On September 1, 2011, Solyndra, a solar energy start-up and recipient of an Energy Department loan guarantee, declared bankruptcy. While this event is deeply disappointing, at the time the loan guarantee was issued, Solyndra was widely seen as a promising and innovative company:
- Solyndra was named one of the world’s “50 Most Innovative Companies” in 2010 by MIT’s Technology Review and included in the Wall Street Journal’s “The Next Big Thing: Top 50 Venture Backed Companies.”
- Private investors, after conducting their own careful review of Solyndra, put $1 billion of their own private capital behind the company.
- Solyndra reported sales growth of 40% from 2009 to 2010, from $100 to $140 million.
- This loan was pursued by both the Bush and Obama Administrations.
- The Solyndra loan underwent years of rigorous internal and external review before being approved. It attracted venture capital support and was thoroughly vetted by objective, independent validators who believed this project was worthy of investment.
By any measure, solar manufacturing will be a huge market in the coming years – the only question is whether we want to compete for those jobs, or just give up in the face of a setback. The International Energy Agency projects that solar power will grow steadily, producing nearly a quarter of the world’s electricity within four decades.
- Conservatively, that means more than $3 trillion worth of solar panels will need to be manufactured – a vast economic and employment opportunity to be seized by countries that succeed in this sector.
Our competitors know this, and are playing to win.
- Last year the China Development Bank offered more than $30 billion in financing to Chinese solar manufacturers, about 20 times more than U.S.-backed loans to solar manufacturers.
- In 1995, the U.S. produced 40 percent of the world’s solar panels, compared to five percent today.
- In the last six years, China’s market share has grown from six percent to 61 percent.
When it comes to clean energy, we have a choice to make. We can compete in the global marketplace – creating American jobs and selling American products – or we can buy the technologies of tomorrow from abroad.
Our loan programs are today supporting a diverse portfolio of more than 40 projects that plan to employ 60,000 Americans and give us a chance to compete and succeed in the global clean energy race. These include the largest wind farm in the world, the first new nuclear power plant in the United States in three decades, and the largest solar generating stations in the world.
Historically, our government has supported emerging industries -- from transcontinental railroads to aviation to the microchip. These investments strengthened our Nation and leveraged the private investments that drove our prosperity. Now is not the time to stop investing in our Nation’s future.
Flashback: Congressional Pressure to Accelerate Loan Program
While some in Congress and the media are now alleging that Department of Energy rushed the application, as far back as 2007 and as recently as July 2010, Republicans in Congress were complaining about the slow pace of reviewing and approving loan applications. In fact, during Secretary Chu’s 2009 confirmation hearings, Republicans in the Senate pressed Secretary Chu to make accelerating the loan program a priority. Learn more.
INFOGRAPHIC: Timeline of the Energy Department's Review and Approval Process for the Solyndra Loan (Download)
Tomorrow morning, I’ll be appearing before the House Energy and Commerce Committee to discuss the choice we face in competing for the clean energy jobs of tomorrow. I know that many of you share my strong feelings on this crucial issue, so I wanted to share my testimony with you. What follows are my remarks, as I have prepared them for delivery:
Thank you Chairman Stearns, Ranking Member DeGette, and members of the Subcommittee for the opportunity to speak with you today.
Investments in clean energy reached a record $243 billion last year. Solar photovoltaic systems alone represent a global market worth more than $80 billion today. In the coming decades, the clean energy sector is expected to grow by hundreds of billions of dollars. We are in a fierce global race to capture this market.
In the past year and a half, the China Development Bank has offered more than $34 billion in credit lines to China’s solar companies. China is not alone: To strengthen their countries’ competitiveness, governments around the world are providing strong support to their clean energy industries. Germany and Canada operate government-backed clean energy lending programs, and more than 50 countries offer some type of public financing for clean energy projects.
