Dirty solar?

August 31, 2011

A privately held start-up that makes solar panels announced today that they would be filing for bankruptcy. The company, Solyndra Inc., received a $535 million loan guarantee from the U.S. Department of Energy in September 2009. This follows two other bankruptcy announcements by solar start-ups this month. The explanation for these closures has been that world prices for solar products have fallen and made production unsustainable.

Noncompetitiveness is likely the reason for the sudden rush of venture capital funded bankruptcies. I’m not proficient enough in solar economics to know. But the story of Solyndra weaves together political influence, big dollars and shortcuts in oversight. Accusations have been swirling that loan guarantees from the Department of Energy were incomplete and rushed.

ABC News has been on the story of the ties between Solyndra and the Obama White House for about a year. In the excellent video above ABC questions the ties between presidential cash-bundler Steve Westly and the Department of Energy. Westly served as California Campaign Co-Chair for Obama for America and also as a member of Obama for America’s national finance committee. In an accompanying article, ABC talks about fellow Obama bundler George Kaiser, the 29th wealthiest person on the Forbes list of the richest 400 Americans and an investor in Solyndra. What is interesting and needs to be investigated is the financial dealings of Solyndra, Westly, Kaiser, the Department of Energy and the Obama White House. ABC says:

The loan guarantee, the administration’s first for a clean energy project, benefited a company [Solyndra] whose prime financial backers include Oklahoma oil billionaire George Kaiser, a “bundler” of campaign donations. Kaiser raised at least $50,000 for the president’s 2008 election effort.

In February 2011 Solyndra restructured their convertible notes with their investors, presumably including Kaiser, and renegotiated their loan guarantee with the Department of Energy. The new financing was described as a $75 million secured credit facility underwritten by existing investors. From Solyndra’s press announcement (emphasis mine):

The new financing also included the restructuring of the Company’s outstanding indebtedness. Solyndra’s existing convertible notes have been exchanged for new notes and the U.S. Department of Energy which provided a loan guarantee agreed to certain loan modifications including an extension of the amortization period. Together with the existing indebtedness, the new credit facility is secured by all assets of the Company.

Will Solyndra’s venture capital investors be repaid before the government? Did political influence play a part in the rushed loan guarantee for the company? Did the company have stable financial conditions before the DOE loan guarantee was made? Is the government’s claim secured?

There is no doubt that the federal government should help guarantee the development of alternative energy for the nation. You can see in this DOE chart that America is losing the race to produce solar energy products, particularly to China and Taiwan.

The U.S. government must undertake these financial commitments with full transparency and be first in line to recover their claims in case of bankruptcy. Our government is not an equity investor and stands to make no financial upside if a new technology is a runaway success. Because other forms of energy production, like oil exploration, have been so heavily subsidized through tax advantages and low royalty fees for decades, it makes sense to give some support to green energy technologies. But darkness and alleged political favoritism will kill public enthusiasm for reorienting energy policy. Solyndra seems to be a tale of dirty solar. Hopefully it won’t block out the sun.


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This is a very sloppy article.

1) Westly is not an investor in Solyndra – it’s unfortunate you would include him in this article.

2) “Will Solyndra’s venture capital investors get paid back before the government?” Of course not, it is Finance 101 that debts are repaid before equity investors. Asking this question seems to intentionally insinuate something you know not to be accurate.

3) You describe the guarantee process as “rushed.” Solyndra applied for the loan guarantee in 2006 (the guarantee program is a Bush era program), and received it in 2009 (http://gigaom.com/cleantech/solyndra-sn ags-doe-loan-guarantee-no-1/), this seems like a pretty long time to review – more a problem with slow moving government bureaucracy than a rushed process.

4) The government does benefit financially if a company is a success. The 900 people who were laid off yesterday were paying probably around $20k a year each in taxes, for a total of around $18m per year. If the company had been successful, it would have paid tens of millions more in taxes, in addition to repaying the loan guarantee.

