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A Project of The Annenberg Public Policy Center

Obama’s Solyndra Problem

President Obama exaggerated when defending his administration’s approval of a $535 million loan guarantee to Solyndra, a now-defunct solar company.

Obama referred to Solyndra’s loan at an Oct. 6 press conference as “a loan guarantee program that predates me.” That’s not accurate. It’s true that the Energy Policy Act of 2005 created a loan guarantee program for clean-energy companies developing “innovative technologies.” But Solyndra’s loan guarantee came under another program created by the president’s 2009 stimulus for companies developing “commercially available technologies.”

The president also overstated past Republican support for the program, saying “all of them in the past have been supportive of this loan guarantee program.” Republicans overwhelmingly opposed the American Recovery and Reinvestment Act of 2009, and some of them even voted against the Energy Policy Act of 2005 at a time when Republicans controlled both houses of Congress.

Lastly, the president deemed the loan guarantee program “successful” overall. But it is too soon to say.

Solyndra and the Stimulus

The Republican-controlled House has been investigating whether the administration ignored red flags about Solyndra’s financial condition when it offered a $535 million loan guarantee to the start-up company. The California company announced in August it would file for bankruptcy protection — about two and a half years after receiving the loan guarantee from the Department of Energy.

Asked whether the Solyndra controversy gave him “pause about any of the decision-making going on in your administration,” Obama first talked about the loan guarantee program.

Obama, Oct. 6: Solyndra — this is a loan guarantee program that predates me that historically has had support from Democrats and Republicans as well. And the idea is pretty straightforward: If we are going to be able to compete in the 21st century, then we’ve got to dominate cutting-edge technologies, we’ve got to dominate cutting-edge manufacturing.

The loan guarantee program that provided financing for Solyndra, however, does not predate Obama.

There are two loan guarantee programs for renewable energy companies. The first was created under section 1703 of Title XVII of the Energy Policy Act of 2005. It was designed to help support U.S. companies developing “a new or significantly improved technology that is NOT a commercial technology,” according to the Energy Department’s description of the program. It was a self-pay credit subsidy program, meaning the companies receiving the loan would have to pay the government a fee “equal to the present value of estimated payments the government would make in the event of a default.”

The second program was created with the passage of the American Recovery and Reinvestment Act of 2009, more commonly known as the stimulus law. The recovery act amended the Energy Policy Act of 2005 to create section 1705 for “commercially available technologies,” as the Energy Department explains on page 12 of a 2009 report on stimulus funding. The stimulus provided more funding for the loan guarantee programs. The loans under the new program also came with no credit subsidy fees, making them more attractive and less expensive than those under the program signed into law by President Bush. It was under this program that Solyndra was able to get financing, although the company initially applied under the section 1703 program.

In a March 2009 press release announcing a $535 million loan guarantee for Solyndra, the Energy Department said: “This loan guarantee will be supported through the President’s American Recovery and Reinvestment Act, which provides tens of billions of dollars in loan guarantee authority to build a new green energy economy.” Damien LaVera, an Energy Department spokesman, confirmed that Solyndra’s funding came solely from section 1705.

Solyndra was the first company to receive a loan guarantee under either program. Since then, the program has helped nearly 40 projects at a cost of about $36 billion — mostly under section 1705. Jonathan Silver — the former director of the Energy Department’s loan office who recently resignedtestified that the section 1703 program did not generate much interest perhaps because start-up companies found “the potential self-pay credit subsidy cost to be prohibitive.”

The president also overstated the level of Republican support for the program when he said “all of them in the past have been supportive of this loan guarantee program.”

Obama, Oct. 6: And by the way, let me make one last point about this. I heard there was a Republican member of Congress who’s engaging in oversight on this, and despite the fact that all of them in the past have been supportive of this loan guarantee program, he concluded, you know what? We can’t compete against China when it comes to solar energy.

The stimulus bill that funded Solyndra received no Republican votes in the House and only three in the Senate — including Sen. Arlen Specter, who later switched parties.

The Energy Policy Act of 2005 that created the section 1703 loan guarantee program had the support of a majority of Republicans — who controlled both houses of Congress at the time — but not “all” of them. The House passed the conference bill 275-156, and 31 Republicans opposed it. The Senate passed it 74-26, with six Republicans voting no. Sens. Joe Biden, now Obama’s vice president, and Hillary Rodham Clinton, Obama’s Secretary of State, voted against it, as did many other Democrats. Clinton criticized the bill as too generous to the oil industry and attacked Obama for voting for it, as we wrote during the 2008 Democratic primary.

An Overall Success?

Obama also defended the funding for Solyndra by saying that the loan program’s “overall portfolio has been successful.” But it may be too soon to say for sure.

So far, the Energy Department has finalized loan guarantees for 33 projects and has conditional commitments for five others. In total, the Energy Department says that it has put almost $36 billion into the program, according to information published on its website.

It says that “these projects plan to employ more than 60,000 Americans, create additional tens of thousands of indirect jobs, provide enough clean electricity to power three million homes, and save more than 300 million gallons of gasoline a year.” That’s all well and good if everything goes according to plan. But as the Solyndra episode demonstrates, it doesn’t always work out that way.

For one thing, the figures for jobs created are supplied by the companies themselves, but not independently verified by the Department of Energy. Furthermore, it is too early to say whether the government will get all of its loaned money back when all is said and done.

In the case of Solyndra, according to news reports, the company had drawn down all but about $8 million of its total loan allotment at the time that it announced it would file for bankruptcy. It’s not clear that taxpayers will get any of that money back. And while the Solyndra project was responsible for creating 3,000 construction jobs, according to the company, nearly 1,100 people lost their jobs when it announced it was shutting down operations at its solar plant.

A time may come when the program can be called a “success,” but doing so now may be premature.

— D’Angelo Gore and Eugene Kiely