundamental level, the foundation of the energy loans going back to well before the 2005 Energy Policy Act — that market failure prevents society from benefiting from advanced solar, wind, biofuel and nuclear technologies — may be faulty. The market for electricity generation may have been sending sound signals for well over a decade that Congress chose, out of ignorance or willfully, to ignore. Those signals are that these technologies are doomed to failure; investors won’t put up the money to support these projects because the costs to investors and society exceed the possible benefits.
It seems clear, after attempts to subsidize renewable energy dating back over 30 years, that the promise of renewables is a pipe dream. Because of their intermittence and large unpredictabilities, wind and solar impose considerable reliability costs on the electric system. Energy analyst Aaron Chew had a pertinent take on solar as Solyndra’s fallout blanketed the industry. “Solyndra was cool,” he said. “But you don’t buy solar because it’s cool; you buy it because it works.”[clv] Solyndra didn’t work.
And maybe renewable energy doesn’t and won’t work. Peter Glover in Energy Tribune argues that renewable energy, despite the attractive moniker, is “effectively an expensive government-sponsored enterprise, not a child of the free and democratic marketplace. Consider again the elements colluding to produce the current crisis: the lifeline of public subsidy, energy levies and taxes and market-skewing regulation dove-tailing with incentivized over-capacity, protectionism and, ultimately, trade wars. All marks of an industry kept afloat by ideological fiat and not free market capitalism geared to meeting actual market need.”[clvi]
Solyndra was the first manifestation of the Obama’s administration’s belief that a new world of energy is waiting, needing only a bit of a government boost to win a permanent place in the marketplace. Its failure may also be the most visible evidence that the administration’s vision is a myth. For example, the administration used ARRA authorities to pour money into electric vehicles, aiming at another large source of emissions of carbon dioxide. The goal was 1 million plug-in hybrids and pure electric vehicles on U.S. roads by 2015. It’s unlikely that the nation will reach a third of that goal. The Washington Post recently said in an editorial:
“No matter how you slice it, the American taxpayer has gotten precious little for the administration’s investment in battery-powered vehicles, in terms of permanent jobs or lower carbon dioxide emissions. There is no market, or not much of one, for vehicles that are less convenient and cost thousands of dollars more than similar-sized gas-powered alternatives — but do not save enough fuel to compensate. The basic theory of the Obama push for electric vehicles — if you build them, customers will come — was a myth.”
Ultimately, the Republican energy bill of 2005 and the Democrat’s 2009 version — exemplified by the Solyndra failure — demonstrate the folly of “industrial policy.” National industrial policy — conscious, directed central government action to bolster particular industries (as opposed to all industry, through macroeconomic policy) — was the subject of considerable debate in the U.S. in the 1980s, with Democrats typically calling for government action to protect and advance U.S. manufacturing interests against foreign competition. Ronald Reagan and his followers rejected the idea of national industrial policy, arguing that it was a cover for central economic planning.[clvii] The GOP sound bite criticizing industrial policy has always been that the government should not be “picking winners and losers.”
One of the intellectual founders of modern industrial policy advocacy was MIT economist Lester Thurow, who cited the success of Japan’s Ministry of International Trade and Industry in his 1980 book “The Zero Sum Society.” Among his acolytes were lawyer-economist Robert Reich (Bill Clinton’s Oxford classmate and later his secretary of labor), Carter’s vice president Walter Mondale and Colorado Democratic Sen. Gary Hart.
The idea of U.S. industrial policy fell out of favor, even among many Democrats, during the later 1980s and 1990s. Carter administration economist Charles Schutze was a prominent critic of industrial policy. The policy lost support in part because the U.S. economy, presumed to be lagging in world competition by advocates such as Thurow and Reich, was out-performing Japan and Europe. That relative strength of the U.S. economy has continued to today, even during a world-wide recession.
But industrial policy — even if not explicit — has long been part of the U.S. political scene, according to economic historian Otis L. Graham in his influential 1992 book “Losing Time: The Industrial Policy Debate.” Graham argues that the U.S. has long had de facto industrial policy, enacted piecemeal through various subsidy and stimulus programs, often by legislators who profess to oppose economic planning but love it when it comes before them in an inchoate form. The result, such as tariffs designed to keep out foreign goods, can be harmful to society.
