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Solyndra Solar Failed By Poor Cost Structure, Not China

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By EconMatters

The ongoing news coverage of Solyndra, the ill-fated solar panel manufacturer which filed for bankruptcy on Sept. 6, and the circumstances surrounding its loan from the U.S. government make it seem like a "Solyndra-gate" in the making for the White House.

Somehow, China got dragged into this pure U.S. domestic event as this blog post by the U.S. Dept. of Energy basically blamed China for Solyndra's failure:

"Solar panel manufacturing is a growing international market, with increasingly intense competition from Chinese manufacturers who are supported in many cases by interest free government financing that is much more generous than what the U.S. provides." 

In not so many words, Solyndra also hinted that much in its official statement:

"Solyndra could not achieve full-scale operations rapidly enough to compete in the near term with the resources of larger foreign manufacturers." 

I guess both DOE and Solyndra have totally forgotten about the 'resources' and 'interest free financing' provided to Solyndra by the U.S. government.  From Bloomberg,

"[Solyndra] has borrowed $527 million of the $535 million Energy Department loan guarantee......and that Solyndra plans to include the Energy Department loan guarantee in its bankruptcy filing."

But the buck did not stop there.  Washington Post noted that

In February [2011], the Obama administration helped Solyndra in refinancing its $535 million federal loan, allowing the government to release another $67 million to the company. 

From ABC News,

"Solyndra received a rock-bottom interest rate of 1 to 2 percent......even as an outside agency, Fitch Rating, scored Solyndra as a B+ -- "speculative" -- investment."   

If Fitch considers Solyndra 'speculative', how Solyndra could have passed the government's loan approval criteria would be something interesting to see.  

The DOE and Solyndra also conveniently neglected to mention Solyndra's demise has everything to do with its unsustainable cost structure using an 'innovative technology' to produce solar panels. (Hint: innovative = costly) 

An article from ElectroIQ dated Nov. 8, 2010 already questioned if Solyndra can reconcile cost-per-watt and sale price:

"In an S-1 filing a year ago, the company [Solyndra] said its average sales price was over $3.20 a watt, about 65% more than leading crystalline-silicon PV manufacturers. Its cost of manufacturing was over $6 a watt. Solyndra aims at $3.5 per watt by the end of 2011." 

And what is the general industry price curve projection?  Below $1 by Q1 2012 (See Chart Below)

Chart Source: Electro IQ

With rapid growth, solar is probably one of the most competitive sectors with market players continuing finding new ways to manufacture, finance, package, sell and install solar driving down prices (See Chart Below).

This cost-reducing effort spreads across regions and is not just limited to Chinese companies.  From RenewableEnergyWorld.com dated July 13, 2011

"First Solar has driven the cost of manufacturing cadmium-telluride thin films (which are about 15% of the market) to under 70 cents a watt; Amorphous silicon thin-film equipment manufacturer Oerlikon says its customers have cut module production costs to well under a dollar, and are on a path to get below 70 cents a watt in the coming months; and CIGS producer Solar Frontier, which just opened a 1 GW facility for the high-efficiency thin film, says that its technology is competitive with leading thin film manufacturers."

Chart Source: ThinkProgress.org

 

The bankruptcy came barely a year after President Obama visited Solyndra as a model for government investment in green technology.  The company was the first company to receive a loan guarantee under the 2009 stimulus law.

Initially, there was this back and forth argument about if the loan approval was under Bush or after Obama took office.  Next thing you know, the FBI raided Solyndra's headquarters in California, while the U.S. Treasury Dept. and the Energy Dept. also launched separate investigations of the government loan to Solyndra.

Last but not least, Solyndra's biggest shareholder -- Argonaut Ventures -- is backed by Obama fundraiser George Kaiser.  Argonaut, along with some other private investors, would stand to get every penny Solyndra has to offer even ahead of the U.S. government due to some loan restructure deal done right before the bankruptcy.  And there were indications that White House might have rushed the loan approval to meet certain political PR deadline.

