The Solyndra bankruptcy and subsequent criminal investigation has ignited a firestorm of criticism against President Obama, dredging up debates over federal stimulus spending at a particularly inconvenient time for the administration.
Scrutiny has largely centered around whether the Obama administration rushed approval of the company’s $535-million federal loan for political reasons. But the scandal runs a lot deeper and indicates that lots of people in the government — and the private sector — ignored huge red flags about the start-up solar company.
From its inception, Solyndra’s business model was flawed. It’s unique cylindrical, silicon solar cells were innovative, but only made sense when solar panel prices were high. By the time the Energy Department approved Solyndra’s loan — the first granted by the department’s loan guarantee program —Chinese and Canadian manufacturers with low-cost structures had priced Solyndra out of the market.
In March 2009, Solyndra’s loan application, to build an advanced manufacturing facility in California, was fast-tracked through the DOE, despite the fact that the department had not completed its review of the company’s financial viability.
Solyndra was not the only company that was fast-tracked. A 2010 government audit of the DOE program found that the department lacked the ability to adequately evaluate applications to the federal loan program, and often approved loans before completing a full review.
When the Solyndra review was finally completed in August 2009, it raised major concerns about the company’s capital shortfalls. One email obtained by Congressional investigators predicted that the “project would run out of cash by September 2011.”
Within six months, Solyndra had accumulated $505 million in losses and canceled its scheduled IPO. A 2010 audit found the company “has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders’ deficit that, among other factors, raise substantial doubt about its ability to continue as a going concern.”
Solyndra’s subsequent collapse has become a rallying cry against stimulus spending in general, and clean-tech investment in particular. Stimulus supporters have pointed out that the DOE’s loan program’s investments in small companies with new technologies are inherently risky — one of them was bound to fail.
That’s all the more reason why the DOE should have been paying a lot more attention before throwing half a billion dollars at a company that was doomed to fail from the beginning.
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