POWER October 2011 - 6

SPEAKING OF POWER
Epic Fail
O
ver the past 18 months, four solar
energy equipment companies
have closed their doors. Each
one blamed poor market conditions for
its economic woes, even though each
had fundamental weaknesses that went
unaddressed. It now appears that the
Department of Energy (DOE) did insufficient
due diligence before backstopping
one of those four companies, Solyndra,
with a $535 million loan guarantee.
Solyndra announced on September 2
that it was entering Chapter 11 bankruptcy
and immediately released the company's
more than 1,100 employees, with
no notice. The company opened a massive
$700 million dollar manufacturing facility
in Fremont, Calif., earlier this year using
cash from a $535 million dollar DOE
loan guarantee and reportedly $1 billion
in venture capital funding. The Treasury
Department's internal Federal Financing
Bank loaned the money, so a loan guarantee
in default is lost cash.
Solyndra joined Hopewell Junction,
N.Y.-based Spectrawatt Inc. (an Intel
Corp. spinoff) and Evergreen Solar of
Marlboro, Mass., both of which filed for
Chapter 11 bankruptcy in August. BP
Solar closed its Frederick, Md., plant in
March of last year.
Great Expectations
You may recall that Solyndra was
praised by President Obama as a prime
example of how green jobs were being
created through government backing
of promising renewable energy firms.
During a well-publicized plant visit
on May 26, 2010, the president said,
" It's here, that companies like Solyndra
are leading the way toward a brighter,
more prosperous future. " He went on to
say that " The true engine of economic
growth will always be companies like
Solyndra " and that their technology
was " game-changing. "
The Solyndra technology was far from
innovative, much less game-changing.
Its plan was to produce tubes lined with
thin-film technology solar cells that
are mounted in a flat panel-like rack.
6
Solyndra publicized that this design
was better than flat panels because the
racks can be inexpensively mounted on
a flat surface, like a roof, and because
reflected solar energy from a light-colored
background improves collection efficiency.
However, the well-known flaw
with this technology is that it is does
not scale well-the production costs
don't drop much per unit when produced
in large quantities like conventional flat
photovoltaic panels. The DOE fell in love
with the technology but failed to quantify
the elasticity of production costs in
a highly competitive market where solar
panels are a commodity.
The cracks in Solyndra's façade began
to appear well before the president's visit.
Solyndra floated the idea of a $300
million initial public offering (IPO) in
December 2009, after receipt of the
loan guarantee in March of that year.
The registration statement prepared by
the privately owned company was examined
by independent accountant PricewaterhouseCoopers.
The accountants'
conclusion was that the company's huge
losses and negative cash flow raised
" substantial doubt about its ability to
continue as a going concern, " even after
a $1.5 billion cash infusion. The IPO
was withdrawn in June 2010, a month
after the president's visit, and was followed
by the founder and CEO's departure
on August 19.
The selection of Solyndra for a loan
guarantee is all the more distasteful
when you realize that the DOE must have
known the product stood little chance
of commercialization in the first place.
When Solyndra's original loan guarantee
application was submitted in 2006, the
company had a couple of dozen employees
and technology that the market
had already rejected as uneconomic
compared with flat panels. By 2009, the
company had a couple of hundred employees
but was shipping panels sold at
about half the cost of production. During
those three years, many companies
considered investing in Solyndra, but
there were few takers. Then Solyndra
www.powermag.com
caught a break. With the loan guarantee
in the bag, venture capitalists jumped
in with big money, hoping for a bigger
score. They believed that they couldn't
fail, especially by investing in a company
that proudly wore the president's
personal seal of approval.
Just as irksome to me was the cavalier
attitude of the DOE when it learned
of Solyndra's demise. That same day
the DOE released a statement on its
web site: " We have always recognized
that not every one of the innovative
companies supported by our loans and
loan guarantees would succeed. . . . "
In essence, the DOE dismissed the halfbillion-dollar
loss as the price of doing
business, and without any hint any responsibility.
Apparently, failures of this
magnitude are an acceptable option at
the DOE.
More Failures Will Follow
The Solyndra failure highlights the government's
" push-pull-plus " marketing
plan for these technologies. The " push "
occurs when the government substitutes
its judgment of what constitutes a good
product for that of the collective free
market and then uses public funds to jam
the product into an unreceptive market.
The " pull " occurs when the government
creates artificial market demand, such as
state or proposed national renewable energy
portfolio standards. The " plus " is the
sweetener added to the deals in the form
of incentives and tax credits. A marketing
plan predicated on the government injecting
cash every step of the transaction is
unsustainable today.
Solyndra was the first loan guarantee
signed off on by the DOE under the
American Recovery and Reinvestment
Act, but that didn't save the company
from filing for bankruptcy protection.
Given the many other companies with
shaky financials that have received loan
guarantees, I expect we'll see more and
larger epic fails like Solyndra in the
coming years. ■
-Dr. Robert Peltier, PE is POWER's
editor-in-chief.
POWER | October 2011
http://www.powermag.com
POWER October 2011

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