Biden could prove the Solyndra scandal wasn’t a failure

The collapse in 2011 of California solar panel producer Solyndra after it received a federal loan guarantee left a lingering aversion to risk.
The collapse in 2011 of California solar panel producer Solyndra after it received a federal loan guarantee left a lingering aversion to risk.
Image: REUTERS/Robert Galbraith
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In the summer of 2010, Nina Eichacker was an intern at the US Department of Energy, analyzing the successes and failures of energy projects that received DOE funding. She didn’t realize that a high-profile failure was brewing right under her nose, and would soon put the department’s loan program—one of the government’s biggest pots of money for clean energy innovation—on ice.

Ten years later, Eichacker is among the economists urging the Biden administration to revitalize the program, which is currently sitting on $44 billion in unused, Congressionally-authorized clean energy loans and loan guarantees that quietly gathered dust under Donald Trump. The question is whether the administration is willing to stomach the toxic politics that festered around the program because of one misplaced loan: Solyndra.

What was the Solyndra scandal?

In 2009, the California-based solar panel manufacturer became one of the earliest recipients of funding backed by DOE’s loan office, which had been established in 2005 legislation signed by George W. Bush. The lending program was created to support ventures that need a leg up in commercializing cutting-edge clean energy technology. 

Solyndra received a $535 million loan guarantee to support production of solar panels that used no silicon, which at the time was a key but expensive component of most panels. Unfortunately for the company, technological innovations and a silicon mining boom in China suddenly caused the price of the raw material to plummet, and Solyndra lost its edge. By December 2010, the company was out of cash, and by August 2011, it was bankrupt. Taxpayers had to eat the loan.

The collapse was red meat for Congressional Republicans eager to chasten the Obama administration. It launched a tidal wave of Capitol Hill hearings and articles in conservative media that painted Solyndra as the epitome of government waste and eco-cronyism (bureaucrats were said to have ignored clear warning signs about the company’s financial stability in the interest of pursuing a green agenda).

In House testimony, DOE secretary Steven Chu defended the program’s overall track record and said that no one could have predicted Solyndra’s failure. But the debacle, which was embarrassing and distracting for the Obama administration, left an aversion to risk in the loan office, especially after a smaller loan to another panel producer collapsed the following year. DOE’s loan office has not issued more support for renewable energy projects since 2011.

There’s just one problem, says Eichacker, who is now an economist at the University of Rhode Island: The whole point of the loan program was to back high-risk, high-reward ventures that couldn’t attract private-sector financing, and to accept a few failures as the cost of discovering diamonds in the rough. In 2010, the program gave almost the same amount of money it lost on Solyndra to an electric vehicle start-up called Tesla, the CEO of which is now the world’s richest person.

“I just remember plaintively trying to tell my friends and family that this is what is actually is supposed to happen,” Eichacker says. “The failure of one enterprise is not a reason to shutter a whole lending program.”

The government’s most underutilized climate weapon

Since its inception, DOE’s Loan Program Office has issued about $32 billion in loans and loan guarantees to a portfolio of 35 projects and companies that include wind and solar farms, geothermal plants, electric vehicles, an advanced nuclear power plant, and a chemical plant equipped with a carbon-capture system.

For the most part, the projects have been successful: Total loan losses amount to $806 million, less than 2% of the portfolio (another high-profile failure was the EV company Fisker, which went literally underwater when a $30 million shipment of new cars was destroyed by Hurricane Sandy). In addition to Tesla, another high-profile success has been the program’s fleet of utility-scale solar farms, which acted as a proof of concept back when such farms were almost nonexistent in the US; now they provide the majority of the country’s solar power. Since fiscal year 2016, no project has missed a payment. The program is expected to generate at least $5 billion in interest for taxpayers, and has reduced carbon emissions equal to taking 14 coal-fired power plants offline for a year.

