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The Solyndra Failure

Sally Hunter November 20, 2012

Introduction America has a long history with solar energy. In 1954, Bell Labs invented the first photovoltaic (PV) cells to be used for electricity generation for our nations satellites [1]. Since then, use of solar energy for electricity generation has expanded to include small home systems, large building systems, larger PV installations to power whole towns, solar heating and water heating systems, and concentrated solar power installations to power steam electricity plants. Photovoltaic technology converts the suns radiant energy to electrical energy via a semiconductor material that excites electrons, inducing a flow of direct current electricity. Grid connected systems, unlike solar heating and concentrated solar power installations, must also have an inverter to turn this DC electricity into AC electricity. PV cells consist of several cells made of the semi-conductor material. The majority of these PV cells are manufactured using crystallized polysilicon approximately 80% of the market in 2010- but some are made using other techniques like thin film, which utilizes other semi-conductor materials, such as copper indium gallium selenide [1]. These cells are grouped together to form modules which are then further grouped together to form arrays. Several arrays can be connected to provide electricity for a home or business. Some Utilities will build large PV installations to capture tremendous amounts of energy at once. Concentrated solar power (CSP), on the other hand, uses panels to capture heat and uses this heat to create steam to power a generator, much like any other steam powered plant. Because solar powered electricity generation is dependent on the sun, it is not possible to produce electricity on demand. Solar power also has rather steep start-up costs. Due to the relatively new technology, infrastructure costs, both for small home systems and large scale operations, are often prohibitive [2]. Even though costs have come down considerably since the

early 80s when prices were as high as $27,000/kW installed, systems can still cost as much $6000/kW installed [1]. Despite these limitations, several international organizations- IEA, Greenpeace International and the European Renewable Energy Council to name a few- predict that global PV capacity could reach anywhere from 1100 to 2033 GW by 2050, depending on future price structures and guiding policies [1]. Solar Policy International treaties and protocols, such as the Kyoto Protocol, prompt industrialized nations to make changes to their energy standards. The Kyoto Protocol, an international agreement that is part of the UN Framework Convention on Climate Change, was adopted in 1997 but not entered into force until 2005. The Protocol made binding targets for 37 industrialized nations and the European community to reduce their greenhouse gas emission levels. These developed nations are the most responsible for the current greenhouse gas emission levels and therefore are the ones who need to make the biggest improvements. These nations must primarily meet their targets through national policy [3]. These nations put out targets and goals for greenhouse emissions reductions and reduced dependence on fossil fuels; without government support and guiding policies, there is little incentive for the market to make changes. Renewable energies have high initial capital costs and after factoring in a cost for climate effects, the price is still too high. To combat this lack of initiative on the part of Utilities, governments back up their targets and goals with several different support measures and policies to increase renewable energy use. One policy commonly used is a renewable energy portfolio that requires a utility to obtain a certain percentage of its energy supply from a renewable source. Tax credits and subsidies are some of the most common governmental incentives offered to meet the portfolio demands. Tax credits are either provided for expenditures to start up a solar

energy facility or they are provided as a break from operating costs. These provide cost recovery at an accelerated rate. Property tax credits may also be offered and are an important incentive for a solar firm considering a large PV installation or a CSP facility. These methods require the installation of several hundred, even thousands, of panels, covering acres of land. Property tax credits go a long way towards reducing costs when considering this type of facility. Governments also provide subsidies to solar companies and utilities in the form of investment grants, loan guarantees, interest subsidies and capacity payments. Due to a lack of market history, solar firms often have a difficult time obtaining private financing. Governmental programs can help by guaranteeing the debt repayment to the financers. Feed-in tariffs (FiTS) are another successful program implemented by several nations. Unlike facility tax breaks or loan subsidies, FiTS promote the production of solar generated electricity, not just the building of a solar electricity facility. FiTS are defined as an: obligation on the part of an Utility to purchase electricity generated by renewable energy producers in its service area paying a tariff determined by Public Authorities and guaranteed for a specific time period. [4] In other words, Utilities are required to buy any and all electricity produced at a set price. The price the Utility is required to pay is based on the cost to produce the electricity plus a reasonable profit for the producer. This price is set by government regulations and includes a steadily decreasing remuneration over the length of the FiTS contract. As the capacity of PVs installed increases, the government can decrease the FiTS rate faster if needed. This electricity can be produced at large scale solar plant or it can be produced at homes and sold back to the Utility using net metering. Net metering is a method of determining the net overall electricity used by a home, after factoring in the amount of electricity that their home system produced but

