Solyndra Casts Shadow on US Energy Loan Aid

Friday, 07 Oct 2011 10:47 AM

 

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Political furor over the Solyndra bankruptcy has dealt a body blow to the idea that the U.S. government should try to help clean tech start-ups through the costly "valley of death" to commercial viability.

The capital needed to commercialize cutting-edge, renewable energy technology is seen as too risky for both venture capitalists and for the banks.

Until the fossil fuel industry has to pay for the carbon it emits, renewables such as solar and wind are unlikely to attain the scale needed to compete with cheaper coal, oil and natural gas, and will depend on government support.

The Obama administration has marshaled a patchwork of loans, guarantees, tax credits and grants to bridge the gap, trying to use the programs to spur the languishing industry at a time the U.S. economy was in dire need of jobs.

But congressional support for the financing is about to dry up. Six of 10 key clean energy financing and tax programs will expire by the end of December. And headlines about Solyndra — the solar panel maker that filed for bankruptcy after burning through $535 million in government loans — has damaged confidence in government involvement.

"Obviously, loan guarantees are at serious risk at this point in terms of their support," said Dan Reicher, head of Stanford University's Steyer-Taylor Center for Energy Policy and Finance.

The uncertain future for funding was cited as the reason for the resignation of Jonathan Silver, the head of the Energy Department's loans program — a decision announced late Thursday.

Without government financing programs, growth in U.S. wind and solar industries will ebb, said John Sachs, director at the investment banking firm Taylor-DeJongh.

"We're going to see a contraction in the renewable energy market in the near term, and most affected by this are going to be the smaller projects and the least-experienced developers, or the technology that's the least-proven," he said.

POSTER CHILD GONE WRONG

Solyndra, backed by more than $1 billion in venture capital, got a massive cash infusion as the first recipient of a loan guarantee from the Energy Department under a program expanded and highly touted by the Obama administration, as it looked to the green tech sector to spur job creation.

Its factory was toured and praised by Obama, despite private misgivings from some government analysts and warnings from venture capitalists about the company's lack of cash. Those concerns have come to light through an eight-month investigation by Republicans in the House.

The FBI raided the company last month. The timing of the company's downfall, coming ahead of the 2012 presidential election, produced a political maelstrom.

Republicans have alleged poor management and political favoritism led to the ill-fated loans because Solyndra's investors included an Obama fundraiser — charges that the administration has aggressively disputed.

Obama has defended the program, which has guaranteed more than $16 billion in loans, saying some failures had been expected. He also accused Republicans of giving up on renewable energy while China and other countries offer the sector cheap capital.

"I've not going to cave to the competition when they are heavily subsidizing all these industries," Obama said in a news conference Thursday.

TOUGH FIGHT, EVEN WITHOUT SOLYNDRA

Even before the Solyndra mess, U.S. lawmakers had mixed feelings about the role the government can play getting new kinds of clean energy companies off the ground.

Some Republicans believe the government should stay out of the private sector, and others feel cutting the gaping deficit is more important than trying to support manufacturers of risky, cutting-edge renewable energy technology.

Many Democrats are convinced there is a role for government in lowering the cost of financing for clean energy projects, just as the Export-Import Bank helps finance exports, although they recognize the loan guarantee program was clunky.

"People pointed to a market failure where government needed to fill in the gap," said Mike Carr, an aide to Democratic Senator Jeff Bingaman, chairman of the Senate Energy Committee.

The Senate Energy committee worked on a proposal to create a new financing agency called the Clean Energy Deployment Administration. The agency could share in profits from successful companies to repay taxpayer appropriations and help finance other projects.

The agency would have some independence from government and would be more nimble in its decisions, Carr said.

"Second only to a yes, what industry really needs out of an entity is a fast no," Carr said.

But Carr said he worries the new politicization of clean energy financing in the wake of Solyndra could box many lawmakers out of support for any kind of new financing tools.

INDUSTRIES UP FOR GRABS

A coalition of technology developers from the nuclear, advanced fossil fuels, energy efficiency and renewable sectors could be a powerful lobby force on the issue, said Stanford's Reicher, who was an Energy Department official in the Clinton administration.

"How do we send the right message to people in Congress and the White House for the need for something smart and strategic coming out of this Solyndra controversy, as opposed to just wholesale dismantling of government support?" said Reicher, who has also worked in private equity and for Google's energy projects.

Still, serious policy discussion about the future of clean energy financing may need to wait until after the 2012 election, said Mark Muro, a senior fellow at Brookings Institution, who has extensively studied the problem.

"Industries are in play and up for grabs," Muro said, noting the hiatus could leave the United States further lagging competitors.

"The question becomes, are we going to unilaterally disarm on clean tech?" Muro said.

© 2014 Thomson/Reuters. All rights reserved.

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