With American taxpayers potentially getting stiffed with about 600 million bad loans from Solyndra, it is easier to point the finger at China, the biggest market competitor of the U.S. (and every other country in the world) so not to take a deeper look at the problems closer at home.

Once a dominant manufacturing force in the world, over the past 70 years, the U.S. has gradually shifted its economic structure into one that's technology, financial and services oriented, and outsourced most of the manufacturing needs to other countries including China.  That has resulted in the U.S. losing its competitiveness in the goods producing sectors, including solar panels.

Nonetheless, quality, efficient innovation, and technology has enabled some Western companies such as First Solar and Solar Frontier to still compete with China. Solyndra's downfall is due to the company's outdated business model and its failure to get ahead of the curve in a fast changing market place.  

Moreover, regardless when or where the Solyndra loan origination/approval might have taken place, the fact is that the "loan execution phase" of this debacle occurred under the current Administration, which could have either revoked the loan or put Solydra under some kind of receivership on first signs of trouble (e.g., when solar panel prices started to drop like a rock) to safeguard taxpayers' money.

Instead, the U.S. government simply made a bad 'speculative' investment decision on behalf of the American public, based on questionable due diligence process and circumstances, but China has nothing to do with that.

Further Reading:

EconMatters.com Solydra Coverage  

Job Creation and Green Energy

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Mon, 09/19/2011 - 08:44 | 1684030 windcatcher
windcatcher's picture

Econmatters: I find your reporting on Solyndra and the solar industry to be agenda driven that boarders on dishonest propaganda.

 

You do not even mention Communist China and their partners (American technology and corporations abroad) multi-billion dollar manufacturing and electric production deal with loan guarantees in the Mohave.

 

You do not even mention the $1.2 billion US loan to Abengoa! Why not explain those major solar developments to us, even in your slanted way or are you just going to continue to ignore those solar developments as irrelevant?

Fri, 10/07/2011 - 02:32 | 1748795 Keri at Bankste...
Keri at Bankster Report's picture

Not that there's much difference between Obama and Bush, but here's a Colorado wireless company that was given $267M by USDA under Bush in '08, and is now under:

http://www.9news.com/news/article/223157/75/Report-Local-company-awarded...

 

Mon, 09/19/2011 - 08:21 | 1683993 Sambo
Sambo's picture

Their (Solyndra's) idea or invention that uses thin semiconductor films vapor deposited on cylindrical structures is very interesting from an optics perspective. It is a question of time before some chinese company takes up the reverse engineering challenge and makes a lot of money. RIP Solyndra!

Mon, 09/19/2011 - 08:15 | 1683987 Cheyenne
Cheyenne's picture

John Stewart's Solyndra bit is fucking hilarious:

http://www.marketskeptics.com/2011/09/latest-obama-scandal.html

Sat, 09/24/2011 - 18:00 | 1706056 anony
anony's picture

No it's not.  It's mildly humorous, and defangs the ripoff that has occurred under theBamster

I care about half a billion dollars even if Stewart pretends he doesn't, to keep his candidate in office.

Mon, 09/19/2011 - 07:56 | 1683953 overmedicatedun...
overmedicatedundersexed's picture

tony saprano: we loan ya money, we use your credit to buy stuff we then sell at a loss until your credit is gone and you go BK..

seems Obuma saw too much on the Mafia way of BK'ing business..

no doubt the execs knew the deal and set up false invoices and wife /family owned suppliers to bleed it dry

and are now DIP and will pick up the excess inventory for 1 cent and sell for $2.50 and undercut the china boys..

the IOU goes to the tax payer..tony and da boys give a booooya.

Mon, 09/19/2011 - 07:15 | 1683897 ZeroPoint
ZeroPoint's picture

You say China isn't the cause , but then you go on to say costs per watt to manufacture were too high. How much you think a solar panel factory worker in China makes? Give me a break. How can even the best run manufacturers compete with that?

Mon, 09/19/2011 - 01:34 | 1683728 Hook Line and S...
Hook Line and Sphincter's picture

If Solyndra really knew how business operates in the US, then they should have;

  • Followed in the footsteps of GE and became its own bank, receiving 25 basis point loans from the government instead of the gargantuan 2%. 
  • Created a product that destroys people.
  • Immediately reinvested a large portion of their first loan on lobbying.