wasnt used by the homeowners. Feed-in tariffs have produced the fastest expansion of solar generated electricity in European countries. While this has shown to be the single most effective policy, a mix of subsidies, legislation, and tariffs produces an even higher rate of PV installation. Europe and China FiTS have allowed Germany and Italy to lead the world in solar energy market growth. European countries were forced to find a way to increase renewable energy sourcing after the European Council set a 20% goal in 2007. They proclaimed that 20% of the total electricity produced in Europe must come from renewable energy sources by 2020 [4]. In order to meet this goal, European nations like German, Italy and Spain deployed previously mentioned policies to encourage renewable energy sourcing. This sparked a demand in polysilicon, the most used semi-conductor material in photovoltaics. Because the demand hadnt previously reached its peak, supply was still low- driving the price up. In order to meet this new demand, China began to heavily subsidize the polysilicon manufacturing market, bringing several new companies online. Other companies in Germany and the United States also amped up their production. By 2010, the top five polysilicon producers around the world had more than doubled their collective output over 2008 levels [5]. China continued to support the polysilicon market, offering $30 billion in government backed financing to solar companies [6]. This support has helped make China the largest supplier of poly-silicon to solar panel manufacturers across the globe. At the same time as this production expansion, the world began to face the global recession that began in 2008. Unable to maintain the support programs to grow the renewable energy market, many nations had to cut funding to the programs. Without an incentive to increase PV installation, the solar energy market in Europe stalled [7]. Prices for polysilicon cells
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dropped more than 70%, from a high of more than $300/kg down to $67/kg [8]. Chinese companies halted production of new plants and scaled back polysilicon production in operating plants by a third but it wasnt enough [5]. China was left with an oversupply of polysilicon and was forced to look for a way to sell it. Back in the USA While this market expansion and crash was happening halfway around the world, the United States was struggling to find a way to regain its hold on the clean energy market. As recently as the late 1990s, 40% of all the solar panels in the world were made in the United States. That figure is down to 5% [9]. Because of their heavy subsidization of conventional fossil fuel electricity generation, renewable energy is not cost effective for large corporations to deploy. Similar renewable energy legislation, subsidies and tariffs have been implemented in America, but there has not been the same enthusiastic response as the European nations. Some of this is no doubt due to weak policy on the part of the American government. Both China and Germany require Utilities to buy 100% of the renewable energy produced, while the American policy is that a certain percentage of electricity that a Utility produces must come from renewable sources, rather than forcing them to buy all available renewable energy regardless of the rest of the Utilitys portfolio [2]. In order to combat this lackluster performance and provide more opportunities for renewable energy companies, the American government passed the Energy Policy Act of 2005. This Act included Title XVII Incentives for Innovative Technologies, creating Sections 1703 and 1705, a program to help finance renewable energy technologies. The Department of Energy states that the goal of Section 1705 was to accelerate the domestic commercial deployment of innovative and advanced clean energy technology at a scale sufficient to contribute meaningfully

to the achievement of our national clean energy objectives [6]. The program essentially agreed to guarantee a companys debt in the event of a default. This was a big victory for renewable energy technology. Without this guarantee, many companies had been unable to gain private financing for their projects, which were considered risky. The program aimed to helped several renewable fields including biomass, hydrogen, solar, wind, hydropower, and electricity delivery and energy reliability, as well as creating jobs in the process and putting America back in the lead in new energy technology. By October 2007, 16 applicants from around the nation had been invited to submit full applications for the program. The program had been in place for over two years but no company had been approved yet and the government was looking to finally make an award. Solyndra Solyndra, originally named Gronet Technologies, was founded in 2004. Solyndra came onto the market when polysilicon prices were steadily rising and designed a PV cell that would take advantage of the polysilicon prices by using a relatively cheaper material. Solyndra designed their PV panel to be made of copper indium gallium selenide (CIGS) on a thin film. This thin film was then rolled and sealed in a glass cylinder. Each of their modules (each cylinder) had 195 individual cells. The benefit of this cylindrical module was its ability to capture sunlight from all angles when mounted on a white roof. The module could capture more direct sunlight during the day than a traditional tilted flat panel and could also capture sunlight reflected off the white roof. Forty modules were mounted together to form a panel. Each panel was designed to last twenty-five years. The panels were designed to be installed quickly on flat roofs without any tools, saving considerable money in the installation process. Several panels could be mounted on a flat roof much closer together than traditional panels because they were

