I’ve seen so many over-simplified reports about the demise of solar company Solyndra and its U.S. government funding that I thought I would add my own over-simplification to the public knowledge base. Perhaps the main difference here is that I will try to avoid the crazed tone that has dominated the discourse so far. (Photo: Solyndra facility, Fremont, California. Credit: John Martinez Pavliga, CC BY 2.0.)

With this topic in mind, in last week’s entry I wrote a statistics-laden overview of the solar industry to try to provide some context for the Solyndra debacle — see “So, How Is the Solar Industry Really Doing?” The basic picture is that solar is a fast-growing industry in the U.S. and around the world, but the reality is that solar energy provides only a small fraction of total energy supply.

Government programs of various kinds are operating so as to stimulate the growth of renewable energy sources, especially for electric generation. Many U.S. states have adopted Renewable Portfolio Standards, which require utilities to produce a certain percentage of their electricity from renewable sources. Governmental entities try to stimulate renewable generation through subsidies and tax breaks, as well as feed-in tariffs, which are payments to small producers, even homeowners, for generating renewable energy.

EPAct Loan Guarantees

The Solyndra affair grew out of a U.S. government loan guarantee program. Under such a program, the government enables a business to borrow money by committing to assume the loan should the borrower default. Solyndra received a loan guarantee under a U.S. Department of Energy (DOE) program designed to promote financing of innovative energy projects.

According to the DOE Loan Programs Office, since 2009 the office has supported a portfolio of nearly 40 projects. The office’s web site says that

Collectively, these projects plan to employ more than 60,000 Americans, create additional tens of thousands of indirect jobs, provide enough clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year. Many of these projects are first-of-a-kind that, when completed, can be replicated entirely by the private sector across the U.S., creating even more jobs and increasing our nation’s ability to compete successfully in this critical field on a global basis.

Loans under the program total $35.9 billion and support the first nuclear power plant built in the U.S. in three decades; the Shepherds Flat wind farm in Oregon, the world’s largest; POET’s Project Liberty, one of the first cellulosic ethanol plants in the U.S.; the country’s largest rooftop solar project; several large concentrating solar power (CSP) generation facilities; and a few solar manufacturing concerns.

DOE-supported Georgia Power nuclear plant under construction in Waynesboro, existing towers shown in background. Credit: U.S. Department of Energy.

The loan guarantees were authorized under the Energy Policy Act of 2005 (EPAct), amended in 2009 as a provision of the American Recovery and Reinvestment Act of 2009 (better known as the “Stimulus bill”).

Solyndra’s Failure

Solyndra Inc. of Fremont, Cal., received $535 million in loan guarantees based on an agreement approved in September 2009. Ironically, more than a month after it filed for Chapter 11 bankruptcy, the company’s home page still says, “Solyndra’s solar power solutions offer strong return on investment and make great business sense.” In an Aug. 31, 2011, press release announcing suspension of operations and its intent to file for Chapter 11, Solyndra representatives attributed the company’s failure as follows:

Despite strong growth in the first half of 2011 and traction in North America with a number of orders for very large commercial rooftops, Solyndra could not achieve full-scale operations rapidly enough to compete in the near term with the resources of larger foreign manufacturers. This competitive challenge was exacerbated by a global oversupply of solar panels and a severe compression of prices that in part resulted from uncertainty in governmental incentive programs in Europe and the decline in credit markets that finance solar systems.

A March 20, 2009, announcement from DOE said the loan guarantee was conceived to help Solyndra construct a new commercial-scale manufacturing plant for its solar PV panels.

Solyndra developed a proprietary solar technology designed to concentrate a lot of generating capacity in a small space, making it suitable for commercial rooftop installations. The technology employs copper-indium-gallium-diselenide (CIGS) thin-film material applied to cylindrical tubes, meaning that the PV surface can catch sunlight coming from any direction. This translates into greater collection capacity per square foot. Each Solyndra one- by two-meter panel contains 40 cylinders. See this description of Solyndra’s technology by Greentechmedia. (Drawing: How Solyndra tubes collect sunlight. Credit: Solyndra.)