A classic example of inchoate, and often incoherent, national industrial policy has been the support the federal government has given over 50 years for civilian nuclear power. Republicans in general, as well as many Democrats, have long favored using the federal government to boost civilian nuclear power when private interests were reluctant to put up the financing. In recent years, as private sector nuclear investment shrank, supporters of the technology worked a deal with supporters of renewable energy, who also saw a private sector unwilling to unlock its purses. It was classic Washington mutual backscratching. The nuclear interests supported the money for renewables in return for the support by the renewable energy industry for nuclear power.
Both the 2005 act and the 2009 stimulus legislation fit Graham’s analysis. Texas Republican Joe Barton, a chief architect of the 2005 Energy Policy Act from his position as chairman of the House energy committee, described this approach in a 2012 interview in the New York Times in the context of the “No More Solyndras” bill. Barton recalled of the 2005 law, the article said, “that adding a component for renewable power was a matter of ‘basic fairness’ to lawmakers who first conceived of the new DOE effort as geared toward nuclear.” The article observed that “the nuclear industry is growing concerned that broad shots at DOE loan guarantees could catch them in the cross fire.”[clviii]
Looking at Obama’s ARRA, Michael Grunwald, a supporter of the administration, described the measure as “America’s biggest foray into industrial policy since FDR.” Grunwald is correct, although he is wrong when he argues that it has been a success. Even the latest boost to civilian nuclear power — the $8.3 billion loan guarantee the Obama administration awarded to the Southern Co. under the program created in the Bush administration’s energy policy law — hasn’t worked. The Georgia nuclear utility and the administration have been arguing over the terms of the loan for more than a year. According to press accounts, DOE, chastened by its Solyndra experience, has been demanding financial concessions Southern is unwilling to make. The company says it doesn’t really need the federal loan,[clix] raising the question of why the government continues to offer it.
Defenders of the Obama administration’s fondness for picking winners and losers argue, correctly, that the government has long supported research that has resulted in real value to society. Killing the DOE loan program, they predict, will dry up R&D to the nation’s detriment. Even the Reagan administration acknowledged the need for federal support of research.
The fruits of government-sponsored research are real. But there is an important distinction between basic research and the development of that research into commercially useful goods and services. This is a distinction that the Reagan administration made in its early years, but jettisoned toward the end of the Reagan years, when the government created largely feckless ventures in industrial policy related to semiconductors (SEMATECH), high-definition television standards, and, a sop to political concerns in Canada, the DOE “clean coal technology” program.[clx] The Reagan formulation was that government was the proper vehicle to support basic research, a task not likely to be undertaken by profit-seeking ventures. But once a technology was commercially viable, it was up to the private sector to supply the funds to develop it. Acknowledging that this can be a tricky policy to implement, and identifying the line between R and D can be fraught with difficulty, it might still provide reasonable policy guidance and deserves at least serious discussion in Congress and the executive branch as the government tries to discern where it should go in a post-Solyndra economy.[clxi]
A year after Solyndra filed for bankruptcy, its building had been sold — fittingly, to disk drive maker Seagate Technology, since the facility originally housed a disk drive manufacturing line — for $90.3 million. Another $14 million or so of equipment, appliances, memorabilia and the like had also been sold. A U.S. Bankruptcy Court in Wilmington, Del., was presiding over the dismantling and disposition of the company (In re Solyndra LLC, 11-12799).[clxii]
Among the legacies of the failure were millions of 45-inch-long glass tubes at the heart of Solyndra’s cylindrical solar technology. Husband and wife architects Ronald Rael and Virginia San Fratello of Oakland, Calif., acquired 1,368 of the tubes from a San Jose shipping company that was left holding some 8 million tubes (and a big, unpaid invoice). Rael and San Fratello used the tubes to create “SOL Grotto” on the grounds of the University of California’s botanical garden in Berkeley. The tubes pierce a small shed on the banks of Strawberry Creek, creating what the architects describe as “a space of solitude and close to nature where one is presented with a mediated experience of water, coolness and light.”[clxiii]
Sadly, even this calm artistic recycling has generated political sparks. The House Energy and Commerce Committee couldn’t resist trying to score political points, issuing a press release headlined “UC Berkeley’s Solyndra Artwork Would Shatter Record for World’s Most Expensive Piece.”[clxiv] In truth, the artwork cost almost nothing, but the politics of Solyndra have been very expensive and extensive.