lighter weight, allowing greater solar capture. Because the modules were cylindrical, there was space between each module when mounted to the panel. This design was meant to increase the electricity output since soil and snow could fall through the panel rather than resting on the panel and blocking solar absorption during inclement weather [10]. Soon after they began production, Solyndra spent money lobbying in Washington regarding the Energy Policy Act of 2005. Through their efforts and the frustration felt by both the Bush and Obama administrations, a portion of the act was removed. This portion of the act stipulated that loan recipients would have to pay an up-front guarantee fee before they could receive funding through Section 1705. So far, no applicants had been able to provide the money for this fee and it was considerably slowing down the program. Both the Bush and Obama administration were increasingly disgruntled at what was being perceived as a failure of the Act to promote clean energy. By 2007, two years after the Act had been signed, no company had yet received funding. By the end of the year, after this stipulation had been removed, 16 companies were invited to submit full applications. Solyndra applied for a loan to build a new fabrication plant at their Fremont headquarters. The new Fab2 would provide over 3,000 construction jobs and over 1,000 permanent production jobs when the plant was fully operational. During the application process, Solyndra kept up their lobbying efforts and several of their financiers and board members met with key people in the administration. Solyndra was the only company to spend money lobbying during the review process and, not surprisingly, they were the first to receive a loan. In March 2009 a conditional commitment for loan guarantee was extended to Solyndra and by September, they had had been fully approved for the loan, despite the fact that mandatory

evaluations of the companys financial data and engineering capabilities were incomplete. Department of Energy staffers report that they were receiving pressure from the Administration to finish the loan review process so that the first loan could finally be granted [11]. A loan guarantee would show the American public that the Obama administration was taking a serious stance in favor of clean energy and was willing to extend considerable funding to promote American business over foreign imports. It would also show that the Administration was taking the recession seriously and working hard to create jobs. Solyndras entire business model was based on producing a CIGS panel that was inexpensive compared to polysilicon panels at a time when polysilicon prices were astronomical, thereby making polysilicon PV panels too costly for most. The ease of install was meant to further drive the Solyndra panel price below the competition. Unfortunately for Solyndra, the global recession had taken its toll on the European solar market and the high prices for polysilicon had started to crash. As early as 2008, prices had begun to fall and by 2010, they were a fraction of what they had been [11]. As China had ramped up their polysilicon production to meet the high demand in Europe, the recession left the global market with an oversupply of once expensive polysilicon. As the laws of economics stipulate, when supply is high and demand low, prices will fall. China had no market to sell to in Europe and turned their head to America. They began to sell their surplus of polysilicon to American PV manufacturers at bottom prices, effectively pricing Solyndras cylindrical CIGS panels out of the market. Solyndra had already received their $535 million loan from the government and begun construction of their new Fab2, believing that they could still win on manufacturing and