The 2009 DOE announcement said that

Solyndra’s photovoltaic systems are designed to provide the lowest installed cost and the highest solar electricity output on commercial, industrial, and institutional roof tops, which are a vast, underutilized resource for the distributed generation of clean electricity. Solyndra’s proprietary design transforms glass tubes into high-performance photovoltaic panels which are simple and inexpensive to install.

Solyndra competed primarily against conventional polysilicon-based PV panels mostly made in China. Since the 2009 loan guarantee, the price of those materials has dropped 46 percent, according to Bloomberg.

The Solyndra press release says the company will evaluate options such as selling the business and its assets and licensing the CIGS technology.

Besides Solyndra, three other solar manufacturers have received DOE loan guarantees:

• 1366 Technologies Inc. of Lexington, Mass. — $150 million
• Abound Solar of Longmont, Col., and Tipton, Ind. — $400 million
• SoloPower of Wilsonville, Ore. — $197 million

Abound and SoloPower both make thin-film solar panels. 1366 makes more conventional polysilicon wafers but has developed a system that is supposed to produce the material faster and cheaper. Abound and SoloPower are using the government-guaranteed loans to build new manufacturing plants that are expected to begin operation in 2013. Representatives from both companies tell Bloomberg that they expect their products to be competitive when the new plants start up. Speaking with Bloomberg, Paul Clegg, solar analyst at Mizuho Securities USA, warns,

The odds are stacked against these startups coming into a highly competitive market with new technologies. One of these guys might succeed but the amount of money needed to reach scale is huge and its often underestimated.

Under the provisions of EPAct the DOE Loan Programs Office has issued a number of loan guarantees higher than Solyndra’s $535 million. In fact, the office has provided several guarantees over a billion dollars:

• AREVA Enrichment Services LLC — $2 billion to support a new uranium enrichment center in Idaho
• Georgia Power Company — $8.33 billion for construction and operation of two new nuclear reactors in Waynesboro, Ga.
• Abengoa Solar Inc. — $1.2 billion for a 250 MW solar generation facility in San Bernardino County, Cal.; and $1.446 billion for a facility in Gila Bend, Ariz.
• Brightsource Energy Inc. — $1.6 billion for a 383 MW concentrated solar generation facility in Baker, Cal.
• Caithness Shephers Flat — $1.3 billion for an 845 MW wind generation facility in Oregon
• NextEra Energy Resources LLC — $1.46 billion for a 550 MW solar generation plant and $852 million for a 250 MW plant, both in Riverside County, Cal.
• Prologis, a large industrial real estate company — $1.4 billion to install 752 MW of PV solar panels on 750 warehouse rooftops in 28 states and D.C.
• SunPower Corporation, Systems — $1.237 billion for a 250 MW alternating current PV solar facility in San Luis Obispo, Cal.

BrightSource concentrated solar technology. Credit: BrightSource Energy Inc.

Do Loan Guarantees Really Work?

In spite of the failure of Solyndra, Jesse Jenkins, Devon Swezey, and Alex Trembath, staff of the Breakthrough Institute, believe that the failure of Solyndra “is not an indictment of federal energy technology policy.” In fact, they assert, “judged by its whole portfolio of investments, the Department of Energy’s Loan Guarantee Program has been a remarkable success”:

Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2 percent of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings…

The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects… federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and reach commercialization.

Megan McArdle, senior editor for The Atlantic, disagrees with this reasoning. McArdle, who writes about business and economics, argues that government loan guarantees aren’t a good source of venture capital. She thinks financing for clean energy would be better coming from the private sector:

The private sector doesn’t have any trouble dealing with risky ventures; it simply prices the capital accordingly, demanding high interest rates, or a larger equity chunk, in exchange for money…

If the solar cells are unlikely to be sold to many people, then the loan guarantee is not a good idea — it will not foster much environmental benefit. If the solar cells are likely to be sold to many people, then the loan guarantee should not be needed; private investors should be easily found to back the manufacturing.

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9 Responses to “So Why Is Solar Energy Getting Government Loans, Anyway?”