The FBI just raided Solyndra, the bankrupt solar-cell company. What’s that about, and what does the bankruptcy and raid say about the future of solar power?
The answer: not very much, and not very much. The FBI is probing the company because it went bankrupt. Why, you ask? Well, Solyndra received a pledge of $535 million in loans from federal government. (The contract can be found here.) The company actually took out $527.8 million from the feds, and an additional $256 million from private creditors, including a $69.3 million loan from Argonaut Capital that had a higher priority than the federal loans. (See here for the details. The bankruptcy filing itself is here.) I should note here that Solyndra received its loan under a long-standing program that far predated the Recovery Act.) On paper the company has more than enough assets to make creditors whole; in reality, most of that consists of specialized capital goods designed to make cylindrical rooftop arrays. Since there isn’t a big market for cylindrical rooftop array-making machinery, the stuff is going to sell at a hefty discount.
Why did it go bankrupt? Well, solar modules have fallen 70% in price over the last few years. Solyndra targeted a cost of $2 per watt ... when prices already hit $1.50. That’s great for the industry (it’s even good for the American industry) but not-so-great for Solyndra’s risky gamble on cylindrical modules. The company turned out to need some incremental capital, and when it went to the markets said capital was not available. Bankruptcy resulted.
Here is the company’s statement. Note the bullshit about “regulatory uncertainty.” Why is it bullshit? It’s complete egregious embarrassing bullshit because the same sentence blames excess capacity and FALLING PRICES on regulatory uncertainty. Real regulatory uncertainty holds back investment, thereby reducing capacity, which reduces supply, and drives up prices. Sometimes, CEOs can really embarrass themselves, but I suppose it is an attempt at dog-whistling that the company likes the GOP too.
The new GOP-controlled Congress then went on a fishing expedition to look for wrongdoing with which they could embarrass the Obama administration. (In this particular case, I don’t blame them at all. If I were a congressperson of either stripe, I’d also want to investigate.) The FBI has gotten involved because Congress has accused Solyndra’s CEO, Brian Harrison, of failing to mention the company’s precarious state when he went for the funding. In fact, Harrison told reporters in March 2011 that the company would need no new financing, but that isn’t actionable.
Since this blog likes predictions, we predict that nothing will come of the criminal charges. Loan guarantees have a long history, start-ups have a long history of going bankrupt, and entrepreneurs have a long record of starry-eyed optimism until the very end. (Or even beyond.) The biggest risk is that other ventures will shun federal loans or loan guarantees out of fear of politicized criminal probes: in fact, Solar Millenium has already turned down a $2.1 billion guarantee.
What does the Solyndra collapse say about the future of the solar power industry? Nothing! First, the U.S. is a massive net exporter of solar power systems. In 2010, we had a net surplus of $1.8 billion in the sector, up from $723 million in 2009. We even retained a $539 million surplus with China. Basically, what we lose on the modules we make on module-making machinery and, surprisingly, ancilliary equipment. (E.g., everything from switches to water tanks.) The sector is growing fast, and I hate to say it, but federal financing has helped, what with the private capital markets still broken.
Solar power does face three problems. First and foremost, the weather. (And the fact that the Earth, you know, rotates.) This limits its use, unless somebody cracks the cheap storage problem. Second, NIMBY. They drive me nuts. Maybe the Californians can be justified — my co-blogger makes a case in comments — but not the people in New Jersey. Finally, Chinese subsidies. So far we’re hanging on, and China’s costs are increasing. But wow, they subsidize a lot.
In the presence of increasing returns, those subsidies could have long-term welfare impacts: good in China, bad in the United States. It’s something to think about, and something to which this blog will likely return.
But right now, solar is doing fine, and Solyndra is interesting only in-and-of itself. Move along, nothing to see here.