Lastly, the loan guarantee program has according to their website invested in 42 projects, and Solyndra is under 2% of the total funds committed. While obviously no one likes to see a company fail, the program should be judged based on the success of the portfolio of investments, rather than the success or failure of just one.

Posted by goirish2k10 | Report as abusive

Thanks for the comments goirish2k10.

1. You are right and I took out that “presumably Westly was an investor”. But the ABC report highlights that Westly got $512 million of guarantees for other solar companies he has backed. This fact makes this story more disturbing. Because it suggests multiple instances of politically connected people getting access to preferred DOE funding.

2. The last round of Solyndra funding in February was conversion of convertible notes to “secured funding”. Do you know for a fact that those creditors are subordinate to the government? Could you point me to some documentation please?

3. It appears their application for loan guarantee languished for a long time and then a new administration comes on board and soon thereafter it is approved. The House Energy Committee will likely look at that.

4. It’s true that income taxes of employees and corporate taxes could have developed. But was the upside for venture investors? The funding for Solyndra was not a loan guarantee but actually was a direct grant of $535 million from the US Treasury. We don’t know if this money is recoverable until we see a priority of claims on the assets. According to the NYT numerous industry experts questioned the scalability of their complex manufacturing process. The whole thing smells. And deserves close scrutiny from Congress and the media.

http://www.nytimes.com/2011/09/01/busine ss/energy-environment/solyndra-solar-fir m-aided-by-federal-loans-shuts-doors.htm l

Posted by Cate Long | Report as abusive

The Treasury Department provided Solyndra’s loan, on the assurance of the Energy Department. The terms were reviewed in advance by the White House Office of Management and Budget, and almost all of the $535 million has been disbursed to Solyndra.

Taxpayers might be on the hook for most of the loan if Solyndra is unable to repay, said experts in the stimulus and loan guarantee program. The Energy Department could seek repayment in court, but receiving more than a nominal amount is unlikely because of the company’s depleted cash and assets.

… A month after Obama’s visit, the company withdrew plans for a public stock offering. A few weeks later, Government Accountability Office auditors announced that the Energy Department had given favorable treatment to some loan-guarantee applicants. A GAO report said the department bypassed required steps for funding awards to five applicants, including Solyndra.

Earlier this year, the Energy Department’s inspector general criticized the agency for not maintaining e-mails discussing how loan-guarantee winners were selected.

GAO auditors, who first uncovered the department’s rush to provide Solyndra a loan without completing required reviews, fear that similar defaults could happen with other loan guarantee projects that weren’t properly vetted.

In June, Solyndra chief Harrison told The Post that the company’s finances had improved. With cumulative sales of more than $250 million, he said, Solyndra “doubled our production from 2009 to 2010, and we’ll double it again from 2010 to 2011.”

But solar industry analyst Peter Lynch said that Solyndra struggled from the beginning with an imbalanced financial model.

“You make something in a factory and it costs $6, you sell it for $3, but you really, really need to sell it for $1.50 to be competitive,” Lynch said of Solyndra. “It was an insane business model. The numbers just don’t work, and they never did.”

http://www.washingtonpost.com/politics/s olyndra-solar-company-fails-after-gettin g-controversial-federal-loan-guarantees/ 2011/08/31/gIQAB8IRsJ_story_1.html

Posted by Cate_Long | Report as abusive

1) The point that politically connected people got DOE funding is only a problematic point if you can show that they got more funding than those that weren’t politically connected, or that the companies that funded were undeserving of DOE guarantees. Even better would be real evidence of collusion between funders and DOE, but as far as I can tell, no one has claimed to have found that. Otherwise, it could just be that lots of people – those who are connected to Obama and those who aren’t – invested in cleantech companies that got funding.

On the first point, you could obviously find lots of investors whose investments received more money than Westly or Kaiser. For example, anyone who invested in BrightSource has investments that have received $1.3 billion in government money – which of course sounds like a bad soundbite. If you make that list of investors in order, you’ll find Kaiser and Westly far down on the list.