 

 

Sun, 09/18/2011 - 20:18 | 1683242 snowball777
snowball777's picture

Questionable due diligence -> Blind Cop.

Sun, 09/18/2011 - 19:46 | 1683172 Lady Heather...UNCLE
Lady Heather...UNCLE's picture

...I would avoid the building where the investigative records are being housed due to low flying commercial planes!!!!

Sun, 09/18/2011 - 17:25 | 1682872 geno-econ
geno-econ's picture

Believe advantage Solyndra tauted was in design of panels allowing more cost efficient installation of panels and therby wide purchases by consumers and ultimatly lead to all those installation jobs in construction industry. Essentially administration thought Solydra was majic bullet to solving jobs problem and bring back consumer demand . Obviously it was wishful thinking , especially in creating jobs in America--- which gets us back to the outsourcing of jobs to China and elsewhere which is root cause of our systemic problem. Namely, deficits and throwing cheap credit at small businesses does not create jobs anymore. Rather, deficits only help China .Obviously Lord Keynes did not consider China in his model 100 years ago and lobbyists, polititians and multinationals dont care now.

Sun, 09/18/2011 - 16:35 | 1682716 Pitchman
Pitchman's picture

“This game is rigged man.  We like them little bitches on a chess board.” The Wire, T.V. series

It was a farce from the begining.  I'm thinking, given the technology was not special, this was seen as a SPIV and used to funnel money out of the public sector and into private hands. I mean, Laws subordinated, Investors (the public), subordinated.... Come on;  Qui Bono?

It's the result of one percent of the richest Americans capture of the policy making process and their amoral compus; now so thoroughly entrenched and systemic the law makers (two party oligarchy), don't even bother to hide their complicity in blatant criminal fraud.  

"You have a system that's not being run to be productive as an economy or healthy as an economy.  Its being run to centralize control." - Cathrine Austin Fitts

Check out the fascinating interview on the evolution of corruption with Ms. Fitts.  Where's the wealth going?  If you're interested in the depth of the Rabbit Hole and the psychopaths within, see the "Dillon Reed and Company: And the Aristocracy of Stock Profits" link at the bottom of: The Looting of America: Happy Labor Day

Also see:  

 - Inflection Point

Sun, 09/18/2011 - 15:46 | 1682553 Georgesblog
Georgesblog's picture

Come, now. Let us not talk falsely. This is just more of thre same cronyism and political chicanery that politicians of every persuasion have refined to a polished art, over the centuries. All politicians are yhieves, by definition. They get together and decide what to do with Other People's Money. They all go to the same parties and drink booze out of the same bottles. It's corruption by cross contamination. While we're all busy talking about this scandal, we'll miss the dozens of other crooked deals that go down, every week.

Sun, 09/18/2011 - 15:28 | 1682487 nmewn
nmewn's picture

You mean manufacturing costs that exceed sales price is an unviable business model?

Sun, 09/18/2011 - 15:39 | 1682529 Kayman
Kayman's picture

Unless you're GM or a TBTF.  And over the long run, a country.

Mon, 09/19/2011 - 06:59 | 1683883 nmewn
nmewn's picture

Lets hear from Tiny Dancer...Rahm...what did you know & when did you know it?...

Chicago mayor and former White House Chief of Staff Rahm Emanuel said he doesn’t recall anything about the Obama administration’s $535 million loan to the recently bankrupt solar company Solyndra.

Speaking to Chicago radio station WLS 890AM at a news conference about a new wellness initiative, Emanuel said he didn’t remember anything about the failed investment loan by the Department of Energy, which critics say was fast-tracked to fit the White House’s political agenda.

“Ya know, I’m focusing on a major announcement today for the City Of Chicago,” Emanuel said. “I don’t actually remember that or know about it. So, what I’m dealing is with what I’m dealing with here today.”

