Solyndra’s Collapse Threatens Green Tech Financing

U.S. President Barack Obama touring the Solyndra solar panel plant in Fremont, California on May 26, 2010.
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President Obama has inextricably linked his administration to the green energy technology sector with the many photo opportunities and speaking engagements that he’s undertaken to promote it in order to achieve the dual goals of reducing harmful emission that contribute to climate change, and to reduce U.S. reliance on foreign oil.

The problem for advocates of these goals is that clean energy technologies are emerging technologies and so when big bets fail, the policy becomes political baggage, and fodder for opposition soundbites, as Wednesday’s hearing over the Energy Department’s half a billion dollar loan guarantee to the failed solar panel maker Solyndra demonstrates.

“Any time the government makes a bet that big, it runs the risk that it will be criticized big time,” said Reed Hundt, CEO of the Coalition for Green Capital, and a former chairman of the Federal Communications Commission. The group is trying to get federal and state governments to adopt a new model of partnering with the private sector to finance alternative energy projects.

So with federal budget negotiations ongoing, and all government programs under scrutiny, all the controversy makes the DOE’s loan program vulnerable. The program was partly funded by the 2009 stimulus, and much of that money runs out at the end of the year.

The DOE’s loan program existed under President Bush, but was understaffed and underfunded, according to a former Obama administration staffer.

Hundt noted that many groups and individuals had harbored serious doubts about Solyndra’s chances for success at the time that DOE signed up for the loan guarantee to Solyndra in 2009.

“If you combine ‘shovel ready,’ i.e. passed-over projects with a big bet, then you’ve got a lethal combination in political terms, meaning that it’s not your best project, and you’re making a huge bet. You’re going to get Solyndras — big bets that go bad,” he said.

Solyndra, a startup solar panel maker in Fremont, Calif. declared bankruptcy on August 31, just before Labor Day. It is the beneficiary of a stimulus-backed $535 million loan guarantee from DOE, made in 2009. Supposedly a flagship of the administration’s policies, the company’s bankruptcy threw more than a thousand people out of work and instead gave it a black eye.

Hundt and the Coalition for Green Capital believe that a less controversial approach to getting private sector projects off the ground would be to move the loan-making process out of DOE to privately run green banks and move to a private-equity model where bets are made on less risky projects.

Under this model, federal and state governments would still provide some of the financing in direct partnership with the private sector. Hundt said that England and Scotland currently run such programs.

Many experts in the clean energy sector already note that the point of the loan guarantee programs isn’t to get the government to be the sole prop for the start-up companies. Rather it’s to get the ball rolling and to encourage private sector participation.

The coalition’s proposal, unveiled last November, suggests the creation of an Energy Independence Trust, which would borrow money both from the Treasury and the private sector to help clean technology start-ups to get off the ground, among other things.

Sen. Jeff Bingaman (D-NM), the chairman of the Senate Energy & Natural Resources Committee, has introduced legislation that would create such an entity. In the House, Rep. Chris Van Hollen (D-MD) has introduced legislation that would create such financing authorities by taxing a portion of the repatriated profits of large corporations such as Google to buy stock in the clean-tech financing banks.

The whole point is to decouple politics from the job of creating a promising new sector, and to foster economic development.

“The way to get to the private equity model is always to co-invest with private equity, and that is the meaning of Solyndra,” said Hundt.

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