September 26, 2011
The collapse of solar manufacturer Solyndra amid GOP charges of “crony capitalism” by the Obama administration threatens to undermine government programs that helped power a rapid expansion of solar energy generation over the past two years.
The California solar-panel startup, which received a $535 million federal loan guarantee as well as a highly publicized visit from the president last year, was one of 18 government loan guarantees that generated $9.5 billion in clean energy projects, with an additional 14 commitments to spur $9.3 billion of investments in the works.
The Energy Department offered the loan guarantees to manufacturing start-ups in part to try to reassert U.S. dominance in solar manufacturing technology while generating thousands of jobs. But government promotion of “green” manufacturing to compete with China and Germany, which now dominate the field, isn’t the reason for the exploding demand for energy alternatives like solar, industry experts say.
The rapidly falling cost of solar panels – the business reason for Solyndra’s collapse – coupled with demand-side incentives has already made solar installations competitive with gas-powered turbines, which are the most expensive form of electricity generation. Utilities usually reserve their gas-powered electric generation plants for periods of peak demand, such as when the sun is shining on hot summer days.
Demand-side incentives include state requirements that utilities acquire a set percentage of their electricity from clean energy, whether from solar, wind, biomass, or geothermal sources. The 2009 stimulus act also gave grants for up to 30 percent of investments in clean energy projects, whether installed by utilities, businesses, or homeowners. These incentives do not require that installer “buy American.”
Continuation of these demand-side programs, experts say, will over the next decade allow solar power to become cost-competitive with nuclear power, which also receives massive subsidies from the government. Industry officials and investors say maintaining solar subsidies for the next few years remains crucial to providing the economies of scale to make the industry cost-competitive not only with nuclear but also with coal, the traditional sources of electric power in the U.S.
Yet the two congressional committees, the Department of Energy’s inspector general, and the Justice Department who are investigating what went wrong at Solyndra aren’t making distinctions between the supply and demand sides, and in Washington’s highly charged political atmosphere the entire subsidy program could be at risk.
“If the government abdicates its responsibility, it’s going to create chaos [in the renewable energy industry] and job losses,” Neil Auerbach, the chief of Hudson Clean Energy Partners, a private equity firm that has invested over $1 billion in alternative energy projects, told the House Ways and Means Committee last week. The solar industry already employs over 100,000 people, more than the domestic coal industry.
There are already signs that the large subsidies that have historically sustained the solar industry are less needed, at least in those areas of the U.S. with very high electricity costs, like California. The Obama administration, under pressure from Republicans on Capitol Hill, has set a Sept. 30 deadline for new applications for the loan guarantee program. First Solar, the largest solar cell manufacturer in the U.S., saying it couldn’t finish the paperwork on time, last week walked away from a $1.8 billion federal loan guarantee for building a 550-megawatt generating facility (that’s about half the size of a new nuclear power plant) in San Luis Obispo County. It says it will move forward without the loan guarantee.
The company, which generated $3.6 billion in sales last year, a $1.1 billion increase over 2009, employs 6,500 worldwide. That includes 1,200 workers at its Perrysburg, Ohio, facility and a projected 600 new jobs in Mesa, Arizona, where 400 to 500 construction workers are building a new plant for First Solar.
The company is also in the installation business, and two previous projects in Lancaster and Riverside counties in California landed over $2 billion in loan guarantees. Its latest project will move more slowly because of the shifting landscape in Washington. “It will be more difficult to finance, but it will go forward,” said company spokesman Alan Bernheimer. “In a financing environment with very low tolerance for risk, it may take a little longer.”
The $535 million loan to solar-panel manufacturer Solyndra was the first failure in a program that was created in 2005 as a fee-dependent program (similar to the Small Business Administration’s loan guarantee program). It didn’t take off until the 2009, when the economic stimulus legislation eliminated the insurance-like fees, which had made the program unattractive to cash-poor startups, and provided $2.4 billion to back-stop failed loans.
Solyndra ranked as a relatively middle-sized project among the 18 projects that received a total of $9.5 billion in loan guarantees from the Energy Department. None of the other projects has run into major financial problems.
Another government program created under the stimulus act – cash grants for up to 30 percent of the cost of new renewable energy projects (the equivalent of a 30-percent investment tax credit) – has also been a huge success. The Treasury Department, which administers that program, reports it has awarded over $8.5 billion to nearly 20,000 separate projects across the country, 85 percent of them involving solar power. Many grants go to individual homeowners.
The non-residential pipeline of projects is also exploding. Over the last two years, 1,865 projects totaling 25.9 gigawatts of electricity-generating capacity have been started, according to Solarbuzz, which tracks project announcements. While many of those facilities may never materialize or will wind up being significantly smaller than originally planned, the level of projects now on the drawing boards represents the equivalent of 26 major coal or nuclear-generating facilities.
More than 60 percent of new solar capacity is being installed in California, which leads the nation. New Jersey and Arizona also have major programs. Under Gov. Jerry Brown, California recently increased its renewable energy requirements for utilities to 33 percent from 20 percent. While the legislated penalties for not meeting those targets helped create the need for utilities to line up alternative sources of electricity generation, solar industry executives say the world is only a few years away from not needing such inducements.
“The phenomenal growth of this industry has been led by significant cost reduction,” said Daniel Sugar, the chief executive officer of Solaria, a California-based solar manufacturer that has not used the government loan guarantee program. “A typical panel last year was $1.50 a watt; panels today are averaging $1.25 a watt. And it will soon hit $1 a watt.” China, which is pouring massive state subsidies into manufacturing, is driving the rapid decline in prices.
And that, ultimately, was the cause of Solyndra’s demise. The bankrupt company, run by former semiconductor industry executives, had developed an advanced technology that made its solar cells more efficient than flat panels. However, both relied on silicon, whose price has plunged to $60 a kilogram from $360 a kilogram in the past two years. The company’s business plan depended on silicon prices remaining above $200, industry executive said.
“Some business plans work and some don’t,” said Dan Reichert, executive director of the Center for Energy Policy and Finance at Stanford University and chair of the American Council on Renewable Energy. “We shouldn’t indict a [government] portfolio of 40 investments based on the failure of one business plan.”
That sentiment is not shared by many congressional Republicans. At last Friday’s Energy and Commerce Committee hearing, where Solyndra CEO Brian Harrison and COO W.G. Stover invoked their Fifth Amendment constitutional rights because of an ongoing FBI investigation, Rep. Michael Burgess, R-Tex., said he wouldn’t be happy until the Department of Energy “had crime tape around their building.”
Many Democrats who support the program also were upset by the refusal of Solyndra executives to testify. Solyndra officials spent millions of dollars lobbying the administration to approve the loan, which is something most companies, especially start-ups, avoid when pursuing government grants. As recently as July, company officials made the rounds on Capitol Hill, assuring legislators Solyndra was in good shape.
“While I’m shocked by the conduct of this company, and welcome the investigations,” said Rep. Gene Green, D-Tex., “the case should not be used as a pretext for destroying programs that have enormous potential.”