Read more: http://dailycaller.com/2011/09/18/rahm-emanuel-on-solyndra-i-dont-remember/#ixzz1YOX29PZH

Mon, 09/19/2011 - 07:17 | 1683898 malikai
malikai's picture

Being from Chicago, I find not one single bit of this surprising. We have exceled in cronyism far beyond most cities and even states, setting the model for the federal government. We are indeed proud of our accomplishments, evidenced by our unwavering choice of crones over the years. I must admit, however, that we did steal some of our inspiration from such great cities as New York in this regard.

Sun, 09/18/2011 - 15:17 | 1682443 cranky-old-geezer
cranky-old-geezer's picture

 

 

Everybody's missing the real story.  I suspect Solyndra was a CIA black-op funder.  It's the only way they could blow through $538 million that fast and have nothing to show for it.  Solar was just the front operation, like any CIA black-op funder has a front operation.

Many believe Bernie Madoff's ponzi was the same thing.

Sun, 09/18/2011 - 15:10 | 1682424 Jasper M
Jasper M's picture

SO they were only covering have of production cost with sale . . . but They Were Going to Make It Up on Volume (cue reverb) VOLUME, VOLUME VOLME!

Mon, 09/19/2011 - 04:52 | 1683829 lamont cranston
lamont cranston's picture

This is worse than the old Jerry Clower joke about the two Mississippi farmers who traded the same mule back and forth, raising the price every time. One finally sold the mule to a "Texan" for a rather high price, which prompted the other farmer to say, "Why'd you go and do that? We were each makin' a good livin' offa that mule!"

Sun, 09/18/2011 - 14:59 | 1682405 Rockfish
Rockfish's picture

Lests see who GS has in the wings as a buyer of the remains of Sol...

Sun, 09/18/2011 - 14:36 | 1682344 Atlantis Consigliore
Atlantis Consigliore's picture

Tail risk:  bullish....the reason?  ask Carville.....Clinton....

 

http://www.youtube.com/watch?v=xRl1wfbi4L8&feature=related

Sun, 09/18/2011 - 14:28 | 1682332 Atlantis Consigliore
Atlantis Consigliore's picture

"think about it:  ENRONGATE,  hearings, etc etc. 

 

now leaks about Depression, and causations?

my guess 'tail risk of an Enron style blowup;'  in time with

a Euro collapse/ Greek default,"

and due to family and health reasons, no far fetched as a Eurocollapse,  Greek pullout , double dip.

'i ve decided to pull a Lyndon Baines Johnson: '

 

http://www.youtube.com/watch?v=xRl1wfbi4L8&feature=related

Sun, 09/18/2011 - 13:05 | 1682120 apberusdisvet
apberusdisvet's picture

Waiting for the impeachment hearings; waiting.....waiting.......waiting

Sun, 09/18/2011 - 13:10 | 1682130 Sun Tsu
Sun Tsu's picture

What are the grounds for impeachment!  White House Cover Up Cover Up Cover Up Cover Up......

Sun, 09/18/2011 - 12:33 | 1682040 anony
anony's picture

Bull shit. It ain't about anything that has to do with Cost Structure, P&L, balance sheets, market, competitiveness or anything else remotely connected to building a going concern.  IT was a vehicle to secure a half a billion dollars as a payoff to a group who donated a fraction of that to elect theBamster.

Nothing more and nothing less.

Let's track all the money and see where it went, how it was spent. How much senior execs paid themselves and whether their suppliers actully exist and if so who is behind their corporate ownership.

They can smell this putrid rotting corpse of a company in Iceland.

Sun, 09/18/2011 - 12:22 | 1682002 adr
adr's picture

I'll get a whole bunch of people to donate money to get you elected but in return I need a favor to help out one of my business ventures. Really it's an uncompetative scam we are runing just to steal governmwnt money, but you know that already.

Think of it like interest paid back on the loan we gave you to get elected.

We have t start thinking of political donations as loans. hat i what they really are. Nobody expects to donate millions to a candidate like Obamaand actually lose money on the deal.

My smartphone keyboard sucks.

