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  • Politically Connected Solar Firm Goes Under Despite Federal Support

    Major donors to President Obama have received favorable treatment throughout his administration. Today’s news that solar company Solyndra is going bankrupt demonstrates the consequences of that apparent cronyism. The company’s demise is likely to cost taxpayers hundreds of millions of dollars.

    Solyndra suspended operations Wednesday and will soon file for chapter 11 bankruptcy and lay off its 1,100 employees. The company cited “regulatory and policy uncertainties in recent months” as the cause of its financial hardships, which have “created significant near-term excess supply and price erosion,” according to the company’s CEO. Solyndra is the third solar company to file for bankruptcy this month.

    The Energy Department bypassed its normal vetting procedures in awarding Solyndra a $535 million loan guarantee in early 2009, the Center for Public Integrity reported in May. Now, the company’s bankruptcy may stick taxpayers with the bill for that loan.

    The economic conditions that have put Solyndra in such dire economic straits – the “regulatory and policy uncertainties” to which its CEO referred – may have been perceptible, even when the company received the loan guarantee. But the Department of Energy did not undergo its usual financial assessment when considering that guarantee.

    “An independent federal auditor who has reviewed the energy loan program said moving so quickly without completing thorough reviews exposed the program to perceptions of political influence and put taxpayers at greater risk,” CPI’s iWatch News reported at the time.

    Fueling that perception was the fact that George Kaiser, one of Solyndra’s top investors, raised about $50,000 for Obama’s presidential campaign.

    The company benefited from another loan guarantee, this one for $10.3 million, as part of the Export-Import Bank’s “Renewable Express” program, which was created to encourage exports in the renewable energy industry. The Export-Import Bank’s president and chairman, Fred Hochberg, was also a major Obama donor, bundling an estimated $100,000 for his campaign.

    While it did not accuse the Department of Energy of engaging in political favoritism, the Government Accountability Office found in its audit of the loan program that the government had “treated applicants inconsistently, favoring some and disadvantaging others.” Solyndra was among the favored companies; Wednesday’s events confirm that it was not the company’s financial viability that earned it the federal loan.

    A year after the Energy Department awarded its loan guarantee to Solyndra, the company shuttered a production plant, raising concerns that the government had invested in a financially unviable enterprise. Solyndra’s impending bankruptcy seems to confirm that suspicion.

    Rep. Cliff Stearns (R-FL), who chairs the House Energy and Commerce Committee’s oversight panel, which has been looking into the Solyndra loan, promised to continue his investigation into “how and why nearly half a billion dollars in taxpayer money was committed to this financially troubled company.”

    Since DOE guaranteed the loan to Solyndra, the solar industry has been feeling the pinch of declining prices due in large measure to a sudden drop in expenditures from European governments. Countries such as Spain and Germany were forced to scale back their massive renewable energy purchases when the global economic downturn caused a shortage in tax revenue. The result was a decrease in demand for solar projects, and a resulting decrease in prices.

    Some firms have been able to weather that decrease better than others. Clearly Solyndra did not have the necessary financial resilience. While economic shocks inevitably drive some companies out of business as a necessary function of the market (though, it should be noted, government intervention in the market was responsible for this particular shock), in Solyndra’s case it’s not just a handful of investors who will lose money when the company goes under. American taxpayers, who helped finance the company, will lose out in this deal as well.

    “We have always recognized that not every one of the innovative companies supported by our loans and loan guarantees would succeed,” an Energy Department spokesman said on the news of Solyndra’s coming bankruptcy filing. But it would seem that the federal government would attempt to minimize its losses by assessing an enterprise’s viability before promising to lend it half a billion dollars.

    Solyndra’s financial success was never a sure bet, of course, but the Energy Department’s vetting process may have recognized the potential pitfalls of reduced European spending on the industry. That process was “meant to protect taxpayers,” iWatch noted. That lack of protection may have resulted in a potential loss of the funds lent to Solyndra.

    Energy and Commerce opened its investigation into the matter last month, citing concerns that “the company was a financial risk that government analysts should’ve picked up on,” Politico reported.

    We may never know whether Energy Department would, in fact, have picked up on those risks. But that only underscores the importance of a full examination of a company’s finances before it receives federal funding.

    Though the Energy Department and Solyndra deny that political considerations influenced the company’s favorable treatment, the company is just one among many firms owned, operated, or financed by a major Obama donor that have enjoyed such treatment. In fact, “nearly 200 of his biggest donors have landed plum government jobs and advisory posts, won federal contracts worth millions of dollars for their business interests or attended numerous elite White House meetings and social events,” Politico noted in March, citing iWatch’s investigation.