In the United States, Congress established the Section 1703 and 1705 loan guarantee programs as well as the Advanced Technology Vehicles Manufacturing Program — all of which provide support to cutting-edge clean energy industries that involve technology and market risks. In doing so, Congress appropriated nearly $10 billion to cover potential losses in our total loan portfolio, thereby acknowledging and ensuring that the inherent risks of funding new and innovative technologies were recognized and accounted for in the budget. We appreciate the support the loan programs have received from many members of Congress — including nearly 500 letters to the Department — who have urged us to accelerate our efforts and to fund worthy projects in their states.
Through the loan programs, the Energy Department is supporting 38 clean energy projects that are expected to employ more than 60,000 Americans, generate enough clean electricity to power nearly 3 million homes and displace more than 300 million gallons of gasoline annually. These important investments are helping to make America more competitive in the global clean energy economy.
Today, we are here to specifically discuss the Solyndra loan guarantee. The Department takes our obligation to the taxpayer seriously, and welcomes the opportunity to discuss this matter.
As you know, the Department has consistently cooperated with the Committee’s investigation, providing more than 186,000 pages of documents, appearing at hearings, and briefing or being interviewed by Committee staff eight times.
As this extensive record has made clear, the loan guarantee to Solyndra was subject to proper, rigorous scrutiny and healthy debate during every phase of the process.
As the Secretary of Energy, the final decisions on Solyndra were mine, and I made them with the best interest of the taxpayer in mind. I want to be clear: over the course of Solyndra’s loan guarantee, I did not make any decision based on political considerations.
My decision to guarantee a loan to Solyndra was based on the analysis of experienced professionals and on the strength of the information they had available to them at the time.
The Solyndra transaction went through more than two years of rigorous technical, financial and legal due diligence, spanning two Administrations, before a loan guarantee was issued. Based on thorough internal and external analysis of both the market and the technology, and extensive review of information provided by Solyndra and others, the Department concluded that Solyndra was poised to compete in the marketplace and had a good prospect of repaying the government’s loan.
Solyndra’s potential was widely recognized outside the Department. Highly sophisticated, professional private investors, after conducting their own reviews, had collectively invested nearly a billion dollars in the company, which was named as one of the world’s “50 Most Innovative Companies” by MIT’s Technology Review in February of 2010.
It is common for it to take some time for start-up companies, especially manufacturing companies, to turn a profit. And in the two years since the Department issued the loan guarantee, Solyndra faced deteriorating market conditions.
Solar PV production has expanded at the same time that demand has softened due to the global economic downturn and a decline in subsidies in countries including Spain, Italy and Germany. The result has been an acute drop in the price of solar cells, which has taken a toll on many solar companies in Europe, Asia and the United States. Meanwhile, countries like China are playing to win in the solar industry. China has invested aggressively to support its companies, and in recent years, China has seen its market share in solar cell and solar module production grow significantly, to roughly half the market today.
Facing a liquidity crisis near the end of 2010, Solyndra informed us that it needed emergency financing from its existing investors to complete scale-up of its operations and reach profitability.
The Department faced a difficult decision: force the company into immediate bankruptcy or restructure the loan guarantee to allow the company to accept emergency financing that would be paid back first if the company was still unable to recover.
Immediate bankruptcy meant a 100 percent certainty of default, with an unfinished plant as collateral. Restructuring improved the chance of recovering taxpayer money by giving the company a fighting chance at success, with a completed plant as collateral. Although both options involved significant uncertainty for the value of the company, our judgment was that restructuring was the better option to recover the maximum amount of the government’s loan. It also meant continued employment for the company’s approximately 1,000 workers. I approved restructuring of the loan guarantee to give the taxpayers the best chance at recovery. It is worth noting that the nearly $1 billion of original equity investment from Solyndra’s investors remains subordinate to the debt owed to the government.
In August of 2011, Solyndra faced another liquidity crisis and the Department again faced a tough choice. We asked some of the smartest financial analysts to look at the health of the company. We reviewed a number of options, and ultimately, we concluded that providing additional support to this company was not in the taxpayer's best interests.
