FREMONT, Calif.—House Republicans tried to hold a hearing today on what the New York Times called “the Energy Department’s embattled loan guarantee program.” They wanted to shine a spotlight on the program’s most embattled beneficiary, the solar manufacturer Solyndra. But they only called one White House official to testify, and he blew them off.
I happened to visit Solyndra’s headquarters today, so maybe I can help the Republicans with their investigation. For starters, the reports of Solyndra’s death have been greatly exaggerated. And while reasonable people can disagree about the loan guarantee program, it’s not the boondoggle its critics suggest.
A year ago, President Obama came to Fremont to promote the Recovery Act as a bridge to clean energy and hail Solyndra as “a testimonial to American ingenuity and dynamism.” The startup makes rooftop solar panels that look more like ladders for lizards than traditional panels, and it had just received a $535 million stimulus loan to build a new factory full of awesome robots. But shortly after Obama’s visit, Solyndra had to cancel its IPO because the plunging cost of Chinese solar panels was killing demand for its products. Its board fired its CEO, the brilliant technologist who had founded the company, and replaced him with a veteran manufacturer named Brian Harrison, who promptly shut down an existing factory and laid off some employees.
Even Recovery Act shills like me — wait, are there any others? — had to admit that did not look good. The stimulus, after all, was supposed to create jobs, not eliminate jobs. And the GOP has been trashing Solyndra ever since as a symbol of Obama’s big spending, the Recovery Act’s failure, and the loan program’s fiscal recklessness.
But the loan won’t cost the government anything unless Solyndra defaults. And for now the company looks healthier. Shutting down the inefficient older factory and ramping up production in the cutting-edge new factory has driven down costs. Harrison, a former pitcher in the Seattle Mariners organization who spent 24 years at Intel, has also doubled his sales and marketing staff in just the last six months to address the demand problems. Despite all the hubbub about layoffs, Solyndra now employs 166 employees more than it did when Obama visited—and that doesn’t include the 3,000 temporary jobs created during construction.
And yes, sales are recovering. Solyndra had $140 million in revenue last year, and Harrison says it’s on track to double its shipments this year. Skeptics point out that the company’s modules are still more expensive than traditional panels on a cost-per-watt basis, but because they’re so easy to install—they just sit flat on the roof, they interconnect like Legos, and they don’t even require tools, much less a sophisticated mounting and tracking system—Harrison says they’re already competitive on overall cost. And he believes Solyndra will get much more cost-effective as it expands volume.
“My second week here, I spoke to all the employees, and I said, ‘Look, you don’t need an MBA to see this is a bad situation. If you don’t see some real change in six months, we’re in trouble,’” Harrison told me. “You can see that we’ve changed.”
Of course, Solyndra could still fail. Energy is a ruthlessly competitive market, and solar is getting particularly Darwinian; U.S. installations doubled last year. But that’s the nature of loans; not all of them get paid back. The Energy Department has established the world’s largest project finance team—heavily populated by Wall Street veterans who got laid off after the financial crisis—and it’s got the Office of Management and Budget as well as the Treasury Department looking over its shoulders on every loan. (OMB is notoriously skeptical about laons, which is probably why the Republicans summoned OMB deputy director Jeffrey Zients to today’s hearing, and may be why Zients failed to show up.) But the point of the loan guarantee program is not to make failsafe loans to failsafe companies; it’s to promote the growth and commercialization of alternative energy at a time when commercial banks are reluctant to take risks. The idea is to bridge the so-called “Valley of Death” that prevents new green technologies from scaling up.
Again, you don’t have to be a partisan Republican to be a loan guarantee skeptic. (Although there’s zero evidence for GOP insinuations that politics played any role in who got loans.) Obama’s former National Economic Council chair, Larry Summers, hates the very idea of government loans, and tried to kill the program before he left the White House. It really is a weird program, because the loans are supposed to be safe enough to justify the risks to the taxpayers, but not so safe that the private sector would make them without government assistance. They’re Goldilocks loans.
That said, they also have very real benefits. The new Solyndra factory should eventually produce 300 megawatts worth of solar panels every year, enough to replace a moderate-sized coal plant with renewable electricity that doesn’t broil the planet. And the company is providing more than 1100 good jobs for Americans who will pay taxes to the Treasury. Hopefully, if demand for solar continues to grow in the U.S.—even though state and local subsidies are eroding—the Solyndras of the world will be able to build their next factories here without federal aid.
Loan guarantees are now financing the world’s largest solar thermal plant, the world’s largest photovoltaic solar array, the world’s largest wind farm, high-voltage transmission lines, geothermal wells, and dozens of other projects designed to reduce our dependence on foreign oil, our carbon emissions, and our vulnerability to price shocks. The program is not about picking winners and losers; it’s about picking a sector of the economy and letting the market pick the winners and losers.
As for Solyndra, I can report to the Republicans who seemed so concerned about the company’s viability that it no longer seems to be on the verge of a humiliating collapse. I’m sure they’ll be relieved.