installation costs. Because the manufacturing method that Solyndra was using was a new technology, they had to spend more time and money than originally planned inventing new specialized manufacturing equipment [12]. As the prices of polysilicon continued to fall and more cells were sold to American panel manufacturers, Solyndra had no choice but to sell their panels below cost to be able to continue to report aggressive sales numbers. Solyndra reported doubling their production from 2009 to 2010. They claimed an increase in sales growth but actual revenue was down when the low selling price and high manufacturing costs were factored in. A March 2010 email from Steve Westly (an Obama fundraiser) to the Administration warned that Solyndra was losing $10 million a month and $20 million if operating expenses and capital expenditures were included [13]. During this time, Solyndra kept up a brave face and continued to tell the Administration that everything was going according to plan. In July 2010, the Office of Management and Budget and the Treasury Department asked Energy staff members to respond to inquiries regarding Solyndras finances and their claims of record sales growth. Jon Silver, who oversaw the DOE loan program, reported that everything was on time and on budget [14]. Less than a week later, Solyndra replaced their chief executive officer. A few months later, Solyndra executives realized they were out of cash and alerted the DOE that they would be unable to make their first $5 million reserve payment [13]. Though this technically would have placed Solyndra in default and allowed the government to withdraw further financing, the Department of Energy instead chose to restructure the loan and help Solyndra receive more private investment money. The new loan proposal stipulated that if Solyndra could obtain another $75 million in private financing, the government would advance them an additional $95 million to keep them from being liquidated [13]. To entice the private investors, the new proposal allowed the private investors to regain

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their investment ahead of the government, should Solyndra fail. If Solyndra didnt fail, the government would be able to regain their investment ahead of the private investors. Steven Chu, Department of Energy Secretary, approved the proposal and the private investors agreed to further finance the project. Less than seven months later, Solyndra was still on the brink of bankruptcy. DOE officials further proposed another $5.4 million investment to keep them open a few more weeks but were denied. Three days later, Solyndra closed their doors for good [14]. Disastrous Future The term perfect storm has been used to describe what happened to Solyndra. They had a good idea and sought a way to bring it to fruition but were doomed by events out of their control and halfway around the world. Their panel design was sound and innovative. It promised higher absorption and higher yields. It promised to be inexpensive to purchase and to install. It was everything that polysilicon panels were not, at the time. This is why they got the loan. On paper, everything looked great. Unfortunately, they ignored warnings that polysilicon prices would have to fall and potentially undermine their business plan. They forged ahead, applying for and receiving over half a billion dollars in federal funding to build a new facility to bring solar energy to the masses. Concurrently, polysilicon prices did fall, drastically so, and took the rug out from under them. No longer able to compete with the now cheap polysilicon panels, of which there were considerable more manufacturers and therefore more panels available, they sold their product at a loss, just to make the books look good. When their ploy was discovered, they had no choice but to turn off the machines and lock the doors. Because of this perfect storm and the way Solyndra and the American government handled it, Americans are warier than ever about financing renewable energy. This is truly a

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shame as fossil fuels are running out and we are running out of time to change our ways. Now is the time to fix the system and promote renewables. Even before Solyndra, America has had a tough time finding its way with renewables. Previous policy has heavily subsidized fossil fuels and since they have been in use for so long, building new renewable energy infrastructure is cost prohibitive. Fossil fuels are subsidized as much as $409 billion while renewable only receive $66 billion [2]. All parties agree that greenhouse gas emissions and dwindling fossil fuel reserves will drive the market to renewables eventually. Who will come out on top is still up for grabs. Despite the poor handling of the unfortunate Solyndra, the government and its people shouldnt turn their back on the idea of financing new renewable technologies and efficiency standards. If America wants to be the leaders in technology, they need to act now. China controls more than 50% of the solar energy market, the U.S. - 6% [15]. China continues to pump money into the solar energy market, promoting inexpensive credit and cheaper land subsidies [4]. In 2010, they granted $30 billion in grants and loans to Chinese solar companies. The Energy Policy Act of 2005 started the momentum but needs some tweaking. Already, Section 1705 has expired and new applicants must apply under Section 1703, which does require a credit subsidy payment upfront from the applicant to protect the taxpayers, in addition to more stringent application criteria [6]. Clean energy jobs grew at a 4.2% rate annually, but the overall investment per job was much too high- helped in part by Solyndras failure no doubt [15]. To further grow their renewables market, America needs to increase their legislation regarding renewable energy and energy efficiency. First and foremost they need to prioritize energy efficiency which could decrease global carbon emissions 1.5 times the amount that wind