While we are disappointed in the outcome of this particular loan, we support Congress’ mandate to finance the deployment of innovative technologies, and believe that our portfolio of loans does so responsibly. The President has asked for a review of the Department’s loan portfolio. We support that review, and I look forward to the results. The Energy Department is committed to continually improving and applying lessons learned in everything we do, because the stakes could not be higher for our country.
When it comes to the clean energy race, America faces a simple choice: compete or accept defeat. I believe we can and must compete.
Thank you, and I welcome your questions.
The Washington Post’s assertions today about the Department of Energy’s loan programs are both incomplete and inaccurate.
Here are the facts: over the past two years, the Department of Energy’s Loan Program has supported a robust, diverse portfolio of more than 40 projects that are investing in pioneering companies as we work to regain American leadership in the global race for clean energy jobs. These projects include major advances for our renewable power industry including the world’s largest wind farm, several of the world’s largest solar generation facilities, and one of the country’s first commercial-scale cellulosic ethanol plants. Collectively, the projects plan to employ more than 60,000 Americans, create tens of thousands more indirect jobs, provide clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year, all while investing in American competitiveness. What matters to the men and women who have those jobs is that the investments that this Administration is making are helping to keep factories open and running.
When the Washington Post claims that the program has created 3,500 jobs, here is what the reporters are excluding:
- 33,000 American auto jobs saved at Ford. The Post article does acknowledge that the program enabled Ford to modernize its factories to produce more fuel efficient vehicles, which a Ford spokeswoman credits for “helping retain the 33,000 jobs by ensuring our employees can build the fuel-efficient cars people want to drive.”
- More than 7,300 construction jobs. Many of the projects funded by the program are wind and solar power plants, which create significant numbers of construction jobs but once built can be operated inexpensively without a large workforce. But the Washington Post chose to ignore all of those jobs. If a community built a new highway or a bridge that employed 200 workers directly during construction – and many more in the supply chain -- and that also strengthened the local economy by making it faster to transport goods, would anyone say that the project created zero jobs?
- Supply chain jobs. While these jobs aren’t reflected in official government estimates because of the difficulty in obtaining a precisely accurate count, that doesn’t mean they don’t exist. When a company spends $100 million or $200 million building a wind farm or a solar power plant, most of that economic value actually goes into the supply chain – creating huge manufacturing opportunities for the United States.
In fact, when you look at the Washington Post’s graphic, you can see that the program has already created or saved roughly 44,000 jobs. Many of the projects it has funded are just getting going, and many of the loans won’t even go out the door until the next few weeks. Others have not ramped fully up to scale. But we are on pace to achieve more than 60,000 direct jobs – and many more in the supply chain.
Here’s a simple example:
Last year, the Department awarded a loan guarantee to build the Kahuku wind farm in Hawaii. It employed 200 workers during construction. Those wind turbines were built in Cedar Rapids, Iowa. The project also features a state of the art energy storage system supplied by a company in Texas. The supply chain reached 104 U.S. businesses in 21 states. But by the Washington Post’s count, none of those jobs – not even the 200 direct construction jobs – should count.
What’s critically important and completely ignored by the Washington Post, is that the value of this program can’t be measured in operating jobs alone. The investments are helping to build a new clean energy industry here in America. We are now on pace to double renewable energy generation from wind and solar from the time the President took office. Yet we are still in danger of falling behind China and other nations that are competing aggressively for leadership in these technologies. This is a race we can and will win, but only if we make these investments today. These investments will pay dividends not just in today’s jobs but in entire industries and supply chains – and in cleaner air and water for our children and grandchildren.
One of the goals of the program is to create projects that will encourage the private sector to take the financing risk on other, similar projects on its own. If we can show, for example, that a commercial scale cellulosic biofuel plant in Iowa can succeed, the private sector will likely finance many more of them around the country.