Sun, 09/18/2011 - 13:07 | 1682124 Sun Tsu
Sun Tsu's picture

Care to name your Smartphone Manufacturer?

Sun, 09/18/2011 - 12:14 | 1681973 macstibs
macstibs's picture

The appropriate metric isn't $/Wp - it's ¢/kWh - Probably a nuance lost on many here.

 

That, plus the amount of support in China dwarfs the Solyndra program virtually by an order of magnitude and is largely to support 8 companies.

Last, but not least, let's at least compare apples to apples.  Anyone know how much subsidy money went to traditional oil and gas and how much to renewable energy?

Sun, 09/18/2011 - 14:55 | 1682390 defender
defender's picture

The appropriate metric isn't $/Wp - it's ¢/kWh

I would tend to lean the other direction on this.  The main reason is that solar cells rarely make it to the manufacturers end of life rating.  They are almost always destroyed by the environment, either by hail, wind, or water damage.  Basically this means that the true question isn't "how much does it take to brake even", but rather "how little can i spend and still get a good ego trip out of my money."  This is why there are still people that buy $3/Wp panels.  They aren't trying to save the planet, they are trying to prove to their neighbor how important of a person they are.

Sun, 09/18/2011 - 12:28 | 1682025 anony
anony's picture

Presuming that this was a bonafide business venture stretches the limits of credibility.

Don't for second think that was anything more than a scam right from the preparation for application for corporate status.

Sun, 09/18/2011 - 12:24 | 1682007 macstibs
macstibs's picture

And just as a point of fact, First Solar has 2/3rds of its production capacity in Malaysia.  Another 15% is in Germany and the remainder is in the US.  So I wouldn't hold their expansion model out as some radically different model than Solyndra's.

Sun, 09/18/2011 - 12:11 | 1681962 falak pema
falak pema's picture

In EU they are pushing non or low Si content PV solutions, thin film etc. It looks like the future for PV. In the US, the R& D in this area looks, on face value, behind both EU and China. Am I wrong on this? Any views?

Sun, 09/18/2011 - 20:56 | 1683331 New_Meat
New_Meat's picture

f p: "Any views?"  Yes, basic engineering economy.

Yes, take the solar pv system, take out all of the cost of the gathering surface, that is, not $0.70/watt.  Do price in the remainder of the system at commercial pricing.  The rest of the system (mechanical supports for the pv surface, inverters, batteries, switchgear, transformers, metering, controls, the whole rest of the system).

There are calculators on the web that can get you the above.

I did the rough calculation for Rochester, NY, when they were proposing to power the City Hall with pv solar.  Neglect all O&M costs.  Neglect all taxes.  Payback at 1% interest rate was 104 years.  Any interest rate above that never converged.

What is the lifecycle of any of this technology?  Does it even make 10 years.  Jimmy Carter DOE sponsored tax sheltered wind-turbine-generators basically made 10 years.

- Ned

{Yes, Rah'chista' is a bad example, but they were proposing to do the project.  Took 10 times the collector capacity (surface) than would be needed for like 2/3 of each day consuming power.  Basically, anything north of the Mason-Dixon line and anything  with a lot of clouds (Pac NW) are screwed due to the sun's availability being so low}

{{this argument is for production levels of electricity.  "off the grid" types in a totally different situation where it can make sense.  But that is low volume.}}

Mon, 09/19/2011 - 03:37 | 1683796 Dugald
Dugald's picture

Not sure about your ten year claim....l have three panels on  my boat, still working after thirty years, and still producing reasonable power.

Mon, 09/19/2011 - 07:46 | 1683940 New_Meat
New_Meat's picture

10 years?  I don't know, but it is a common second threshold for semiconductors.  So I'm wondering about the system degradation in industrial applications.

Your boat is a great example of  the off-the-grid situation where there is really no alternative.  How much degradation has the system experienced to get down to "reasonable?"

I'm looking around for operating experience in this.

Sun, 09/18/2011 - 14:06 | 1682267 macstibs
macstibs's picture

Arguably, the majority of next generation solar companies are, in fact, based in the US.   There are a few in Europe and virtually none in Asia.

