• U.S.

The Solyndra Syndrome

9 minute read
Michael Scherer

The shiny photo Ops long ago became a blur: President Obama posing on one gleaming factory floor after another, often in shirtsleeves or protective glasses, with newfangled green-energy gizmos funded by his policies. He lifted high-efficiency light fixtures in Wisconsin, touched windmill blades in Iowa, drove an electric car in Detroit and admired steam turbines in New York. “It’s happening right now,” he said after examining solar panels at a California company called Solyndra in May 2010. “The future is here.”

His message strategists loved the visuals: Obama, far from Washington, pointing the way to a bright, clean future for America. But those images also brought risk, some of it for taxpayers–about $80 billion went to clean-energy projects in the 2009 stimulus alone–and some for the President’s image. Obama’s aides worried that one day he might tour a factory destined to go under. “Everyone knew,” said one former senior Administration official, “when one of these things didn’t pay back, there would be unhappiness.”

The future is now the past for Solyndra. The solar-array manufacturer declared bankruptcy on Sept. 6, an event whose fallout now threatens the President’s entire green-energy agenda. Solyndra was not just any solar company, either. It was the first project approved for an Energy Department loan, just two months into Obama’s presidency. Now its sudden demise has become a page-turning political scandal with FBI raids, congressional hearings and leaked e-mails showing that Obama officials rushed a half-billion-dollar loan for Solyndra and then missed signs that the company was foundering. Adding intrigue, a key Solyndra investor, George Kaiser, was also a top Obama fundraiser who enjoyed easy access to senior officials in the West Wing (though he claims never to have discussed the company there).

Solyndra’s federally funded venture–with a price tag of $527 million, or about $1.68 for every man, woman and child in America–was supposed to be the litmus test of the Administration’s ability to fund “good projects quickly,” according to a 2009 Energy Department e-mail. Instead, the company’s insolvency has become an opening for Republicans to hammer Obama’s economic policies as ineffective, overzealous and even corrupt: “crony capitalism at its worst,” as Republican Representative Paul Ryan recently charged.

But the story of Solyndra’s collapse is also about something more alarming than alleged political favoritism. It is a story of an American green-jobs agenda that is falling short of its grand promise; of a federal government ill equipped to address complex economic challenges; and of a reality that grows clearer by the day: in the global race to develop new commercial energy technologies, China is winning.

Lost in Paperwork

The idea behind Solyndra–founded in 2005 under the clunkier name of Gronet Technologies–was simple. The solar industry was then constrained by two cost drivers: the price of silicon, an essential ingredient of most solar panels, and the expense of installation. Solyndra’s proprietary technology, both silicon-free and easier to install than other panels, seemed to solve both these problems. But neither the company’s executives nor the federal bean counters who gave their approval could foresee what would happen next.

While the U.S. dabbled in loan guarantees for solar firms–a half-billion dollars here, a billion dollars there–China’s government catapulted its own industry forward with overwhelming force and far more cash. In 2010 alone, Beijing plowed $30 billion in credit into its solar industry, about 20 times more than the U.S. investment. Global prices for silicon-based solar panels, meanwhile, collapsed, effectively pricing Solyndra’s fancy nonsilicon design out of the market.

The Chinese understood something that was clear to energy experts in the U.S. “The race for solar manufacturing is a race worth winning,” says Jonathan Silver, a former hedge-fund executive who now oversees the Department of Energy’s loan programs. “Over the next few decades, this will become a global market worth trillions of dollars.”

Right now, no one can argue that the U.S. is ahead. China occupies 54% of the global solar technology market, up from 6% in 2005. By contrast, the U.S. share has declined from 42% in 1997 to just 6% today.

It was the Republican Party that first tried to close this gap. The 2005 Energy Policy Act, passed by a GOP Congress and signed by President George W. Bush, was meant to be America’s answer to China’s state-sponsored energy innovation. It created a loan-guarantee program with the goal of investing in “high-technology-risk” clean energy, including nuclear, solar and wind. Obama and Democratic lawmakers expanded it in 2009 and boasted of its potential.

At first, the Obama White House moved quickly. Desperate to spur the reeling economy and rack up winning photo ops, Administration officials fought to cut red tape and expedite loans to companies like Solyndra. “We had to knock down some barriers standing in the way to get these projects funded,” admitted Matt Rogers, the Energy Department official who oversaw the program at the time.

As a result, many of those companies, including Solyndra, received loan commitments before the government had gathered all the information about applicants that it normally would demand. E-mails recently released by congressional investigators show that some bureaucrats sharply questioned the speed of the fast-moving Solyndra loan. “This deal is NOT ready for prime time,” one White House budget analyst wrote in March 2009, just nine days before the loan was announced.