As writer Katie Fehrenbacher put it, “The Solyndra story is like a zombie in a low budget horror movie: it shuffles along, it falls over, it gets back up and it just keeps walking towards you….”[clxv]
Epilog
Fehrenbacher was mistaken. The Solyndra affair essentially died with the 2012 election cycle, where it proved to have limited utility for Republicans seeking to unseat Obama and diminish Democratic influence on policymaking in Washington. Obama won a convincing reelection over GOP presidential nominee Mitt Romney, who was unable to make any headway with a Solyndra soliloquy. Democrats expanded their majority in the Senate after several entirely feckless Republican candidates fell to Democrats. Obama’s party even expanded its membership in the House of Representatives, while remaining a distinct minority.
The only potential scandal arising from the Solyndra end game was over the arcane issue of tax losses. Under current tax law, Solyndra’s investors, including the much-maligned Kaiser funds, were able to use the failed company’s significant operating losses to their own benefit, which caused a brief bit of outrage from some right-tending voices.[clxvi] It seems that the venture capitalists were able to salvage some $340 million in tax benefits from the massive losses Solyndra piled up during its ill-fated life.
But this potential cause celebre quickly vanished from the political discussion. It seems that tax loss carry-forwards are beloved of Republicans, even when they may be the result of crony capitalism benefitting big-bucks Democrats.
So Solyndra has left the realm of the undead and is now properly buried in the Boot Hill of political scandals that couldn’t hold a candle.
END NOTES
[i] The DOE produced a video of the event, available at http://www.youtube.com/watch?v=oDpgDxxYQgs.
[ii] DOE loan program office press release, Sept. 4, 2009, https://lpo.energy.gov/?p=827.
[iii] “Hearing Before the Committee on Energy and Natural Resources Committee United States Senate,” S. Hrg. 111-3, p. 10.
[iv] http://www.whitehouse.gov/the-press-office/remarks-president-state-union-address.
[v] A video of Obama’s visit to the Solyndra factory is at http://www.youtube.com/watch?v=7rqtPc7OuMc.
[vi] New York Times, Aug. 31, 2011, http://www.nytimes.com/2011/09/01/business/energy-environment/solyndra-solar-firm-aided-by-federal-loans-shuts-doors.html?pagewanted=1&sq=Solyndra&st=Search&scp=3.
[vii] http://federalcrimesblog.com/tag/chris-gronet/.
[viii] Michael Grunwald, “The New New Deal,” 2012, at location 182 of 11041 (Kindle location scheme).
[ix] 1820-1891, father of the more famous scientist Henri Becquerel.
[x] P.L. 109-58, http://www.gpo.gov/fdsys/pkg/PLAW-109publ58/content-detail.html
[xi] U.S. Department of Energy, “DOE Solar Energy Technologies Program Peer Review,” March 2009, http://www1.eere.energy.gov/solar/review_meeting/pdfs/prm2009_contreras_cigs.pdf.
[xii] http://books.google.com/books/about/Limited_Reaction_Processing.html?id=K6eUGwAACAAJ.
[xiii][xiii] See http://investing.businessweek.com/research/stocks/private/person.asp?personId=54334387&privcapId=33681528, also Piero Scaruffi, “A History of Silicon Valley,” http://www.scaruffi.com/politics/silicon/gronet.html.
[xiv] http://www.usvp.com/our_team/investment_professionals.
[xv] http://www.forbes.com/lists/2005/54/RG4U.html.
[xvi] http://www.forbes.com/lists/2005/54/RG4U.html.
[xvii] http://www.usvp.com/our_team/investment_professionals/winston_fu.
[xviii] The best description of Solyndra’s technology, in its own words, is found in the company’s December 18, 2009 S-1 registration statement with the U.S. Securities and Exchange Commission.
http://www.sec.gov/Archives/edgar/data/1443115/000119312509255919/ds1.htm. While pursuing an initial public offering of stock was one of its strategies to rescue the company, Solyndra withdrew the IPO application in June 2010.
[xix] SEC S-1., p. 1.
[xx] SEC S-1, pp. 91-92.
[xxi] http://thegreenwombat.com/2008/10/07/stealth-solar-startup-raises-600-million/.
[xxii] Quotation from R. Todd Neilson, “Report of R. Todd Neilson, Chief Restructuring Office,” March 21, 2012, p. 57. Neilson, a former FBI forensic accountant, was hired by “the debtors” (Solyndra) to represent their interests in the bankruptcy proceeding.