    Another one of those donors owns a venture capital firm with four renewable energy companies in its portfolio that have also received more than $500 million in loans, grants, or stimulus funds. One hopes they fare better than Solyndra.

    Clarification: Solyndra received two loan guarantees from the federal government - one from the Export-Import bank and one from DOE - totaling more than $545 million. This post has been updated to make that distinction clear.

    Posted in Featured, Scribe [slideshow_deploy]

    15 Responses to Politically Connected Solar Firm Goes Under Despite Federal Support

    1. With the state rebate of 50% and the federal tax rebate of 30% we have had a boom in Louisiana in the solar industry, prices have come down on both product and installation with larger purchases and competition and improvements in installation tech. The largest sale is in battery backup/back feed grid tye systems. Mostly in remote areas where power reliability is questionable. The state is primarily dependent on coal power plants. The state pays coal subsidies and other incentives to the power companys to keep the cost down. Paying for solar is not that big a reach. I am still trying to find a compairison of the cost per wat delivered to the resident compaired to the price per wat of solar generated over ten years, the average warrantee of a solar system. If anyone can help with this please let me know. I can provide the cost here in louisiana for the solar. jrs.

    2. hughglass says:

      I really suspect that the ignorant, no business (or economic) experience, SOB in the WH believed this lunacy would be successful. An independent auditor commented on the business model for these idiots. "it costs them $6 to produce a product they sell for $3.00 and need to sell for $1.50 to be successful".

    3. johnconstitution says:

      I recently heard that 70% of startups fail because they try to scale up too soon. I think that may have been the case here. With over a billion in venture funding and half a billion in stimulus money, they built a huge factory with (as hughglass mentioned) a manufacturing process taht had no chance of success. The big gov't idea that money can solve all problems is probably responsible for more disasters such as his one than they are for successes of the same scale.

    4. DaForce says:

      I think all of these over 200 loan's, grants, contracts and misuse of stimulus money to major donors should be the target of congressional or a special investigator. How much more obvious can it be?

    5. Pete Houston says:

      Another social welfare program. How much did we end up paying to keep these people working in the great green society and now they are unemployed again.

    6. Ardathnoni says:

      Pure, unadulterated Chicago-style crony capitalism — from the anti-capitalists! Sure shows how inept they are when they do their "managed" planning.

    7. TURTLE says:

      UNFORTIONATELY all those STATE & FEDERAL TAX REBATES does nothing to help someone living on a fixed income and owes no FEDERAL & STATE TAXES

    8. Bobbie says:

      the problem has to be corrected. the problem is GOVERNMENT!!

    9. TURTLE says:

      UNFORTIONATELY the FEDERAL & STATE TAXES you refer to don't apply to someone living on a fixed income, they don't qualify for them so my heat pump I had to have replaced didn't qualify for it either

    10. Chris says:

      the Department of Energy did not undergo its usual financial assessment when considering that guarantee.
      I say take the 535 million out of their budget since they did not follow their own rules. If you don't follow the rules you pay the price. Why should us tax payers pay for some beurocrats incompetence?

    11. michael says:

      since obama is always talking about spreading the wealth i'll agree with him on that. obama can pay up,along with harry reid and nancy pelosi those three morons should be forced by a judge to pay the entire amount back to the public and until it is paid in full their bank accounts and mortgage and any thing that they earn money from should be garnished so that all they can receive in the way of money is thirty thousand a year per household. spread that wealth around real good now,you three can lead by example

    12. Sailor says:

      Chris, +1

    13. carol,az says:

      "You can scam some of the people part of the time, but not all the people all of the time."

    14. Al Connelly says:

      The political cronyism of this president and his team is criminal. He is obviously in bed with his major supporters from the first election and trying to keep that support for 2012. The same is true with his programs in favor of unionism regardless of the benefit or pain caused to the american worker. The "green business" push by the administration is ridiculous we recently lost another major recipient of our tax dollars who discovered they could not produce wind mills competitive to China after taking the loan. This has to stop along with the continued investment for Ethanol and the mandate for "greener" autos from our three barely surviving auto manufactures.

    15. Frank ly Frustrated says:

      The economics of solar power does not work unless there are government incentives at the federal and local levels. The current financial model for solar is a total loss without these subsidies. Investors in New Jersey solar projects began to see their projected investment returns dwindle when the SREC market in New Jersey recently tanked. Until the technology of solar energy advances to a level that it can produce an extremely higher output of energy on an extremely smaller footprint and also at an extremely lower cost basis the solar business in the USA is going to be in trouble.

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