And, most of these companies have tons of investors – if you add up the number of investors in companies that received DOE funding, you’ll have tons of venture capital firms and wealthy investors – including many prominent and wealthy Democrats and Republicans. The idea that a few of those wealthy investors are large supporters of Obama seems to be a given. You’ll probably also find that just as many are large supporters of Republicans.

On the second point, Solyndra is a pretty credible company – it received hundreds of millions of venture capital dollars, so clearly some intelligent people outside of DOE thought it was promising technology. Those investors ended up being wrong, but Solyndra is far from a couple guys in a garage immature company. This is not a company that everyone and their mother saw as being a bad company.

2. Google this question for a few minutes and you’ll find numerous descriptions and quotations of the program, which all essentially say the following:

“Any Guaranteed Obligation may not be subordinate to any other debt and must have a first lien position on all assets of the project and all additional collateral pledged as security for any project debt.”

The cite above is from the 150 year old law firm Milbank: http://www.milbank.com/images/content/6/ 7/679/022509_Concise_Summary_of_USDOE_LG P.pdf

3. The Obama administration would of course point out that they accelerated this program as part of the stimulus package, since it’s great way to create jobs and stimulate the economy. Recall it was accelerated in early 2009, when the economy was in the tank, and it was accelerated in the American Recovery and Reinvestment Act passed by both houses of Congress, not in a closed door DOE meeting.

It seems like a stretch to say instead that Congress accelerated a $40 billion loan guarantee program to reward a $50,000 bundler for Obama’s $750 million presidential campaign.

4. The program is supposed to invest in technologies that industry experts might have questions about – it’s not designed to invest in technologies with a AAA bond rating. The wording from the DOE website:
“Section 1703 of Title XVII of the Energy Policy Act of 2005 authorizes the U.S. Department of Energy to support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks… Technologies with more than three implementations that have been active for more than five years are excluded.”

It’s certainly an open debate as to whether the government should have passed this law to support risky technologies (remember this wording was passed by a Republican Congress and President), but Solyndra pretty clearly fits the above description. By definition, if there weren’t industry experts questioning it, they shouldn’t have been eligible for this loan.

It’s the DOE’s job to pick companies that can’t get commercial funding, and ideally pick the safest ones with the most potential to benefit the U.S. economy. But the program is designed to have some that fail, and some that succeed.

Nowhere in the program documents does it say the program is designed to be cash flow neutral. Instead the program hopes provide tens of billions in loans while hopefully costing a fraction of that amount. It’s getting $40 billion of value by losing say $4 billion – that’s a great deal. We’ll know the actual cost and loss when the program is done many years from now, and at that time it’s a good time to evaluate whether the cost was worth the gains in successful programs. But looking at 1 of 50 programs and deciding whether the whole portfolio was a failure (or a success) just doesn’t make sense and completely misses the point of the program.

Posted by goirish2k10 | Report as abusive

Betting With The Public’s Money: The Lessons Of The Solyndra Bankruptcy

http://www.outsidethebeltway.com/betting -with-the-publics-money-the-lessons-of-t he-solyndra-bankruptcy/

Posted by Cate_Long | Report as abusive

WILIMINGTON, Del., Sept 6 (Reuters) – Solyndra LLC, a solar panel maker that received $535 million in federal loan guarantees, filed for bankruptcy, the third U.S. solar firm to succumb to pressure from Chinese rivals in recent weeks.

Solyndra, which also received more than $700 million in venture capital funding, said it will try to find a buyer quickly to avoid a firesale liquidation.

The solar industry has been in turmoil this year as a glut of panels has sent prices plummeting 25 percent. Manufacturing capacity expanded just as government austerity measures in Europe eliminated subsidies and undercut demand.