[xxiii] SEC S-1, pp. 21, 40, 42.
[xxiv] SEC S-1, p. 126.
[xxv] http://www.forbes.com/profile/george-kaiser/.
[xxvi] http://www.forbes.com/sites/christopherhelman/2011/09/21/george-kaisers-10-billion-bet/.
[xxvii] http://www.opensecrets.org/pres08/bundlers.php?id=N00009638.
[xxviii] The other categories were $100,000-200,000; $200,000-$500,000, and above $500,000. There were 47 bundlers in the $500,000 and above category.
[xxix] Neilson, p. 61.
[xxx] SEC S-1, p. 66.
[xxxi] http://www.solarbuzz.com/.
[xxxii] Neilson, p. 49.
[xxxiii] SEC S-1, p. 67.
[xxxiv] http://www.navigant.com/industries/energy/renewable_energy/solar_services_program/.
[xxxv] SEC S-1, p. 68.
[xxxvi] SEC S-1, p. 14.
[xxxvii] SEC S-1, pp. 42, 44.
[xxxviii] SEC S-1, p. 54.
[xxxix] Neilson, p. 13.
[xl] “The Solyndra Failure,” Majority Staff Report, Committee on Energy and Commerce, House of Representatives, U.S. House of Representatives, 112th Congress, August 2, 2012, p. 11.
[xli] SEC S-1, p. 11.
[xlii] Neilson, p. 9.
[xliii] The Collected Essays, Journalism and Letters of George Orwell, Edited by Sonia Orwell and Ian Angus, Vol. 4, “In Front of Your Nose, 1945-1950), pp. 126-140.
[xliv][xliv] See Ralph L. Bayrer, “The Saga of the U.S. Synthetic Fuels Corporation: A Cautionary Tale,” New Academia Publishing, 2011, pp. 67-70.
[xlv] Under seniority precedents, Barton would have resumed the chairmanship of the power House energy committee when the Republicans recaptured the House following the 2010 elections. But during the June 2010 House investigation of the BP Gulf of Mexico oil spill, Barton apologized to BP CEO Tony Hayward for what Barton characterized as a $20 billion White House “shakedown” of the British oil company. The characterization was accurate, but politically incorrect and the Republican leadership later denied Barton chairmanship of the committee. http://www.cbsnews.com/8301-503544_162-20008020-503544.html.
[xlvi] http://www.nytimes.com/gwire/2011/10/07/07greenwire-will-solyndra-scandal-spill-over-to-scald-nucle-3933.html?pagewanted=all.
[xlvii] Congressional Budget Office, “Federal Loan Guarantees for the Construction of Nuclear Power Plants,” August 2011, p. 4, http://www.cbo.gov/publication/41510.
[xlviii] “The Solyndra Failure,” p. 9.
[xlix] DOE, “Loan Guarantee Solicitation Announcement,” DE-PS01-06LG00001, p. 2.
[l] http://energy.gov/key-facts-solyndra-solar/flashback-congressional-pressure-accelerate-loan-program.
[li] https://lpo.energy.gov/?p=853.
[lii] “The Solyndra Failure,” p. 9.
[liii] “The Solydra Failure,” p. 9.
[liv] James C. Cosgrove, “Testimony Before the Subcommittee on Energy and Air Quality, Committee on Energy and Commerce, House of Representatives,” GAO-07-798T, p. 2.
[lv] Neilson, p. 9.
[lvi] http://www.americanprogress.org/issues/green/report/2010/03/08/7400/protecting-taxpayers-from-a-financial-meltdown/.
[lvii] http://www.treasury.gov/ffb/.
[lviii] Neilson, p. 83.
[lix] Neilson, p. 90.
[lx] “The Solyndra Failure,” pp. 12-13.
[lxi] “The Solyndra Failure,” pp. 13-14.
[lxii] Boren, James H., “When in Doubt, Mumble: A Bureaucrats Handbook,” Van nostrand Reinhold, 1972.
[lxiii] http://www.telegraph.co.uk/earth/energy/3780418/Barack-Obama-names-Nobel-winner-Steve-Chu-as-energy-secretary.html.
[lxiv] “The Solyndra Failure,” p. 16, see also Neilson, p. 93. At a national forum in February 2009, Chu announced he had hired an analyst from McKinsey & Co.’s San Francisco office to get the office on track, and that would take only 45 days, prompting skepticism from some energy veterans in the audience.