At the same time, the White House permitted at least the appearance of political back-scratching. The same week the loan was approved by a key Energy Department committee and the company’s board, senior Obama aides met at the White House with Kaiser, the Tulsa, Okla., billionaire who was Solyndra’s biggest investor–and a campaign donor who raised at least $50,000 for Obama in 2008. On March 12, Kaiser met privately with three senior officials, including Pete Rouse, one of Obama’s closest confidants. An Administration official tells TIME that Solyndra was not discussed at the meetings, which focused on Kaiser’s charitable efforts.

Officially, the urgency was about one all-important thing: jobs. “We have to make sure that as we create these jobs, we create jobs of the future, like the ones you are creating … jobs that can serve as a foundation for a stronger American economy,” Vice President Joe Biden said at the groundbreaking ceremony for Solyndra’s factory on Sept. 4, 2009.

But White House policy experts soon grew worried that the program was too unwieldy to deliver as promised. One problem was its unusual structure. Unlike most federal spending, loan guarantees require that bureaucrats calculate the risk of their investments, partly to keep public money from being wasted. This effectively turned Department of Energy officials into betmaking investment bankers tasked with evaluating the technological, financial, legal and operational impact of each project. Since 2009, the number of Energy Department staff members working on loan guarantees grew from about 35 to more than 180, many from the private-sector and investment-banking world, but still not enough to enable the government to disburse all the money Congress had authorized for green-energy projects. “All of the extensive due diligence and legal documentation simply cannot be completed,” explained an Energy Department spokesman recently, nearly six years since the program’s inception.

After more than a year had passed, internal concern over the loan program made it to the President’s desk. In October 2010, national economic adviser Larry Summers and top environmental-policy adviser Carol Browner wrote a memo to Obama arguing that the loan-guarantee program was too slow, too complex, too inefficient and open to abuse by private interests. Some loans appeared to be going to companies that either didn’t need government help or were profiting unduly from it. A wind farm in Oregon called Shepherds Flat was granted a $1.3 billion loan guarantee; the company planned to ask private investors to put up just 11% of the project’s cost, while offering a whopping 30% estimated return. Summers recommended several remedies, including rerouting the unspent funds to a less onerous tax-credit program. But Obama, who was then weeks away from a wipeout in midterm congressional elections, decided against any major changes.

A Grim Legacy

Solyndra’s abrupt fall also raised questions about the job promises of green energy. When the company shut its doors in late August, about 1,100 employees were laid off. That equates to about $479,000 in federal investment for every lost full- and part-time job–not exactly the stuff of economic renaissance. Solyndra was not alone in its scant record of direct job creation. High-tech factories tend to require relatively little human labor after their initial construction phase. Energy Department documents show that the $1.3 billion investment in the Oregon wind farm expected to create only 35 permanent jobs, while many other loan recipients hired fewer than 100 people. In fact, from 2003 to 2010, the number of clean-energy jobs in the U.S. grew at an annual rate of 3.4%, slower than the 4.2% growth in jobs for the economy as a whole, according to the Brookings Institution.

All the talk of “winning the future” with green jobs, it turns out, refers more to the distant future, when solar gadgets are expected to be sold like household appliances. But with the political firestorm surrounding Solyndra, the U.S.’s ability to compete in future decades is increasingly in doubt. Loan-granting government officials are now warier than ever of backing another dud. Just three weeks after Solyndra closed its doors, another American solar-panel company, SolarCity, was denied a $275 million loan guarantee the Energy Department had conditionally approved for a project to install panels on 124 military bases around the country. SolarCity’s CEO said that the Energy Department cited increased scrutiny after Solyndra’s fall when canceling the loan. At the same time, Republican leaders want to raid unspent loan-guarantee accounts to help communities hit by wildfires, earthquakes and hurricanes this summer “to ensure,” as California Representative David Dreier said, “that we never again have another boondoggle like Solyndra.”

Meanwhile, China–and other nations–are investing relentlessly in solar and other green technologies, says the Energy Department’s Silver. The story of Solyndra is a reminder that the U.S. no longer has unmatched advantages in nursing infant technologies into reality. When China invests in solar or wind, its leaders needn’t worry about electoral politics, congressional hearings or an adversarial press. Not so in the U.S., where one bad company now threatens to derail an entire green-energy program.

One day, solar panels will shine across the American landscape. It’s still unknown how many arrays will carry the label MADE IN AMERICA. But one thing is certain: Solyndra’s failure won’t lead to more.

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