Solyndra Bankruptcy Creates Political Problems for Obama Administration

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The collapse of solar company Solyndra LLC (Fremont, California) at the end of August put an estimated 1,100 former employees out of work. But the Obama administration may face more far-ranging repercussions as congressional investigators keep digging into the $535 million federal loan guarantee the administration made to the company in 2009.

Solyndra filed for Chapter 11 bankruptcy protection August 31. The bankruptcy filing created a political ripple because the Obama administration had touted Solyndra as a leading-edge "clean energy" company that could help the U.S. recapture leadership in the renewable energy technology field. But that ripple became a roar after Federal Bureau of Investigation agents raided the company's headquarters September 8. And the roar has become deafening in the 10 days since then, as congressional investigators released emails and other documents that raise questions about whether political considerations played a role in the approval of Solyndra's application.

The saga is expected to continue this week as Solyndra's leaders are scheduled to appear before a congressional panel to answer questions about what went wrong in their business. They may also be asked whether there were political ties between their company, its investors and the Obama administration.

Last week, Obama administration officials appeared before the House Energy & Commerce Committee to answer questions about Solyndra's loan guarantee. The committee released internal emails between officials at the White House, Department of Energy (DoE) and Office of Management and Budget (OMB), which showed administration officials were taking a particularly keen interest in the status and timing of finalizing the loan guarantee to Solyndra. Senior administration officials had been invited to participate in an early-September 2009 groundbreaking ceremony for a Solyndra manufacturing facility. It was hoped that those officials could announce the guarantees at the ceremony.

The federal loan guarantee process can be time-consuming. Companies file applications with the DoE, and firms selected for guarantees then negotiate the terms of the guarantee with the agency. After the DoE and the company reach agreement, the application goes to the OMB, which has the authority to change the terms of the guarantee.

Solyndra filed for a federal loan guarantee in 2006, during the Bush administration. In March 2009, the DoE notified Solyndra it had been selected for a conditional loan guarantee of $535 million, but final approval of the guarantee dragged on for months.

Documents obtained by congressional investigators and published by The Washington Post paint an unflattering portrait of an Obama White House trying to expedite Solyndra's loan guarantee documents so that administration officials could participate in the company's early September groundbreaking event for a new manufacturing facility.

These documents showed White House officials repeatedly asking OMB reviewers when they would finish their review of Solyndra's loan applications. Those emails also noted the upcoming groundbreaking event, where the administration wanted to announce their approval of the loan guarantees. In response, OMB officials expressed concern that they were being rushed to approve the company's project without adequate time to assess the risk to taxpayers.

In one e-mail, an assistant to Rahm Emanuel, then White House chief of staff, wrote on Aug. 31, 2009, to the OMB about the upcoming Biden announcement on Solyndra and asked whether "there is anything we can help speed along on OMB side."

An OMB staff member responded: "I would prefer that this announcement be postponed. . . . This is the first loan guarantee, and we should have full review with all hands on deck to make sure we get it right."

In another message, a White House staff member wrote that officials were "walking a fine line with Solyndra needing to begin notifying investors to fly in" for the groundbreaking. It stressed that "this OMB piece" of the review was not final and pointed out that if word of the groundbreaking leaked to the public prematurely, that would "leave us in an awkward place."

One e-mail from an OMB official referred to "the time pressure we are under to sign-off on Solyndra." Another complained, "There isn't time to negotiate."

"We have ended up with a situation of having to do rushed approvals on a couple of occasions (and we are worried about Solyndra at the end of the week)," one official wrote. That Aug. 31, 2009, message, written by a senior OMB staffer and sent to Terrell P. McSweeny, Biden's domestic policy adviser, concluded, "We would prefer to have sufficient time to do our due diligence reviews."

White House officials denied they tried to influence OMB officials. But they acknowledged the administration had a "quite active interest" in the timing of the OMB's decision. "There was interest in when a decision would be made because of its impact on whether an event involving the vice president could be scheduled for a particular date or not, but the loan guarantee decision was merit-based and made by career staffers at DoE," White House spokesman Eric Schultz said.

Solyndra broke ground on its second fabrication facility September 4, 2009. DoE Secretary Dr. Steven Chu attended the event, held in Fremont, California, while Vice President Joseph Biden participated via satellite link.

While in bankruptcy protection, Solyndra officials said the company will seek to sell or license its technology to other companies. Solyndra designs and manufactures photovoltaic (PV) systems for the large commercial rooftop market. The company uses proprietary cylindrical modules and thin-film technology to generate electricity for commercial customers.

"Obviously, when big deals like that go down it shakes up everybody's confidence," Rob Pomeroy, chief executive at Horizon Technology Finance Management LLC (Farmington, Connecticut), told the Contra Costa Times. "We've been very selective in this market, waiting for companies to have real revenues. Then we keep our loan levels low, in a secured position." His firm lends to venture-backed technology firms. Clean-technology companies account for about 25% of Horizon's portfolio, although solar companies represent only a handful of its environmental investments, he said.

Industry analysts said Solyndra's failure was the result of several factors:

• Silicon prices dropped 40% during the first eight months of this year. Silicon is a major ingredient in most PV calls, but Solyndra's modules didn't use silicon materials. Thus, the company was unable to take advantage of declining input costs, and it was competing against companies who were taking advantage of declining silicon costs.


• PV companies in China were able to leverage declining silicon prices and state support to produce PV arrays less expensively than U.S. competitors.


• Demand for renewable electricity has softened recently with the weak economy and as some state and federal markets around the world have achieved their renewable energy goals.

On August 31, the day Solyndra filed for Chapter 11 protection, Dan Leistikow, director of the DoE's Office of Public Affairs, made this comment on the agency's blog: "Since 2009, the DoE's Loan Program has supported a robust, diverse portfolio of more than 40 projects that are investing in pioneering companies as we work to regain American leadership in the global race for clean energy jobs. ... While each transaction undergoes months of extensive and careful expert review to minimize risk, there will always be an element of risk with investments in the most innovative companies. The alternative is simply walking off the field and letting the rest of the world pass us by."

David Pickering, Industrial Info's vice president of research for Industrial Manufacturing, said, "The entire Solyndra situation is a sad indictment of the political system and how due diligence was not performed prior to loaning out taxpayers' hard-earned money. But it should not be taken as proof positive that new technologies aimed at reducing this country's reliance on foreign oil and its carbon footprint are failures.

"Companies involved in advanced energy technologies have invested billions of dollars in the U.S. in recent years and will continue to do so," Pickering said in an interview. "This is especially true with those companies that manufacture solar panels, as well as the components for wind towers. That is certainly a positive thing for our economy as a whole. But the reality is, not all advanced technologies succeed in the market."

In congressional hearings this week, Solyndra officials are expected to face tough questioning about their candor regarding their company's finances. Less than six weeks before Solyndra filed for bankruptcy protection, Brian Harrison, its chief executive, assured members of Congress that the company's business was robust and that it was on track to double revenue in 2011.

Democratic representatives Henry A. Waxman (California) and Diana DeGette (Colorado) questioned whether they had been misled about the company's financial health. In a letter, they wrote that Solyndra Chief Executive Brian Harrison "did not convey to us the perilous condition of the company, and the (House Energy & Commerce) Committee should know why."

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