The Energy Collective

The world's best thinkers on energy and climate

  • Home
  • Post Here
  • Columns
    • Electricity Markets & Policy Group
    • Full Spectrum
    • Energy and Policy Developments
    • Game Changers
    • Energy for Human Development
    • Seeking Consensus
    • Green Growth
    • New Energy Voices
  • Fuels
    • Oil
    • Wind
    • Nuclear Power
    • Coal
    • Natural Gas
    • Solar Power
    • Renewables
    • Biofuels
    • Geothermal Energy
    • Wave & Tidal
    • Hydro Power
  • Environment
    • Carbon and De-carbonization
    • International Climate Conferences
    • Sustainability
    • Climate
    • Public Health
    • Water
    • Recycling
  • Grid
    • Smart Grid
    • Electricity
  • Tech
    • Cleantech
    • Green Building
    • Storage
    • Rare Earth Minerals
  • Business and Economy
    • Cap-and-Trade
    • Agriculture
    • Efficiency
    • Green Business
    • Utilities
    • Finance
    • Green Jobs
    • Subsidies
    • Risk Management
  • Politics
    • Environmental Policy
    • Energy Security
    • Communications and Messaging
    • China
  • Transport
  • Help
    • FAQ
  • Account
    • Login
    • Register

Solyndra’s Second Chapter

October 26, 2012 by Geoffrey Styles

Print Friendly, PDF & Email

Image

The details of the reorganization plan approved Monday by the judge hearing the Solyndra bankruptcy case reminded me of the admonition of one of my mentors always to beware of unintended consequences.  I’m sure the Department of Energy officials who recommended the federal loan guarantee for Solyndra in March of 2009 envisioned that the solar start-up would succeed.  As a worst-case outcome, they probably anticipated the loss of the entire $535 million direct federal loan ultimately provided by the Treasury. However, in a remarkable turn of events, the actual extent of the downside for taxpayers has now expanded to nearly $900 million, due to a quirk in the tax code and a subsequent DOE decision in 2011.

This odd sequence of events starts in early 2011 when two venture investors agreed to infuse another $75 million into the already failing Solyndra.  In order to facilitate this injection–presumably in hopes of protecting the government’s substantial investment in the firm–the DOE agreed to allow the investors’ loan to take precedence over the government’s if Solyndra went bankrupt. Perhaps they thought that even in that case, they’d still recover most of the government’s investment, because Solyndra had a sexy technology and a big new factory in Fremont, CA that could be sold to a competitor for close to full value.  They apparently didn’t appreciate that Solyndra’s high-cost technology had already been bypassed by falling polysilicon prices, and that the factory and its custom equipment wouldn’t be of much interest to other solar producers, who were in the process of creating a huge global overhang of solar manufacturing capacity.  The Solyndra plant will now apparently be sold to a hard-drive maker for just $90 million.

In the meantime, Solyndra was piling up substantial losses running its plant and selling solar modules below cost, in order to compete with conventional solar panels that had become much cheaper. By the time Solyndra entered Chapter 11 bankruptcy, its cumulative losses apparently totaled $975 million.  To put that in perspective, the combined after tax profits of First Solar, the largest US solar producer, for the three years in which the DOE’s loan to Solyndra was outstanding, were $1,265 million.

What makes Solyndra’s losses relevant is that, contrary to intuition, they didn’t disappear in bankruptcy.  Instead, via the investors’ plan for emerging from bankruptcy, they became an asset.  And because the DOE ceded the first place in line to private investors, it is those investors who will control those “net operating losses” retained by Solyndra’s reorganized parent company, 360 Degree Solar Holdings, Inc. That company apparently kept none of Solyndra’s hardware, but when it acquires other companies–in any line of business–it will be able to offset future federal tax liabilities estimated by Bloomberg at $341 million.  Meanwhile, the federal government is likely to recover just 5 cents on the dollar on its “secured loan.”  The Solyndra loan is a gift that keeps on giving. 

Hindsight is 20/20, but it seems pretty clear that the folks at DOE were outsmarted by private investors who had a much clearer picture of the stakes for which they were negotiating.  As we were reminded last week, Solyndra wasn’t the only investment they made that went bad.  Let’s hope that the others don’t include similarly unpleasant surprises.  Meanwhile, I wish the IRS and Alameda County the best of luck in appealing the bankruptcy judge’s ruling.

