Solar Firm Aided by Federal Loans Shuts Doors
Valley maker of solar power arrays that was started with high hopes and $527 million in loans from the federal government said on Wednesday that it would cease operations. 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.
Alex Brandon/Associated Press
President Obama with Solyndra’s chief executive, Chris Gronet, at a company facility in California in May 2010. Mr. Obama praised the business.
President Obama praised the company, Solyndra, for its advanced technology during a visit last year. But in a statement on Wednesday, Solyndra said its business had run into trouble because of difficult global business conditions, including slowing demand for solar panels, and stiff competition.
The Energy Department, which approved the funding, said China’s subsidies to its solar industry were threatening the ability of Solyndra and other American manufacturers to compete. The price of a solar array, measured by cost per watt of capacity, has fallen 42 percent since December 2010, the agency said.
Two other American solar companies, Evergreen Solar and SpectraWatt, also sought bankruptcy protection in August, and both said competition from Chinese companies had contributed to their financial problems.
In the case of Solyndra, some experts said that regardless of the competition, the company’s unique designs, which were expensive to manufacture, were to blame for its failure.
Solyndra was promised loans of up to $535 million under a guarantee program authorized by Congress as part of the 2009 stimulus package. The Energy Department has made more than 40 promises of guarantees, of which Solyndra was the first. It has committed $18 billion in guarantees and expects to allocate several billion dollars more by the time the program finishes at the end of September.
The government calculates premiums for the guarantees, essentially a loan fee based on the risk of default, but it picks up the cost of the premiums for the companies in the subsidy program. By that yardstick, it has spent $2.4 billion in credit subsidies for the program.
Solyndra’s troubles have been growing for some time. Republican budget-cutters in Congress have viewed it as a model of poor government investment.
“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,” said Representative Cliff Stearns, the Florida Republican who is chairman of an investigative subcommittee of the House Energy and Commerce Committee.
He said the Energy Department might have authorized the guarantee because an Oklahoma oil man who was a donor to the Obama campaign, George Kaiser, was an investor in the project. In a joint statement, Mr. Stearns and Representative Fred Upton of Michigan, the chairman of the committee, said, “We smelled a rat from the onset.”
But the Energy Department dismissed that assertion, saying that Solyndra applied for federal help during the Bush administration and that Obama-era officials merely finished the process the Republicans had begun.
The department says government subsidies are essential to keep the United States competitive in renewable energy, and not all companies will succeed.
“The project that we supported succeeded,” insisted Damien LaVera, a spokesman for the Department of Energy.
“The facility was producing the product it said it would produce, and consumers were buying the product,” he said. “The company struggled because the market has changed dramatically.”
Although the government typically guarantees loans made to a company by a commercial bank, that was not the case for Solyndra. Solyndra borrowed the money from the Federal Financing Bank, part of the Treasury Department, so in effect, the government was lending the money to the company directly. The Energy Department gave Solyndra a conditional guarantee for $535 million, in multiple stages, contingent on reaching a variety of milestones, and to date, it had received $527 million.
Mr. LaVera held out the hope that in a bankruptcy reorganization, Solyndra or some other company would run the factory profitably and that not all the taxpayer investment would be lost. In addition to the government, private investors put about $1 billion into the company. More than 1,000 employees were laid off.
Although the Obama administration is under pressure from energy companies to extend the guarantee program, it is a likely target for Congressional budget-cutters.
“Solyndra is a black eye for the program,” said Matthew A. Feinstein, an analyst at Lux Research. “And that means bad things for the solar industry in the United States.”
Solyndra, which once had plans to sell stock to the public, was a darling of policy makers. When it broke ground in Fremont, Calif., Arnold Schwarzenegger, who was then governor, and Steven Chu, the federal secretary of energy, wielded ceremonial gold-colored shovels.
Solyndra’s problem, according to outsiders, was that the product looked better when it was conceived than when it hit the market. Solyndra’s design avoids the use of silicon, a commodity that was selling at very high prices in 2009 when the loan guarantee was approved but that has crashed since then.
The design also sought to cut costs with an innovative cylindrical design that reduced the labor required for installation. As the sun moves across the sky, the light hits a different facet of the cylinder. But the capital costs for manufacturing were high.
Barry Cinnamon, the chief executive of Westinghouse Solar, a competitor, said Solyndra and Evergreen Solar had tried new designs that turned out not to be as good as standard flat panels.
“In both cases, they made a bad bet,” he said.
Evergreen, based in Massachusetts, received tens of millions of dollars in state loans and grants in exchange for opening a factory there. In January, it announced that it was closing that factory and moving manufacturing to China. But a few weeks ago, it concluded that even the move offshore was not enough to save the company.
SpectraWatt, a small solar company near Poughkeepsie, N.Y., ceased operations earlier this year and declared bankruptcy on Aug. 19. The company, which was created as a spinoff from Intel, the computer chip maker, cited poor market conditions created by China’s subsidies to its manufacturers.
Ken Zweibel, director of the Solar Institute at the George Washington University, said solar companies in China and Germany were receiving big subsidies from their governments and were pressuring American companies.
“There’s definitely a crisis in traditional technology,” he said. But Solyndra, he said, was “a wild-card technology,” and both Solyndra and Evergreen products had “questionable attributes.”