How does a fledgling solar-panel company with dim prospects for survival in the free market become profitable? Well, in the case of Solyndra, a good first step was to have the federal government put up a considerable investment — a $535 million loan guarantee. But as the company’s backers would soon discover, coming up with a viable step two is a little more complicated. In many cases, the only feasible way forward is to go to whatever lengths necessary to repeat step one.
Continued support from the federal government was always a fundamental aspect of Solyndra’s “business model.” On Dec. 18, 2009, three months after the Department of Energy (DOE) loan guarantee was formally awarded, Solyndra submitted a filing to the Securities and Exchange Commission for a planned initial public offering of company stock. In that filing, the company said that it planned to become profitable in part by “strategically aligning our products with key government programs that provide financial incentives, export credit and project finance.” Having someone like billionaire Obama fundraiser George Kaiser as a primary investor certainly couldn’t have hurt, either.
Of course, the only thing better than a government program designed to promote an otherwise undesirable product — expensive and inefficient solar panels — would be a law encouraging the purchase of those products. Which is why Solyndra’s backers were so eager to see Congress pass cap-and-trade legislation, which would have made other forms of electricity more expensive. One can quite reasonably suspect that this was a central focus of the company’s multi-million-dollar lobbying effort in Washington. But Solyndra’s bosses weren’t just rooting for cap-and-trade to pass; they had essentially baked it into their business strategy.
In a May 24, 2010, e-mail to a senior White House official, Department of Energy stimulus adviser Mike Rogers explained that the company’s executives “have been counting on an energy bill to pass.” As a result, Rogers warned, “if Europe goes south and we don’t see an energy bill here, [Solyndra] will face issues in the 18–24 month window.”
The cap-and-trade bill fizzled out in the weeks following the e-mail, and Rogers’s premonition proved optimistic: Solyndra filed for bankruptcy only 16 months later.
Solyndra is eerily reminiscent of another failed company — Enron. Though originally founded as a natural-gas company, Enron made aggressive inroads into the green-energy sector in the 1990s, developing strong alliances with members of the Clinton administration — with Mr. Climate Change himself, Vice President Al Gore, in particular. In fact, Enron was a major investor in Solarex, which was then the second largest American manufacturer of photovoltaic solar cells, the very kind that Solyndra specialized in.
Enron was instrumental in helping to establish the EPA’s $20 billion–per–year sulfur-dioxide cap-and-trade program in the early 1990s and soon became a major trader on the “pollution credit” exchanges, raking in hefty profits. Eying an even more lucrative opportunity, the company set its eyes on setting up a regulated credit-trading scheme for carbon dioxide, furiously lobbying the Clinton administration (and later, the George W. Bush administration) to ratify the Kyoto accords — which would have done just that, and also would have unleashed a slew of new subsidies and federal mandates for “green” energy.
Enron’s chief climate lobbyist, John Palmisano, infamously wrote in a December 1997 memo:
If implemented [the Kyoto Protocol] will do more to promote Enron’s business than will almost any other regulatory initiative outside of restructuring of the [electricity] and natural gas industries in Europe and the United States. . . . The endorsement of emissions trading was another victory for us. . . . This agreement will be good for Enron stock!!
Enron now has excellent credentials with many “green” interests. . . . This position should be increasingly cultivated and capitalized on (monetized).
But in the end, the Kyoto Protocol was never ratified by either the Clinton or Bush administration.
In Solyndra’s case, not only did the company miss out on the windfall that would have resulted from a new federal climate law; its application for a second DOE loan guarantee didn’t pan out, either. Regarding the potential for an additional federally backed loan, Jonathan Silver, executive director of the DOE loans programs, raised a compelling question as to why the department should continue to invest in the company. Solyndra CEO Chris Gronet relayed Silver’s argument in a February 2010 e-mail: “If a company that seeks a second loan guarantee has a compelling values creation story and substantially mitigated downside risk, why does it not have access to traditional forms of capital?”
Though a second loan was never approved, additional e-mails indicate that in July 2010, Silver was still seeking out alternative ways for the federal government to assist Solyndra — for example, Silver petitioned the General Services Administration (GSA) to steer government contracts Solyndra’s way. As part of the 2009 stimulus package, the GSA received $5.5 billion to update government facilities with “green” technology — such as solar panels — and at the time of Silver’s inquiries had more than 250 such projects in the works. “You and your team are doing amazing things!” Silver wrote to one GSA official. “I am copying Chris Gronet here. Chris is the CEO of Solyndra and I know your two teams will have a lot to discuss.” He then helped to arrange an in-person meeting between the two.
Gronet then wrote to Steve Mitchell, chief investment adviser to George Kaiser, explaining that “Jonathan Silver is trying to help.” To which Mitchell replied: “He better be! How on earth have we not been a part of these projects from the beginning? Lots of catch up to do here. Let’s get all over it.”
Perhaps most revealing of the extent to which Solyndra depended on continued government largesse is an Aug. 10, 2010, exchange between several of the company’s primary investors, an e-mail chain that included Mitchell and newly appointed Solyndra CEO Brian Harrison:
Getting business from Uncle Sam is a principle element of Solyndra’s channel strategy. When Obama visited Solyndra in June, 2010, Chris Gronet spoke very openly to Obama about the need for installation of Solyndra’s rooftop solar on U.S. government buildings. I heard Obama actually promise Chris that he would look into it when he returned to Washington. The point is that the government has to pay for energy no matter what. The capital funding to deploy a lot of rooftop solar on government buildings (say $300 million) just falls off the table in Washington anyway.
Working together with DOE, [Department of the Interior,] and other agencies, we should be able to get a lot of Solyndra’s rooftop solar deployed throughout the U.S. government building/energy infrastructure. I’d like to get a storyline together with Solyndra to make a case for the U.S. Government adoption of Solyndra’s product capability. We need to do a better job of telling our story in Washington.
In the reams of evidential documents uncovered so far, this is one of the few instances where President Obama is explicitly mentioned, and it offers a rare glimpse of his role in the Solyndra scandal. (Of course, House Republicans continue to seek information from the White House, but the administration has repeatedly stonewalled.) The investor was writing in response to a previous e-mail suggesting that Solyndra could exploit “Buy American” rules that would require the federal government to purchase domestically manufactured products, including solar panels, despite the existence of cheaper (often Chinese-made) alternatives.
Another Solyndra investor had mentioned that a rival solar company had recently landed a big contract with an Air Force base. “I wonder if ‘buy American’ rules held sway here,” the investor wrote. “If so, might Solyndra prioritize federal government business, where it could have an ‘unfair advantage’?”
On Oct. 6, 2010, Kaiser e-mailed Mitchell urging him to “pursue your contacts with the WH” in an effort to obtain greater federal support for Solyndra, which at that point was beginning to experience major financial difficulties. “Understood,” Mitchell wrote back, adding that he planned to meet with White House officials to discuss “assistance in selling [solar] panels to the government.” He noted that the White House “has offered help in the past and we do have contact with the [White House] that we are working with.”
Kaiser followed on up Nov. 24, 2010, in another e-mail to Mitchell: “What about [Department of Defense] (and other governmental entity) sales efforts? Do the DOE people focus at all on how a Buy American plan could be a win win win for them and do they have any influence?”
Unfortunately, Solyndra’s fate would wind up being more of a “lose-lose-lose” — for the company itself; for the Obama administration, which championed it; and for American taxpayers, who backed the half-billion-dollar loan and stand to recover very little, if any, of those funds. Apparently, that kind of money really does “just fall off the table in Washington.”
— Andrew Stiles is the Franklin Center’s 2011 Thomas L. Rhodes Journalism Fellow.