[lxv] Neilson, pp. 76-77. By the end of September, the office had over 80 full-time federal workers and had guaranteed over $35 billion in federal loans by the beginning of 2012.
[lxvi] Neilson, p. 76.
[lxvii] Neilson, p. 91.
[lxviii] “The Solyndra Failure,” p. 17.
[lxix] https://lpo.energy.gov/?p=839.
[lxx] “The Solyndra Failure,” pp. 19-21.
[lxxi] “The Solyndra Failure,” p. 32.
[lxxii] Neilson, p. 95., including footnote 213.
[lxxiii] https://lpo.energy.gov/?p=827.
[lxxiv] Neilson, p. 17.
[lxxv] http://www.nytimes.com/2008/09/15/business/15lehman.html?pagewanted=all.
[lxxvi] Neilson, p. 43-47.
[lxxvii] U.S. Department of Energy, “DOE Solar Energy Technologies Program Peer Review,” March 2009, http://www1.eere.energy.gov/solar/review_meeting/pdfs/prm2009_contreras_cigs.pdf.
[lxxviii] U.S. Department of Energy — Energy Efficiency and Renewable Energy, “2008 Solar Technologies Market Report, January 2010, p. 33.
[lxxix] http://www.nytimes.com/2011/11/10/business/global/us-and-china-on-brink-of-trade-war-over-solar-power-industry.html?pagewanted=all.
[lxxx] “The Solyndra Failure,” p. 47.
[lxxxi] Neilson, pp. 108-109.
[lxxxii] Solyndra, Inc., Amendment to S-1 Registration Statement (Form S-1/A), at F-2 (Mar. 16, 2010), http://www.sec.gov/Archives/edgar/data/1443115/000119312510058567/ds1a.htm.
[lxxxiii] “The Solyndra Failure,” p. 48.
[lxxxiv] http://energy.gov/contributors/jonathan-silver.
[lxxxv] https://lpo.energy.gov/?p=823.
[lxxxvi] Neilson, p. 114.
[lxxxvii] http://energy.gov/articles/testimony-jonathan-silver-executive-director-loan-programs-office-us-department-energy.
[lxxxviii] “The Solyndra Failure,’ pp. 51-55.
[lxxxix] http://green.blogs.nytimes.com/2010/05/26/invoking-the-oil-crisis-obama-lauds-clean-energy/.
[xc] http://www.stevewestly.com/index-1.html.
[xci] “The Solyndra Failure,” pp. 56-57.
[xcii] http://www.whitehouse.gov/the-press-office/remarks-president-economy-0.
[xciii] Neilson, p. 114.
[xciv] http://www.solyndra.com/2010/07/brian-harrison-joins-solyndra-as-president-and-ceo/.
[xcv] http://www.greentechmedia.com/articles/read/Executive-Exodus-and-Low-Morale-at-Solyndra/.
[xcvi] http://blogs.wsj.com/venturecapital/2012/08/31/one-year-after-solyndra-collapse-where-are-they-now/.
[xcvii] Neilson, p. 119.
[xcviii] “The Solyndra Failure,” p. 63.
[xcix] “The Solyndra Failure,” p. 67, Neilson, p. 123.
[c] “The Solyndra Failure,” p. 68.
[ci] “Solar Panel Maker to Close a Factory and Delay Expansion,” http://www.nytimes.com/2010/11/03/business/energy-environment/03solar.html?_r=1.
[cii] Washington Post, Aug. 31, 2012, http://www.washingtonpost.com/10-inviolable-rules-for-dealing-with-wall-street/2012/08/30/177adc9a-f2c1-11e1-adc6-87dfa8eff430_story.html.
[ciii] For an interesting take on OMB, see the remarks of Josh Bolten, one of George W. Bush’s OMB heads, in Government Executive magazine of August 2005, http://www.govexec.com/management/2005/08/the-decision-makers-office-of-management-and-budget/19956/.
[civ] Neilson, pp. 125-131.
[cv] http://www.fms.treas.gov/ussgl/creditreform/fcra.html#titleV.
[cvi] The 2005 law, in section 1702(d)(3) states, “[t]he obligation shall be subject to the
condition that the obligation is not subordinate to other financing.” “The Solyndra Failure,” p. 81.
