Beyond Solyndra: Examining the Department of Energy's Loan Guarantee Program
85 Pages Posted: 11 Oct 2012 Last revised: 18 Sep 2013
Date Written: August 23, 2012
In the year following the Fukushima nuclear disaster in March, 2011, the renewable and clean energy industries have faced significant turmoil – from natural disasters, to political maelstroms, from the Great Recession to U.S. debt ceiling debates. The Department of Energy’s loan guarantee program, often a target since before it ever received a dollar of appropriations, has been both blamed and defended in the wake of the bankruptcy filing of Solyndra, a California-based solar panel manufacturer, in September of 2011, because of the $535 million loan guarantee made by the Department of Energy (“DOE”) to Solyndra in 2009. Critics have suggested political favoritism in loan guarantee awards and have questioned the government’s proper role in supporting renewable energy companies and the renewable energy industry generally.
This paper looks beyond the Solyndra controversy to examine the origin, structure and purpose of the DOE loan guarantee program. It asserts that loan guarantees can serve as viable policy tools, but require careful crafting to have the potential to be effective programs. It concludes that the DOE loan guarantee program did not have consistent or achievable legislative directives nor did it have a reasonable timetable to implement its loan guarantee program. Overall, the DOE loan guarantee program projects supported to date are likely to remain a relatively low-risk portfolio of performing projects (notwithstanding Solyndra and several outliers). However, this risk profile reflects a failure by the DOE to meet some of its statutory goals, because of the DOE had competing and contradictory Congressional directives, dooming its loan guarantee program’s ability to succeed.
This paper has six sections. First, the paper examines the ambiguous language commonly used to describe renewable energy, green energy, clean energy and industries associated with these terms. It then defines two terms: the Renewable Energy Industry (“REI”) and the Renewable Energy Electrical Generation Industry (“REEGI”). Second, the paper examines the state of the market for REEGI and various challenges that face this industry. Third, the paper summarizes the origin and structure of the DOE loan guarantee program and initial assessments of this program prior to the Solyndra scandal. Fourth, the paper examines the details concerning Solyndra’s loan guarantee and bankruptcy and asserts that Solyndra’s failure was based on market conditions and the company’s business model not on shortcomings in the DOE loan guarantee program, and few other DOE loan guarantee recipients will follow in Solyndra’s wake. Fifth, the paper analyzes the DOE loan guarantee program and asserts that the program’s contradictory legislative guidance limited the effectiveness of the program, ensuring the program would face criticism from all sides no matter which projects it supported. The paper also examines the common arguments made against the DOE loan guarantee program specifically, and loan guarantees generally. Finally, the paper concludes that loan guarantees can be viable policy tools, but their effectiveness depends on both legislative authority and implementation. In the case of the DOE loan guarantee program, its competing legislative purposes and lack of specificity hampered the program’s effectiveness.
Keywords: Solyndra, loan guarantee, Department of Energy, energy policy, renewable energy policy, environmental law, Office of Management and Budget, Federal Financing Bank, Advanced Technology Vehicle Manufacturing Program, renewable energy, clean energy, green energy, green economy
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