China has done exactly what it excels at in solar - they've taken a commodity product that's low-tech and ultimately low margin and thrown a lot of capital and bodies at it.

As I said in an earlier post, it's not $/kWp that's important, it's ¢/kWh.  The chemistry that Solyndra was pursuing is widely expected to surpass Silicon ultimately.  

One might also keep in mind that the US actually runs a trade surplus in Solar with China.  Yeah - we do.  Go look it up.

Fundamentally, the question is should America be building and selling spacesuits or tube socks?

 

Mon, 09/19/2011 - 08:38 | 1684020 Sambo
Sambo's picture

I dont think the chemistry is superior. CIGS (Copper Indium Gallium Selenide) is the material that Solyndra uses. It gives good quamtum efficiencies in the lab but manufacturability is still a big unknown. They haven't proven its commercial viabilty yet in a large scale manufacturing environment. Also elements like Indium, Tellurium are not easily & consistently available. I see Silicon reigning supreme in the years to come only because there is tons & tons of it on this planet earth.

Sun, 09/18/2011 - 18:28 | 1683022 robobbob
robobbob's picture

America has 300million who are going to need jobs.

genetics indicate 80% can never learn to make spacesuits.

Sun, 09/18/2011 - 11:59 | 1681944 Boxed Merlot
Boxed Merlot's picture

I drove by the facility at the junction of Mission Blvd and the 880 freeway in the south bay the other day. Beautiful nearly vacant building among the many other vacant CREs nearby. Had to chuckle at the "Event" sign being stored against a front office window. No doubt used to direct traffic for a PR event held earlier in the year.

You mean state of the art landscaping and building architecture don't count for a sound business plan?

Sun, 09/18/2011 - 11:25 | 1681877 vast-dom
vast-dom's picture

WRONG. It was NOT a speculative decision made by Teh Gov! WRONG WRONG WRONG. The numbers did NOT add up from DAY 1. The technology and the marginal cost/revenue was way out of line from DAY 1. This was NOT YOUR AVERAGE INVESTMENT. 

 

There was ZERO innovation from technoligical AND from cost of manufacturing standpoints. 

 

If you follow the money all the way around it all points to an indefeinite to the Nth degree QE-like investement $kaM, that ended prematurely. This project was designed from Day 1 to continue in unprofitabilty indefinitely and it would have gone on with cooked books if they didn't get CAUGHT. That is NEITHER an investment nor is it speculative; it is, simply put, FRAUD.

Sun, 09/18/2011 - 11:30 | 1681891 Kayman
Kayman's picture

it is, simply put, FRAUD.

So Solyndra took a page from Wall Street.  Washington will give then a pass.

 

Sun, 09/18/2011 - 10:58 | 1681833 malikai
malikai's picture

Solyndra's downfall is due to the company's outdated business model and its failure to get ahead of the curve in a fast changing market place.

LOL. Yea, it had nothing to do wih any hazards of a political/corporate nature. It definitely wasn't Kleptokeynesianism.

Sun, 09/18/2011 - 11:26 | 1681885 Kayman
Kayman's picture

Yeah, once again the monster that American Crony Capitalism created is given a free pass by a China apologist.

China is subsidized by free access to the U.S. market, by its government, by polluting the air, by inferior standards- they got that planned obsolescence thing right, and American politicians.

Solyndra wasn't helped by China either. 

Sun, 09/18/2011 - 23:39 | 1683633 Toma Haja
Toma Haja's picture

China is just way better at playing the game than this Admin.  With their better controlled propaganda/media and political control they are able to push any ponzi scheme much farther than the US.  They can undercut any market they want because "investors" have no voice.  Solyndra's "business model" was a ponzi starting off with over $1 billion in private funds, then the $535 million from the taxpayers, with a plan to go public that fizzled out.  Surely, the market trends were no surprises.  There business model just ran out of greater fools.

Mon, 09/19/2011 - 10:33 | 1684442 DaveyJones
DaveyJones's picture

well said

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