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and solar could [2]. Subsidies need to be increased for renewables and decreased for fossil fuels. Consumers should be paying a more representative price for their energy. Its also time to face the fact that perhaps the money shouldnt be spent on manufacturing jobs, which can be outsourced to China for far cheaper than could ever be accomplished locally, but should be spent on research and development. China has cheaper production costs and the European and American manufacturers just cant compete. The choice is clear: either make it in America and pay the higher price or outsource the manufacturing and buy it cheaper, which could bring renewable energy to more people faster [16,17,7]. In the meantime, Solyndra is looking for someone to pay for its failure. Earlier this year, several solar panel makers from the Western world filed a trade complaint against their Chinese counterparts. They alleged that Chinas subsidies violated trade laws. They claim that China employed a practice of extend and pretend whereby they extended a line of credit to a solar panel maker and pretended there was no need to ever make a payment. These policies allowed the Eastern solar panel makers to have an easier business atmosphere and allowed them to sell their panels on the Western market at prices that couldnt be beat. In October 2012, the U.S Department of Commerce agreed that Chinese manufacturers had illegally dumped their product. Now Solyndra has filed their own suit, going so far as to claim a conspiracy amongst the Chinese government, Chinese banks, the top three solar panel manufacturers Suntech, Trina, and Yingli, and their suppliers [18]. Even if Solyndra wins and finds someone to pay for their failure, it will take time for the renewable energy market to gain the trust of the American people again. But they must get it back. One way or another, renewable energy is the future and Americans dont like to be second.

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Resources 1. Timilsina, G. R., et al. (2012). "Solar energy: Markets, economics and policies." Renewable & Sustainable Energy Reviews 16(1): 449-465. 2. Ball, J., Tough Love for Renewable Energy. Foreign Affairs, 2012. 91(3): p. 122-133. 3. Kyoto Protocol. United Nations Framework Convention on Climate Change (2012) Accessed 10/12/12 http://unfccc.int/kyoto_protocol/items/2830.php 4. Campoccia, A., et al., Comparative analysis of different supporting measures for the production of electrical energy by solar PV and Wind systems: Four representative European cases. Solar Energy, 2009. 83(3): p. 287-297. 5. China Solar Silicon Production Curbed 30% to Lift Prices: Energy (2012) Bloomberg Businessweek Accessed 10/30/12 www.businessweek.com 6. U.S. Department of Energy Loan Programs Office Accessed 10/31/12 https://lpo.energy.gov/ 7. Daniel, P., 'Perfect storm' sank Solyndra. 8. Plummeting silicon prices may boost solar sales. Nature, 2009. 460(7256): p. 677-677. 9. Obama, B.H., Remarks at Solyndra, Inc., in Fremont, California, 2010, Superintendent of Documents. p. 1. 10. Solyndra (2012) Accessed 10/25/12 www.solyndra.com 11. Lipton, E. and J.M. Broder, In Rush To Assist A Solar Company, U.S. Missed Signs. New York Times, 2011: p. 1 12. Woody, T. (2012, October 12) Silicon Valleys Solar Innovator Retool to Catch Up to China. New York Times. Accessed 10/30/12 http://www.nytimes.com/2010/10/13/business/energyenvironment/13solar.html?pagewanted=all 13. Solyndra Scandal Timeline. (2011, December) The Washington Post. Accessed 10/30/12 http://www.washingtonpost.com/wp-srv/special/politics/solyndra-scandal-timeline/ 14. Stephen, J. and Leonnig, C. (2011, November 11) Energy Department failed to sound alarm as Solyndra solar company sank. The Washington Post. Accessed 10/30/12 http://www.washingtonpost.com/politics/solyndra-energy-department-failed-to-soundalarm-as-solar-company-sank/2011/11/04/gIQAGQgfBN_story.html 15. Scherer, M., The Solyndra Syndrome. Time, 2011. 178(14): p. 42. 16. Grunwald, M., Yes, More Solyndras. Time, 2012. 180(8): p. B4-B4.

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17. Solar Flare-out. Wall Street Journal - Eastern Edition, 2012. 259(79): p. A14. 18. Woody, T. (2012, October 12) Solyndra Files $1.5 Billion Antitrust Suit Against China Solar Companies. Forbes. Accessed 11/1/12 http://www.forbes.com/sites/toddwoody/2012/10/12/solyndra-files-1-5-billion-antitrustsuit-against-china-solar-companies/

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