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Solyndra – Illuminating Energy Funding Flaws?

The views expressed are those of the author and are not necessarily those of Scientific American.

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Solyndra, once viewed as a sure winner in the solar industry, has closed its doors. Their technology works and they appear to have reached their goals for cost reductions. But, just 16 months after President Obama visited their manufacturing site and only 2 years after the Department of Energy approved $535 million in federal loan guarantees for Solyndra, this Fremont-based solar panel maker has given pink slips to its more than 1,100 employees. While the failing of young clean energy start-up might not have been given much attention in the private sector, Solyndra’s public sector funding has brought the company into the limelight along with a slew of questions regarding why this solar whiz kid failed.

At this point, Solyndra’s bankruptcy does not appear to root back to unexpected failings in the fundamental solar technology or system design. Their copper indium gallium diselenide (CIGS) thin-film technology has been able to successfully convert energy from direct, diffuse and reflected sunlight into electricity over its 360-degree photovoltaic surface. In fact, as Congressmen verbally slayed the company on the hill last week, they needed only to look down the mall to see Solyndra’s technology in action. Here, at the biennial Solar Decathalon, the University of Tennessee’s “Living Light” house has enough solar power capacity to meet the home’s actual needs and produce excess power to put into the electric grid – all thanks to Solyndra solar electricity tubes.

But, while Solyndra’s technology works, initial reports indicate that the economics do not. While it appears that the company might have met their goal of a 20% power cost reduction with their design, they were unable to economically compete with conventional, flat silicon panels.  Unfortunately (for Solyndra), these rival technologies were able to drop their production costs to a point that the CIGS technology was unable to compete.

The Solyndra bankruptcy is being called “the first serious financial scandal of the Obama Administration” and it might bring into focus some fundamental problems in the nation’s energy investment structure. Today, the U.S. government underwrites about $2.5 billion each year in fundamental energy research – or about $1.1 billion less than it did in 1980. This type of funding is designed to support research on technologies that could become future breakthroughs, if the theory behind them pans out (and the execution is solid). Compare this to the $30 billion that the Department of Energy has committed in the form of low-interest loan guarantees to support the construction of alternative-energy projects – which is where Solyndra’s funding came from – and a potential problem in the federal funding structure appears. Specifically, do these funding levels reach the right balance?

Under the Energy Policy Act of 2005, the Department of Energy administers a loan guarantee program to provide Federal support to “spur commercial investments in clean energy policies that use innovative technologies.” The American Recovery and Reinvestment Act of 2009 (ARRA) expanded this by including language to support loan guarantees for “renewable energy systems, electric transmission systems and leading edge biofuels projects.” It was under this act that Solyndra was awarded $535 million in federal loan guarantees on September 16, 2009 (of which about $520 million was issued) in addition to the $200,880 in federal grant money that the company had been awarded in June 2009.

The Solyndra bankruptcy announcement, less than 2 years after it was awarded hundreds of millions of dollars through the federal loan guarantee program, has already led some Congressmen to argue for a reduction in funding for this U.S. Department of Energy program. But, perhaps there is a more fundamental issue at play here – specifically, the optimal role of the federal government in financially supporting the energy industry. According to the editors at Bloomberg News stated on Thursday:

The government’s rightful role in this competition is at the beginning — and the end. We favor government support for research labs that can put hundreds, even thousands, of interesting ideas in play. Trying to pick winners in the midst of the action is ill-advised. The government can accomplish more, with less risk, by simply becoming a big, reliable customer for solar, wind and geothermal power.

A well-conceived alternative energy program could save the U.S. many hundreds of billions in the years ahead. If the Solyndra debacle gets U.S. policy pointed in the right direction, the loan-guarantee losses won’t have been totally in vain.

On Friday, Solyndra CEO Brian Harrison and CFO Bill Stover took the fifth when being questioned by the House Energy and Commerce Committee regarding the company’s recent bankruptcy announcement. The committee was supposed to examine the reasons behind the unexpected failure. But, the hearing quickly disintegrated into verbal warfare until House Democrats complained that the “badgering was becoming unseemly.”

Photo Credit:

  1. Photo of President Obama speaking at Solyndra’s facility on May 26, 2011 by jurvetson and used under this Creative Commons License.
  2. Screenshot of Solyndra’s federal funding history is from
Melissa C. Lott About the Author: An engineer and researcher who works at the intersection of energy, environment, technology, and policy. Follow on Twitter @mclott.

The views expressed are those of the author and are not necessarily those of Scientific American.

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  1. 1. sault 12:49 pm 09/28/2011

    It also needs to be kept in mind that the Solyndra loan was around 1% of the DoE program and that many of the other companies that were awarded loans are doing just fine. Renewable energy is in about the same place as an industry as IT was in the late 80s: the established players (IBM, HP, Xerox) have been shaken up by several new upstarts (Microsoft, Apple) while the industry is growing at a rapid pace. The infrastructure for a complete transformation of our economy is being laid, but progress is slow in this department.

    How many IT firms flopped while Google and Apple succeeded wildly? Any new industry will have its failures and while the government should have done its homework, the fact that Solyndra Execs are pleading the 5th means that they weren’t exactly forthcoming to the government in the first place. This is also why we need to crack down on China’s illegal trade practices like dumping subsidized solar panels on the world market.

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  2. 2. Melissa Lott 2:34 am 09/29/2011

    A comment from a reader (via facebook) that I wanted to share.

    Re: What does Solyndra’s bankruptcy tell us?

    “1. A good technology plan does not equal a good business plan.
    2. All commerce is global.
    3. Government should support the R&D and standardize its use for safety and interoperability. Beyond that, stay out of the marketplace.”

    Link to this
  3. 3. jpdickey 6:19 pm 09/29/2011

    One of the stated purposes of the loan involved was to provide Federal guarantees for projects that had trouble getting funding from banks, because their risk level exceeded current bank standards. There is some small percentage of failure even for businesses that meet the bank risk standards. We should expect that some slightly larger percentage of the projects covered by this loan plan would also fail. If the agency only gave loans to firms with no chance of failure, there would be no reason to have a federal program at all.

    Link to this
  4. 4. lupo2 9:01 am 10/23/2011
    Demand for solar power is rising, and that’s awesome – but so too are costs, no question. Economics 101 tells us that as demand rises, costs actually fall – and that’s spelling trouble for many solar power manufacturers in the US. Demand is rising abroad, but the economic models in other countries are intact. In any new industry, it’s all about cost efficiency and control, and solar power just isn’t there yet. Take a moment to check out our solar power blog – we write all about these theories and more

    Link to this

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