Solyndra’s Lessons: Challenges of the Global Energy Market
In September 2011, Solyndra, a US-based solar panel manufacturer, declared bankruptcy. The Solyndra case illustrates the complexity of developing renewable energies. Many globalization factors influence the production and distribution of renewable energy, such as economics, politics, science and technology policy, and commodity markets, to name a few. The demand for energy continues to rise as populations grow exponentially and as countries further industrialize. In addition, concerns mount about the environment, energy security, and the general safety of energy production (especially following Japan’s nuclear meltdown). Thus, examining Solyndra provides useful insight into global affairs. [Author's Note: This article was originally written in November 2011]
Heralded as a promising U.S. venture into the solar energy market, Solyndra failed as an economically viable operation. The roots of the manufacturer’s bankruptcy stem from the global energy and resource market: Solyndra’s market niche diminished when China expanded its prowess in the solar industry. Furthermore, the U.S. government’s analysis of Solyndra’s progress was flawed, and increased public skepticism of subsidizing solar energy companies.
Solyndra’s collapse raises many questions, such as should the U.S. government invest in new forms of energy, what political forces influence government decision-making, and how does the global economy affect green start-up companies.
This analysis will examine the lessons learned from Solyndra’s conception, initial success, and ultimate downfall.
Origins: High Hopes, a Presidential Visit
Founded in 2005, Solyndra was a solar panel manufacturing company based in Fremont, California.1 The U.S. government loaned money to Solyndra via The American Recovery and Reinvestment Act of 2009, an expansion of the loan program formulated in the Energy Policy Act of 2005.2 On March 20th 2009, “Energy Secretary Steven Chu offered a $535 million loan guarantee for Solyndra, Inc. to support the company’s construction of a commercial-scale manufacturing plant.”3 Later that year on September 4th, the loan guarantee was finalized. The loan was structured to have multiple stages, contingent on reaching a variety of milestones.4 Having received $527 million, Solyndra was in the final stages of the loan guarantee before declaring bankruptcy.5 This was the Obama administration’s first loan guarantee.6
Solyndra was chosen to receive the loan guarantee because of its innovative design: its panels used less silicon than others in the industry. Silicon was very expensive at the time of the company’s founding. Also, Solyndra’ s thin-film, tube-based, solar panels were thought to be a new model for the industry, allowing the collection of sunlight from all angles.7
Early on, the company showed promise, lining up customers and raising $600 million in equity from investors only three years after its opening.8 The hope for continued success prompted President Obama to visit the Solyndra plant in May 2010.9 Yet, one year later, Solyndra declared bankruptcy.10
Solyndra’s Technology and the Global Market
Solyndra sought the market niche of thin-film, solar panel applications. Its slogan was “Clean and Economical Solar Power from Your Large Rooftop.”11 Solyndra’s cylindrical design incorporated the ability to take in sunlight from any angle using direct, diffuse, and reflected sunlight. The manufacturer’s innovative panel designs incorporated copper indium gallium diselenide (CIGS) and thin-film technology.12
Solyndra claimed its products provided “the lowest system installation costs on a per watt basis for the commercial rooftop market.”13 There is some clout to the company’s claims as they were able to line up contracts inside the U.S.14 as well as in Europe.15 Solyndra showed continued success with revenue increasing from $6 million in 2008 to $100 million in 2009.16
Outside forces were at play. The global economic downturn at the end of the decade led to a significant spending reduction on new technologies. China became increasingly dominant in the solar industry, thanks to favorable domestic subsidies.17 Polysilicon costs dropped drastically because of Chinese advances in production and procurement.18 This significantly affected Solyndra’s competitiveness vis-a-vie production costs since its design was founded on the premises of CIGS technology and silicon availability (and thereby its cost).19
The gains made in 2009 were lost. In 2010, Solyndra closed a factory and delayed expansion.20 Solyndra’s marked vanished due to poor economic conditions, poor demand, and increased competition from China.
Favoritism leading to embarrassment?
In September 2011, Solyndra was raided by the FBI who was searching for evidence of fraudulent activities.21 Bankruptcy and further investigations and hearings, quickly followed. Many curious activities involving Solyndra’s executives, lobbyists, Department of Energy officials, and even concerns within the Obama administration were brought to the limelight.
The New York Times reported that lobbyists treated Solyndra differently than other companies:
During the period when Solyndra’s loan guarantee was under review and management by the Energy Department, the company spent nearly $1.8 million on Washington lobbyists, employing six firms with ties to members of Congress and officials of the Obama White House. None of the other three solar panel manufacturers that eventually got federal loan guarantees spent a dime on lobbyists.22
Furthermore, Stephen J. Spinner, a senior Energy Department Official and strong advocate for Solyndra’s loan, was found to have a conflict of interest since his wife’s law firm represented the same company.23 There was also mounting tension about President Obama’s visit to Solyndra, with cautions coming from the Office of Management and Budget (OMB) as well as from private investors – one of whom even alluded to possible bankruptcy of the company.24
In October 2011, the head of the Energy Department’s loan guarantee office, Jonathan Silver, resigned from his post. Despite the resignation and the bankruptcy, President Obama still supports the concept of loan guarantees, saying:
The idea is pretty straightforward: If we are going to be able to compete in the 21st century, then we’ve got to dominate cutting-edge technologies, we’ve got to dominate cutting-edge manufacturing […] Clean energy is part of that package of technologies of the future that have to be based here in the United States if we’re going to be able to succeed.25
The Future of Green Energy Investment
Some argue that political favoritism is the main problem in the Solyndra saga. Others point to the investment risks and markets volatility that are inevitable with the evolution of renewable energies. One of the most curious elements of Solyndra’s story, however, has been its impact on U.S. investment in and subsidization of energy companies.
