Oct 6, 2011 - US solar panel maker Solyndra LLC, the first company to receive a loan under the Department of Energy's loan guarantee programme, filed for bankruptcy protection on September 6 and dismissed its 1,100 employees. The Solyndra bankruptcy sent shockwaves through the corridors of power in Washington and shook the stock market for a while but could the company’s failure have long-term implications for the US solar power industry?
by Mariyana Yaneva
The Political Fallout
Reporting on "Solyndragate" has been extensive and relentless over the past month.
Fremont-based Solyndra, which received a half-billion dollar federal loan guarantee and was touted by President Barack Obama as an example of a promising solar company, has become hot political fodder for opponents of the president’s administration as well as the subject of an FBI investigation.
Solyndra has received more than US 1 billion (EUR 750m) from venture capital partners and over USD 535 million in loan guarantees from the Department of Energy. Congressional opponents of green policies like Michigan Congressional Representative Fred Upton now regularly hold up Solyndra as an example of why the U.S. should not support green energy policies.
"I want to know what Solyndra failure means for the loan programme. Was Solyndra just one bad debt or is it just the tip of the iceberg?", Upton said, making the USD 39 billion loan guarantee programme a high profile target on Capital Hill. New loans under the programme immediately came under scrutiny.
Now, SolarCity, a rapidly growing solar installer, is having difficulty securing a federal loan guarantee and could be forced to scale back a USD 1 billion project to install solar equipment on military residences across the country.
In early September, SolarCity obtained from DOE a conditional commitment for a USD 275 million loan guarantee for the company’s "SolarStrong" project, under which it would install up to 160,000 rooftop solar systems on military residential rooftops. Last week, CEO Lyndon Rive wrote a letter to congressional representatives, concerned over the fact that the DOE told SolarCity the agency would not be able to finalise the loan guarantee before the September 30 deadline. The agency attributed the delay to "increased documentation requirements that are the result of the current congressional investigation into the Solyndra bankruptcy."
"It’s possible that the ramifications could extend beyond SolarCity because of both the level of attention and level of criticism that the Department of Energy and the Obama administration have received," said Shyam Mehta, a New York-based senior analyst with GTM Research.
Unfortunately, he was not far from the truth. A California programme that gives tax breaks to manufacturers of alternative energy products could soon be discontinued.
State Treasurer Bill Lockyer is suggesting that the state suspend the programme while it reviews the process for approving exemptions, "in light of" the collapse of Solyndra, which received USD 25.1 million in tax breaks. A state committee is scheduled to vote on October 25 whether to suspend the programme.
The reality beyond politics
Political fallout from the bankruptcy of Solyndra LLC solar firm could end up halting federal loans for other solar projects and make certain political figures second-guess their support for solar but what the market logic says is a very different story.
In business reality, Solyndra was not the entire US solar industry. It was just a manufacturer and supplier to the industry.
In 2010, the US PV market grew 104% on the year adding 887 megawatts, the equivalent of 160,000 residential installations. The first half of 2011 saw the market on track to grow another 72% this year. GTM Research anticipates an even stronger second half and a near-doubling of installations again in 2011.
Solyndra's failure simply reflects a business that made the wrong assumptions and paid for it.
The company specialised in making a tube-shaped module coated with copper indium gallium selenide (CIGS) solar cells mounted on relatively inexpensive aluminum frames.
Back in 2008, polysilicon prices were very high, giving the company what appeared to be a competitive advantage because its technology did not use the material. However, polysilicon production expanded rapidly to meet global demand for solar energy, causing spot prices to fall by nearly 90%. So the problem that Solyndra solved -- expensive silicon -- disappeared.
And while the design and flat-roof installation technology of its panels arguably had some advantages in terms of inexpensive installation and lighter weight, the modules remained more expensive than conventional crystalline silicon solar panels. Solyndra’s panels cost USD 2 a watt to produce. Chinese crystalline solar module makers are said to be able to produce modules for USD 1.10 a watt and the price continues to go down.
Management and investors finally pulled the plug when two things became brutally apparent. First, silicon wasn’t going to get expensive again. And second, Solyndra’s installation advantage couldn’t overcome similar products that were on the market at much lower prices.
Backing Solyndra might not have been the wisest decision of the Obama administration but it is also not such a big tragedy.
GTM Research Managing Director Shayle Kann puts the Solyndra loan guarantee in perspective. "Since mid-2010, the DOE has made conditional commitments for 18 loan guarantees in solar to 14 different companies, funding for projects and funding for manufacturing. The total sum of these conditional commitments is USD 15.585 billion. Solyndra's loan guarantee was USD 535 million -- or 3.4 percent of the DOE's solar portfolio", the research outfit notes.
The US solar energy industry continues to be one of the fastest-growing sectors of the American economy in 2011 and even though Solyndra's case might temporarily cause frictions it is highly unlikely that it will have a long-term impact on the industry as a whole.
(USD 1 = EUR 0.750)
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