[cvii] “Preparation, Submission, and Execution of the Budget,”http://www.whitehouse.gov/sites/default/files/omb/assets/a11_current_year/a_11_2012.pdf. Circular A-11 is the basic OMB document on preparation of the budget, with advice to agencies on financial management.
[cviii] “The Solyndra Failure,” p. 80.
[cix] “The Solyndra Failure,” p. 81. DOE did not get Justice Department approval for this legal conclusion, which some experts have suggested should have occurred.
[cx] “The Solyndra Failure,” p. 85.
[cxi] “The Solyndra Failure,” p. 89.
[cxii] “The Solyndra Failure,” pp. 98-100.
[cxiii] “The Solyndra Failure,” p. 107.
[cxiv] Neilson, pp. 159-164.
[cxv] Neilson, p. 194.
[cxvi] “The Solyndra Failure,” p. 108.
[cxvii] Neilson, p. 196.
[cxviii] New York Times, Sept. 1, 2011, http://www.nytimes.com/2011/09/01/business/energy-environment/solyndra-solar-firm-aided-by-federal-loans-shuts-doors.html?pagewanted=all,
[cxix] New York Times, Sept. 6, 2011, http://www.nytimes.com/2011/09/06/opinion/brooks-where-the-jobs-arent.html.
[cxx] New York Times, Sept. 9, 2011, http://www.nytimes.com/2011/09/09/business/solar-company-is-searched-by-fbi.html.
[cxxi] DOE, https://lpo.energy.gov/?p=5324.
[cxxii] Washington Post, March 3, 2011, http://www.washingtonpost.com/blogs/right-turn/post/solyndra-scandal-another-obama-debacle/2011/03/29/gIQAlVleRK_blog.html.
[cxxiii] http://energycommerce.house.gov/press-release/committee-ramps-investigation-presidents-flagship-stimulus-jobs-success-story-filed.
[cxxiv] Washington Post, Sept. 14, 2011, http://www.washingtonpost.com/business/role-of-white-house-aides-questioned-in-solyndra-hearing/2011/09/14/gIQAROUBSK_video.html.
[cxxv] Washington Post, Sept. 19, 2011, http://www.washingtonpost.com/politics/house-judiciary-chairman-justice-should-probe-solyndra-bankruptcy/2011/09/19/gIQAfD9NgK_story.html.
[cxxvi] Nothing has ever come of the FBI’s investigation.
[cxxvii] Washington Post, Sept. 22, 2011, http://www.washingtonpost.com/blogs/2chambers/post/solyndra-executives-to-appear-before-house-committee-friday-morning/2011/09/22/gIQAF0vCqK_blog.html.
[cxxviii] The Hill, http://thehill.com/blogs/e2-wire/e2-wire/144895-upton-targets-doe-solar-loan-guarantee.
[cxxix] Washington Post, February 17, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2011/02/17/AR2011021702500.html.
[cxxx] http://energycommerce.house.gov/press-release/energy-commerce-leaders-probe-omb-role-doe-stimulus-loan-guarantees-risky-half-billion.
[cxxxi] http://energycommerce.house.gov/press-release/oversight-and-investigations-subcommittee-seeks-answers-omb-doe-loan-guarantees.
[cxxxii] New York Times, June 24, 2011, http://www.nytimes.com/gwire/2011/06/24/24greenwire-white-house-a-no-show-for-hearing-on-does-loan-66415.html?pagewanted=all.
[cxxxiii] Washington Post, July 14, 2011, http://www.washingtonpost.com/politics/lawmakers-seek-white-house-documents-on-solyndra-loan-guarantee/2011/07/14/gIQAogSjEI_story.html.
[cxxxiv] “The Solyndra Failure,” p. viii.
[cxxxv]http://www.slate.com/blogs/future_tense/2012/09/14/no_more_solyndras_act_house_vote_on_bill_feeds_republicans_obsession.html.
[cxxxvi] The New York Times, Aug. 15, 2012, http://thecaucus.blogs.nytimes.com/2012/08/15/veterinarian-surprises-floridas-stearns-in-republican-primary/.
[cxxxvii] The Washington Post, Aug. 15, 2012, http://www.washingtonpost.com/blogs/she-the-people/post/longtime-congressman-who-probed-planned-parenthood-loses-to-tea-party-challenger/2012/08/15/e8ef55fe-e712-11e1-9739-eef99c5fb285_blog.html.
