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Solyndra: Chu caught up in partisan crossfire

18 Nov 2011

The US Energy Secretary's grilling in Congress had more to do with political grandstanding than forensic questioning about loan guarantees.

You had to feel sorry for Steven Chu. The Nobel-winning physicist spent upwards of five hours in front of a Congressional hearing on November 17, answering salvos of rapid-fire questions from his inquisitors on the House energy and commerce sub-committee.

They, of course, were seeking to get to the bottom of the Solyndra affair – looking to explain why the Department of Energy (DOE) provided a $535 million loan guarantee to a company whose radical approach to photovoltaics burned through that loan, not to mention more than a billion dollars of private investment, in barely a couple of years.

Well, that’s what was supposed to happen, anyway. And, to some extent, Chu’s interrogators did exactly that. But in large parts this was an overt demonstration of political grandstanding, as the Democrat and Republican factions threw partisan clichés at each other – with one side portrayed as gun-totin’, oil-addicted conspiracy theorists and the other as apologists for naked political interference and a reckless waste of taxpayers’ dollars.

So what, if anything, did we learn? Certainly that Chu has some stamina – only after nearly four straight hours alone at the microphone did one of his inquisitors peer down from her lofty perch to call for an adjournment – and also that an apology would not be forthcoming. Pressed to say sorry by the committee’s Republican members on numerous occasions, an “extremely regrettable” was the closest that Chu would give them.

“I know now…”
Of course, if Chu knew back in 2009, when Solyndra was awarded the very first loan guarantee under the DOE’s reinvestment and recovery program, what he knew now, the outcome would have been different.

It also became clear what Chu didn’t know. The Energy Secretary appeared surprised about much of the detail surrounding Solyndra. “I know now…” was his repeated response to questions that began with “Did you know…” and ended with examples of the company’s cash burn rate or the politically convenient timing of company lay-offs.

Of all the accusations, the November 2010 layoffs seemed to catch Chu most unawares. Only then did his admirably relaxed, I’m-here-to-answer-your-questions demeanor stiffen. “That’s not how I would want to do business,” he said, in response to email revelations that Washington pushed Solyndra into delaying news of those lay-offs until November 3 – the day after mid-term elections took place.

Unable to find any “smoking gun” evidence linking the loan guarantee to White House interference, the Republicans’ most serious accusation on this occasion was that Chu broke the law when agreeing to the late-2010 restructuring of Solyndra's credit arrangements. That restructuring required additional money from investors, money that they would only agree to sink into the struggling firm if they were at the top of the pecking order when the inevitable happened and Solyndra became insolvent, and suggests that they knew the writing was on the wall.

On the face of it, the restructuring looks like a flagrant breach of the Energy Act, which clearly states that when the taxpayer has loaned money, it must remain at the head of the line of creditors if and when the loanee goes under. And it seems that’s what the DOE’s legal team thought as well – at least at first. The Republican element on the committee homed in on this as evidence of the Administration’s misuse of taxpayer dollars, but Chu’s response – that Solyndra would be a much more valuable entity (even in bankruptcy) after completing construction of its “Fab2” manufacturing facility – does make some sense.

Who blinked first?
It was, as Chu repeatedly stated, “a difficult decision” for the DOE to take – sticking to the letter of the law would have forced the company into immediate bankruptcy if the private investment had not been forthcoming. But the taxpayer would have had “first dibs” on any subsequent bankruptcy proceedings. Under pressure to back its flagship loan guarantee, did the DOE blink first, and agree to the restructure to save face? Whether it did or not, the subordination of public money to private investment has become the key focus of the committee’s enquiry.

The question of how the DOE’s general counsel came to regard that element of the restructure as a legal one is now at the heart of the Republicans’ argument – they say that the Energy Secretary broke the law by agreeing to it, and some think that this should force his resignation.

Everybody seemed to agree on one thing: that Chu is an honorable and intelligent man, who made his decisions in good faith, on advice from trusted colleagues. For the Democrats, this is evidence that the Solyndra fiasco was merely unfortunate – the confluence of a market in free-fall with a desire to provide state help for promising technology companies in what is a fiercely competitive global industry. For Republicans, it means that Chu is the fall-guy; well-meaning and sincere but only a pawn in the wider political game, a game where clandestine deals between hard-nosed venture capitalists and the White House are really pulling the strings.

Hard truths
In between the brazen grandstanding, there remain some hard truths that need to be explained. Unless a buyer of Solyndra’s unusual and, by now, extremely uncompetitive thin-film CIGS photovoltaic technology can be found, the US taxpayer is likely to lose much of the $535 million that it loaned.

Much has been made of the precipitous fall in the price of PV technology and its hand in the whole affair. Certainly, of late, that would have been a factor. But to argue that the Solyndra failure rested entirely on a market whose bottom suddenly, unexpectedly fell out would be a gross over-simplification of a more complex story.

Remember that Solyndra first applied for its loan guarantee back in 2006 – just a year after its formation. This was way before the polysilicon price crashes that occurred principally in 2009 and 2011, and before the company had proved its ability to manufacture its energy-generating cylinders in high volumes and with good commercial yields. The company did not post any revenue at all until 2009 – and even then it was at a handsomely negative gross margin that ensured the company was losing money on every panel that it sold.

Perhaps the fact that the DOE spent close to three years on its due diligence was a factor – in a fast-moving market like PV, was a bureaucracy ever going to be able to respond quickly enough to such market forces? A seemingly legitimate criticism of the DOE’s loan guarantee program - at least in regards to its support for higher-risk PV technology companies, as opposed to PV installations, where the level of risk is much easier to quantify – is that this kind of gamble should be left to the venture capitalists.

All in all, what seems to be emerging is more cock-up than conspiracy. But when it involves half a billion dollars of public money that could have been spent far more constructively, somebody is always likely to carry the can. Whether that will be Steven Chu remains to be seen.

What the papers said: reflections on Chu's grilling:

Wall Street Journal: "Ear-bashing: Chu told lawmakers he wouldn't have approved a loan for Solyndra LLC had he known the company was going to collapse".

Washington Post: "Defiant: Chu strongly denied that he made any decision on Solyndra based on political considerations".

Financial Times (UK): "Lingering question: how to frame an effective incentive for the growth of clean energy?"

USA Today: "No apologies: Energy Secretary Steven Chu said the collapse of the taxpayer-backed solar panel manufacturer Solyndra was "very regrettable," but he declined to apologize".

The Guardian (UK): "Unflappable: Steven Chu, put up a strong defence of the administration's loan to a failed solar company on Thursday, but the Nobel physics laureate's own wisdom and judgment was put under the microscope in a hostile congressional hearing".

About the Author

Mike Hatcher is the Editor in Chief of optics.org

Photon Engineering, LLCSynopsys, Optical Solutions GroupBristol Instruments, Inc.PhotometricsAUREA TECHNOLOGYPhotonTec Berlin GmbHBRD Optical Co., Ltd
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