Image: Solar Power via Shutterstock

Related posts:

Cleantech Firms Paying the Price for Subsidies Solyndra’s Lessons: Challenges of the Global Energy Market Konarka Technologies Files for Bankruptcy A123, Solyndra, and EV Battery Innovation

Geoffrey Styles

Geoffrey Styles is Managing Director of GSW Strategy Group, LLC, an energy and environmental strategy consulting firm. Since 2002 he has served as a consultant and advisor, helping organizations and executives address systems-level challenges. His industry experience includes 22 years at Texaco Inc., culminating in a senior position on Texaco's leadership team for strategy development, focused on the global refining, marketing, transportation and alternative energy businesses, and global issues such as climate change. Previously he held senior positions in alliance management, planning, supply & distribution, and risk management. He also served on NASA's Senior Management Oversight Committee for Space Solar Power. He earned an M.B.A from the University of California, Berkeley and a B.S. in Chemical Engineering from U.C. Davis. His "Energy Outlook" blog has been quoted frequently by the Wall Street Journal and was named one of the "Top 50 Eco Blogs" by the Times of London in 2008.

Filed Under: Solar Power, Subsidies Tagged With: solyndra

  Subscribe  
newest oldest most voted
Notify of

The Energy Collective Columns

Full Spectrum: Energy Analysis and Commentary with Jesse JenkinsEnergy and Policy Developments with John Miller
Game Changers column badgeEnergy for Human Development Column
Seeking Consensus with Schalk CloeteGreen Growth with Silvio Marcacci
New Energy VoicesMore coming soon...

Latest comments

  • Randy Dutton on Climate Change Optimism: Five Years of Change Megaquakes (8.5 and higher) impact global warming. According to NOAA, a six megaquake cluster has re (April 20, 2018 at 10:00 PM)
  • EngineerPoet on Closing Nuclear Reactors in Ohio and Pennsylvania Will Thwart Climate Goals Ontario already closed its last coal plant. (April 20, 2018 at 8:47 PM)
  • BobMeinetz on Closing Nuclear Reactors in Ohio and Pennsylvania Will Thwart Climate Goals Of course, Bas. Look at all the pretty red dots on the right side of your graph, where NPPs powered (April 20, 2018 at 6:08 PM)
  • Bas Gresnigt on Closing Nuclear Reactors in Ohio and Pennsylvania Will Thwart Climate Goals So those NPP's are happy to pay ~€60,000/hour*) each in order to get rid of their production... ___ (April 20, 2018 at 5:44 PM)

Advisory Panel

About the panel

Scott Edward Anderson is a consultant, blogger, and media commentator who blogs at The Green Skeptic. More »


Christine Hertzog is a consultant, author, and a professional explainer focused on Smart Grid. More »


Elias Hinckley is a strategic advisor on energy finance and energy policy to investors, energy companies and governments More »


Gary Hunt Gary is an Executive-in-Residence at Deloitte Investments with extensive experience in the energy & utility industries. More »


Jesse Jenkins is a graduate student and researcher at MIT with expertise in energy technology, policy, and innovation. More »


Jim Pierobon helps trade associations/NGOs, government agencies and companies communicate about cleaner energy solutions. More »


Geoffrey Styles is Managing Director of GSW Strategy Group, LLC and an award-winning blogger. More »


Featured Contributors

Rod Adams

Scott Edward Anderson

Charles Barton

Barry Brook

Steven Cohen

Dick DeBlasio

Senator Pete Domenici

Simon Donner

Big Gav

Michael Giberson

Kirsty Gogan

James Greenberger

Lou Grinzo

Jesse Grossman

Tyler Hamilton

Christine Hertzog

David Hone

Gary Hunt

Jesse Jenkins

Sonita Lontoh

Rebecca Lutzy

Jesse Parent

Jim Pierobon

Vicky Portwain

Willem Post

Tom Raftery

Joseph Romm

Robert Stavins

Robert Stowe

Geoffrey Styles

Alex Trembath

Gernot Wagner

Dan Yurman

 

 

 

Follow Us

32-linkedin 32-facebook 32-twitter 32-rss

Content for personal use only. Distribution prohibited. Republication in part or in whole is strictly prohibited. © All rights reserved Energy Central © 2018

Recent Comments

  • Randy Dutton on Climate Change Optimism: Five Years of Change
  • EngineerPoet on Closing Nuclear Reactors in Ohio and Pennsylvania Will Thwart Climate Goals
  • BobMeinetz on Closing Nuclear Reactors in Ohio and Pennsylvania Will Thwart Climate Goals

Recent Posts

  • What ALA’s Most Recent State of the Air Report Reveals About Oil and Gas Air Pollution in the Western U.S.
  • UK Will Legislate Net-Zero Carbon Emissions Target, Says Minister
  • Why EPA’s U-Turn on Auto Efficiency Rules Gives China the Upper Hand

Useful Pages

  • Terms of Use
  • Comments Policy
  • Privacy & Cookies
  • Help
  • About and Contact Us
Copyright © 2018 Energy Central. All Rights Reserved
This site uses cookies, for a number of reasons. By continuing to use this website you accept the use of cookies. Find out more.