[cxxxviii]http://www.slate.com/blogs/future_tense/2012/09/14/no_more_solyndras_act_house_vote_on_bill_feeds_republicans_obsession.html.
[cxxxix] http://energycommerce.house.gov/fact-sheet/no-more-solyndras-act-hr-6213.
[cxl] http://clerk.house.gov/evs/2012/roll584.xml.
[cxli] New York Times, Sept. 14, 2012, http://thecaucus.blogs.nytimes.com/2012/09/14/house-passes-solyndra-act-aimed-at-obama/.
[cxlii] Politico, Sept. 14, 2012, http://www.politico.com/news/stories/0912/81223.html.
[cxliii] http://www.redpoint.com/team/brad-jones.
[cxliv] “The Solyndra Failure,” pp. 50-51.
[cxlv] http://tutor2u.net/economics/revision-notes/a2-micro-market-failure-introduction.html.
[cxlvi] “The Solyndra Failure,” p. 71.
[cxlvii] Grunwald, position 1058.
[cxlviii] Grunwald, position 225.
[cxlix] E.O. 7037.
[cl] For a discussion of the market failure that led to the REA, see Laureance J. Malone’s article, “Market Failure in Delivering Electricity to Rural Areas before 1930,” http://eh.net/encyclopedia/article/malone.electrification.administration.rural. The most moving account of the wonders of the government’s rural electrification program is found in the first volume of Robert Caro’s masterful biography of Lyndon Johnson, “The Path to Power: The Years of Lyndon Johnson, Vol. 1,” Knopf, 1982.
[cli] USDA “FY 2012 Budget Summary and Annual Performance Plan,” p. 48, http://www.obpa.usda.gov/budsum/FY12budsum.pdf.
[clii] Tadlock Cowan, “An Overview of USDA Rural Development Programs,” Congressional Research Service, May 3, 2010, p. 25, http://nationalaglawcenter.org/assets/crs/RL31837.pdf.
[cliii] Greentech Media, March 14, 2011, http://www.greentechmedia.com/articles/read/solyndras-possible-solar-futures/.
[cliv] Greentech Media, Oct. 6, 2011, http://www.greentechmedia.com/articles/read/jonathan-silver-out-at-doe-loan-program/.
[clv] Renewable Energy World, Sept. 12, 2012, http://www.renewableenergyworld.com/rea/blog/post/2012/09/improving-solars-image-post-solyndra?cmpid=WNL-Friday-September14-2012.
[clvi] “Solar Eclipsed?” Energy Tribune, Sept. 13, 2012, http://www.energytribune.com/articles.cfm/11672/Solar-Eclipsed?
[clvii] For a well-balanced discussion of industrial policy, see http://www.econlib.org/library/Enc1/IndustrialPolicy.html.
[clviii] New York Times, Oct. 7, 2011, http://www.nytimes.com/gwire/2011/10/07/07greenwire-will-solyndra-scandal-spill-over-to-scald-nucle-3933.html?pagewanted=all. The House-passed “No More Solyndras” bill ends new loan guarantees for nuclear, a provision that has no practical impact, as there are none in the pipeline seeking loans.
[clix] http://www.reuters.com/article/2012/07/19/us-utilities-southern-idUSBRE86I04420120719.
[clx] David C. Mowrey and Nathan Rosenberg, “New Developments in U.S. Technology Policy: Implications for Competitiveness and International Trade Policy,” p. 107, http://xcsc.xoc.uam.mx/apymes/webftp/documentos/biblioteca/New%20Developments%20in%20U.S.%20Technology%20Policy.pdf.
[clxi] For a worthwhile discussion of the history and politics of the term “basic research,” see Roger Pielke Jr., “Basic Research as a Political Symbol,” Minerva, 2012, pp. 339-361, http://www.springerlink.com/content/c6453722ph2323gj/?MUD=MP.
[clxii] Business Week, Sept. 7, 2012, http://www.businessweek.com/news/2012-09-07/solyndra-wins-court-leave-to-seek-vote-on-bankruptcy-plan.
[clxiii] http://www.rael-sanfratello.com/?p=1466. The website features some very nice pictures of the artwork.
[clxiv] http://archives.republicans.energycommerce.house.gov/news/PRArticle.aspx?NewsID=9780.
[clxv] http://gigaom.com/cleantech/happy-solyndra-bankruptcy-day-a-look-back-at-the-zombie-that-wont-die/.