The failure rate is also much lower than in the average venture capital or bank’s lending portfolio, says Dan Reicher, a senior research scholar at Stanford University’s Woods Institute for Environment and a former DOE assistant secretary of energy under Bill Clinton. In the case of loan guarantees, which account for about three-quarters of the portfolio, the government doesn’t need to spend a penny of its own money unless the project goes bankrupt.

Yet only a few new projects have been approved post-Solyndra, and no new projects were approved under Trump. A pool of money for clean energy projects on tribal land has never been tapped at all.

Why clean energy projects stalled

Reicher and other experts point to a few reasons for the hiatus: high application fees and a tedious bureaucratic approval process, overly stringent rules to qualify, lingering risk aversion because of Solyndra, opposition to the program by Mick Mulvaney, who as director of the US Office of Management and Budget under Trump had the authority to stonewall approvals, and the growing availability of private-sector capital as clean energy projects prove less risky than they seemed a decade ago.

The program still has funding to support $17.7 billion for clean vehicles, $10.9 billion for advanced nuclear, $3 billion for renewables, $2 billion for tribal projects, and $6.5 billion for advanced fossil energy, a category that includes carbon capture and other technologies to reduce the carbon footprint of fossil fuel consumption (a separate DOE loan program also has $3.25 billion for grid infrastructure). A DOE spokesperson said that although new disbursements were paused during most of the Trump administration, loan officers continued to process applications and support pre-existing loans. They declined to disclose the exact number of projects under consideration.

Ironically, Reicher says, Solyndra’s doom was sealed by US policymakers bickering over clean energy loans while similar programs in China were working overtime to commercialize solar technology—technology that, in some cases, originated in US-funded research programs. Now, as the global economy accelerates away from fossil fuels, the imperative for US firms to stake out a competitive advantage is clearer than ever.

“There’s a real serious need here, and we have an exciting opportunity to get this program back in gear in a way that’s good for climate, economic competitiveness, and national security,” Reicher says. “The program should be doing a lot more.”

How Biden can improve DOE’s clean energy loans

In addition to signing off on more loans and asking Congress for more money, there are a number of ways in which the loan program can be improved upon in the hands of Biden and Jennifer Granholm, his soon-to-be-confirmed energy secretary.

“Compared to when this was set up 12 years ago, the ball has moved in terms of where decarbonization is headed,” says Adam Zurofsky, executive director of the advocacy group Rewiring America. “But the new administration has a very bullish view that it will be a real asset as part of their climate strategy.”

One step is to streamline the application process; the DOE is already working to meet with prospective applicants at an earlier stage of project development and to provide more transparent information about qualification standards. Another is to potentially lower the bar for how cutting-edge (“out of the Batcave,” as Zurofsky put it) a project must be, in the interest of supporting ventures that use more mature technology but are nonetheless essential for the energy transition.

The DOE could reconsider how its overall sum is allocated—redirecting some money from “advanced fossil” to renewables projects, for instance, although such a change may need to be approved by Congress—and open the criteria to a broader range of participants. An energy bill passed during Trump’s final days in office, for example, allowed greater leeway for loans to be made to energy storage companies and projects that capture CO2 directly from the air. Another new candidate for loan guarantees might be banks that make small loans to homeowners for solar panels or efficiency upgrades, Zurofsky says.

The administration could also tweak eligibility criteria to align with its broader stated goal of promoting environmental justice. “The administration can prioritize projects that benefit frontline communities and also tackle other kinds of air pollutants, or projects that offer high-paying union jobs,” says Erin Burns, executive director of the advocacy and research group Carbon180. “So it’s not just driving any new technologies.”

Solyndra zapped enthusiasm for that kind of policy innovation in the Obama administration, proving that while government lenders may be able to tolerate certain financial risks more than banks, politics can still prevail. The fact that Democrats now control Congress should help Biden on that front.

The opportunity cost of the Solyndra debacle was ultimately much more damaging than the foregone loan money, Eichacker says. “The costs of climate change are incomprehensibly large [and] the downside of losing on a few more Solyndras pales in comparison to not trying to do more.” In other words, better to suffer through a Solyndra than miss out on a Tesla.