America’s economic strength has been built on technological leadership. The next great technological revolution is the clean energy revolution, and this Administration is committed to making sure that America will continue to lead the world.
Editorial Note: This article also appears in USA Today.
The International Energy Agency projects that solar power will grow steadily, producing nearly a quarter of the world's electricity within four decades. Conservatively, that means more than $3 trillion worth of solar panels will need to be manufactured — a vast economic and employment opportunity to be seized by companies that succeed in this sector.
Our competitors know this, and are playing to win. Winning will require substantial investments. Last year, for example, the China Development Bank offered more than $30 billion in financing to Chinese solar manufacturers, about 20 times more than U.S.-backed loans to solar manufacturers.
Unfortunately, expanding production has coincided with short-term softening demand, a product of the banking crisis in Europe and its wider economic effects. The combination has had a dramatic effect on the price of solar cells, which has plummeted 42% in the past nine months. This has taken a serious toll on solar manufacturers everywhere, including the U.S.
This month, Solyndra, a California-based company, filed for bankruptcy. Solyndra had been named one of the world's 50 most innovative companies and reported sales growth of 40% to $140 million last year. In 2006, the company applied for a federal loan guarantee. It underwent years of rigorous internal and external review before being approved — before the perfect storm of deteriorating market conditions.
Government support has an important role to play in developing new industries and emerging technologies, where private financing is not sufficiently available to support investment at commercial scale.
When it comes to clean energy, we have a choice to make. We can compete in the global marketplace — creating American jobs and selling American products — or we can buy the technologies of tomorrow from abroad.
Historically, our government has supported emerging industries, from transcontinental railroads to aviation to the microchip. These investments strengthened our nation and leveraged the private investments that drove our prosperity. In that spirit, our loan programs are today supporting a diverse portfolio of more than 40 companies that plan to employ 60,000 Americans and give us a chance to compete and succeed in the global clean energy race.
Now is not the time to stop investing in our nation's future.
This morning, the House Energy and Commerce Subcommittee on Oversight and Investigations is holding a hearing to discuss Solyndra Solar, the California-based solar manufacturer that declared bankruptcy last week. Jonathan Silver, Executive Director of the Department’s Loan Programs Office, will be testifying.
We’ve posted Jonathan’s written testimony online. The testimony is very thorough and provides a good explanation of the loan process and the extensive reviews and analysis conducted by the Department between 2006 and 2009. He also explains the remarkable changes in the solar market since 2009 that negatively affected Solyndra and other U.S. solar manufacturers. This includes $30 billion in financing that China committed to Chinese solar companies just last year, dwarfing U.S. government investments. Most importantly, he makes the point that the U.S. has a decision to make: in the face of this setback, will we abandon the U.S. solar industry entirely and let China dominate what will likely become a three trillion dollar market for solar manufacturing? Or will we decide to continue competing for the clean energy jobs of the future?
To provide additional context, we’re providing the following:
- A timeline outlining the Department’s extensive review of the Solyndra loan guarantee application from 2006 to 2009.
- Media reports and other independent analysts who pointed to Solyndra as a very promising, innovative company.
- A list of private sector investment in Solyndra.
- A graph illustrating global distribution of solar manufacturing market share from 1990 to 2010.
- A graph illustrating Chinese Development Bank financing to Chinese solar companies.
- A graph illustrating solar cell production in the United States and China from 2002 to 2010.
- A chart comparing global solar market in 2009 with the market today, illustrating the changing market conditions that Solyndra faced after receiving a loan guarantee.
- An op-ed from Deputy Energy Secretary Daniel Poneman in the USA Today.
- Full Credit Committee Recommendation, following it's January 09, 2009 meeting, saying the project appears to have merit, and remanding it to the program staff "without prejudice" to allow for additional due diligence. Subsequent emails urging program staff to stop communicating with Solyndra so additional analysis can be completed. The application was subsequently approved by the committee two months later.*
*Editiorial Note: This post was updated on 09/21/2011 to include additional background materials.