Solyndra cut prices to try to compete but said in court papers that it was unable to match the extended payment terms offered by foreign competitors.

Last week the Fremont, California-based company said it had suspended operations and laid off 1,100 workers.

Solyndra’s bankruptcy filing on Tuesday follows similar filings by former Wall Street high flyer Evergreen Solar Inc and SpectraWatt Inc, a private company that was backed by Intel Corp.

Even industry heavyweights such as China’s Suntech Power Holdings Co Ltd and U.S.-based First Solar Inc are struggling with dwindling profits, while small, up-and-coming solar companies are finding it increasingly difficult to stay afloat.

Solyndra said in documents filed in Delaware’s bankruptcy court that it plans to spend the next four weeks trying to drum up interest among potential U.S. and foreign buyers. If it does not find a taker, it will shut down permanently and sell its assets piecemeal to repay its creditors.

The company has secured debts of $783.8 million, according to court documents.

The company was founded in 2005 to commercialize its light-weight panels, which are made up of cylinders rather than conventional flat panels. Solyndra was touted by MIT Technology Review as one of the 50 most innovative companies in the world and was visited last year by President Barack Obama.

Solyndra raised more than $700 million by selling preferred shares to venture capitalists, including Argonaut Ventures LLC of San Francisco, which owns about 39 percent of the company. Argonaut is also among the company’s first-lien lenders, meaning it will be the first to be repaid.

Other venture backers include Madrone Partners, USVP Venture Partners and Rockport Capital Partners, according to court documents.

Argonaut and Madrone plan to provide Solyndra with $4 million in debtor-in-possession financing, at 15 percent interest, to get the company through its four-week search for a buyer, according to court documents.

The case is Solyndra LLC, Case, U.S. Bankruptcy Court, District of Delaware, No. 11-12799.

For Solyndra: Bruce Grohsgal of Pachulski Stang Ziehl & Jones.

(Reporting by Tom Hals; Additional reporting by Sakthi Prasad and John Wallace)

http://newsandinsight.thomsonreuters.com  /Legal/News/2011/09_-_September/Solar_f irm_Solyndra_files_for_bankruptcy/

Posted by Cate_Long | Report as abusive

The Tulsa World filed a story Re the Kaiser connection earlier today. (What better place to get the news than a home town paper). Quotes from the TW article:

The bankruptcy filing indicates that Argonaut Ventures, an investment arm of the Tulsa-based foundation, holds almost 39 percent of Solyndra’s parent, 360 Solar Degree Holdings Inc.

Okay, so who is behind Argonaut Ventures?

In an emailed statement to the Tulsa World, a representative of the George Kaiser Family Foundation said the organization made the investment through Argonaut.

http://brucekrasting.blogspot.com/2011/0 9/solyndra-obama-connection.html

Posted by Cate_Long | Report as abusive

“… media reporting that SpectraWatt has filed for Chapter 11 protection after only 12months of plant operation with debts near $38.7 million and assets of $34 million.

The company is seeking to sell off its assets in a fire sale to meet creditors demands. There is still confusion as to what has occurred to state funded inducements the company received.”

http://www.solardaily.com/reports/Anothe r_US_solar_company_claims_bankruptcy_999 .html

Posted by Cate_Long | Report as abusive

First Solar drops 5% Nov 1, 2011. It just gets worse and worse. Western Solar Panel production doesn’t stand a chance. Solar Panel manufacturing requires a massive amount of Silver. In 2010, China was a huge net world supplier. In 2012, China became a net importer due to electronics manufacturing and solar panel manufacturing.
Meanwhile, the stories in the west confirm the shortage of physical silver. The NYC Silver Trust is at a near all time low in inventory since a couple of banks are clearly in control of the paper trading. Many suggest that the manulapulation for profit is keeping physical silver from reaching western soil.
Until the physical silver supply chain secrets are made public, solar panel investment in the West may continue to decline, or go away completely.

Posted by MarketPawn | Report as abusive