Stated frankly by Forbes contributor Janet Carmowsky, “let’s not let the political fallout of Solyndra obscure the reality that if the USA wants to regain global competitive advantage, the businesses that government backs and bets on have to include more than banks, fossil fuel companies, and insurers.”26
President Obama acknowledges that investment and a favorable U.S. policy environment is necessary to gain global competitiveness, though it remains to be seen whether there is political willpower. Furthermore, China is poised to enhance its role as a global leader in green technology. It already has domestic policies and business conditions conducive to dominate the solar energy market.27
How does the U.S. compare in terms of investment? Looking to the past, the U.S. underwrote $3.6 billion in 1980 in fundamental energy research, yet only $2.5 billion at present.28 The Washington Post reports:
In 2009, according to the Pew Charitable Trusts, China surpassed the United States and other members of the G-20 for the first time as the leader in clean energy investment. [In 2009], clean energy investment in China totaled $34.6 billion, compared with $18.6 billion in the United States.29
The U.S. will need to continue supporting research and development (and investments in alternative energy solutions) to be a player in the green energy market. “Such sudden, unpredictable shifts epitomize the way progress happens”, write the editors at Bloomberg.30 Furthermore it would be advantageous to restructure the actual loan process so that the U.S. government provides seed money rather than trying to select the winners from the start.31 They conclude, “If the Solyndra debacle gets U.S. policy pointed in the right direction, the loan-guarantee losses won’t have been totally in vain.”32
There is still potential for the U.S. to become a leader in the solar market and in the market of other emerging energies. Americans have the intellectual capital and entrepreneurial ability to produce innovative technologies and ideas. Yet without an increase in support from the government, and the development of wise policy to encourage the R&D process, progress will be hard to come by.
1 Wang, Ucilia. “The Story Behind Solyndra’s Rise and Fall.” GigaOm. August 31, 2011
2 Lott, Melissa C. “Solyndra – Illuminating Energy Funding Flaws?” Scientific American Blog – Plugged In. September 27, 2011
3 “Obama Administration Offers $535 Million Loan Guarantee to Solyndra, Inc.” US Department of Energy. March 20, 2009
4 “Vice President Biden Announces Finalized $535 Million Loan Guarantee for Solyndra.” US Department of Energy. September 20, 2009
5 “Solyndra.” The New York Times. October 10, 2011
7 Lott, Melissa C. “Solyndra – Illuminating Energy Funding Flaws?” Scientific American Blog – Plugged In. September 27, 2011
8 Wang, Ucilia. “Solyndra Rolls Out Tube-Shaped Thin Film.” GreenTech Media. October 7, 2008
9 Lipton, Eric. “E-Mails Reveal Early White House Worries Over Solyndra.” The New York Times. October 3, 2011
10 “Solyndra Suspends Operations to Evaluate Reorganization Options.” Solyndra, Inc. August 31, 2001
11 Solyndra, Inc. September 6, 2011
13 “Technology/Products.” Solyndra, Inc. September 6, 2011
14 Wang, Ucilia. “Solyndra Rolls Out Tube-Shaped Thin Film.” GreenTech Media. October 7, 2008
15 Carmosky, Janet. “Solyndra And The China Factor.” Forbes. September 21, 2011
16 Fehrenbacher, Katie. “Solyndra’s Estimated Market Cap Up to $2B: Report.“ GigaOm. March 19, 2010
17 Carmosky, Janet. “Solyndra And The China Factor.” Forbes. September 21, 2011
19 “Solyndra.” The New York Times. October 10, 2011
20 Woody, Todd. “Solar-Panel Maker to Close a Factory and Delay Expansion.” The New York Times. November 3, 2011
21 Woody, Todd. “Solyndra Raid: Is Failure A Crime?” Forbes. September 8, 2011
22 “Solyndra.” The New York Times. October 10, 2011
23 Lipton, Eric. “E-Mail Shows Senior Energy Official Pushed Solyndra Loan.“ The New York Times. October 7, 2011
24 Lipton, Eric. “E-Mails Reveal Early White House Worries Over Solyndra.” The New York Times. October 3, 2011
25 Lipton, Eric. “E-Mail Shows Senior Energy Official Pushed Solyndra Loan.“ The New York Times. October 7, 2011
26 Carmosky, Janet. “Solyndra And The China Factor.” Forbes. September 21, 2011
28 “Real Solyndra Scandal Is U.S. Approach to Energy Subsidies.“ Bloomberg. September 22, 2011
29 Eilperin, Julie. “China leading the world in clean energy investment.” Washington Post. September 30, 2011
30 “Real Solyndra Scandal Is U.S. Approach to Energy Subsidies.“ Bloomberg. September 22, 2011
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Jesse Parent studied International Relations at SUNY Geneseo and is studying STEM in preparation for a Nanoscience degree. His research focuses on Energy, Technology, Resources, Geopolitics, and Sustainability. For more of Jesse's thoughts throughout the week and to see what news he's following, you are invited to join the conversation via Twitter, Facebook, Tumblr, and now at The Energy Collective. Or visit the main website, INFLUENCE with Jesse Parent to view Case Studies, Reports, Editorials and more.
Jesse Parent is an analyst, editor, and author focusing on energy & resources, technology, global affairs, and human relations. Jesse writes on his website: jesparent.com. He is a a Geopolitical Contributor for Learnist, Editor & Analyst (Energy Security Desk) for the Geostratigic Consultancy Wikistrat, and a Featured Blogger at The Energy Collective. Jesse studied International Relations & ...
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