If the Feds Vouch for a Solar Company, Run the Other Way

When the auditor for a company like solar panel manufacturer Solyndra warns of "substantial doubt about its ability to continue as a going concern," you know there's trouble. The problem for the Obama administration is how it could have signed off on loan guarantees to the company ultimately worth $535 million just six months earlier.

Barack Obama's team -- and, to be fair, that of George W Bush -- seemed to have learned the wrong lessons from the country's financial crisis. There's nothing wrong with intelligently encouraging industries that can help provide jobs. But, for heaven's sake, look at the bigger picture of an industry and a company before enabling loans to a private concern. Especially if it has already taken in more than $1 billion in venture capital. When a business with that background is still terribly hungry for cash, something is wrong.

A rollercoaster industry
The solar market is a tough one. At times robust, it can whipsaw and suddenly make people wonder why they started a business in the first place. It happened in the 1970s in the U.S., when oil prices were high and energy conservation a suddenly hot topic under President Jimmy Carter. Then oil prices dropped, the 80s began, and the need (not to mention desire) for solar energy waned.

Much solar research and development in this country went into the deep freeze at that moment. It didn't start to re-emerge until the mid-2000s when, again, oil prices began to rise.

One of the stars at the time was Solyndra, which took in a total of $1.7 billion in venture money. To put that into perspective, the company received more in investment than either Twitter or Groupon. Expectations were big.

Bush and Obama say yea instead of no way
Although many want to point the finger at Obama, Solyndra first received Department of Energy approval for fedeal loan guarantees in 2007, under the Bush administration.

Toward the end of the process, the Office of Management and Budget thought that the DOE had underestimated the company's risk and made some suggestions that the DOE accepted. Solyndra got its loan guarantee finalized in September 2009.

But signs of trouble were available early on, when solar-grade silicon prices sunk in 2008 and 2009, before the guarantee was final. The company's manufacturing process was already too expensive by the time it would get the loan. And then solar panel prices fell another 50 percent.

Solyndra became the third U.S. solar manufacturer to file for bankruptcy this summer.

The early signs kept coming
Solyndra's auditing firm, PricewaterhouseCoopers, warned of the company's troubles in March 2010, two months before Obama visited the company.

As of yet, there seems to be no evidence that the private company had sent a copy of the audit to the DOE. But even publicly available information showed the depth of trouble the company faced. In November 2010, then-BNET writer David Phillips noted that the DOE's money was being wasted because of enormous flaws in the company's business model.

Maybe too many administrations have been desperate to increase the number of jobs and solar seemed like a good candidate industry to create them. But if government really does want to change the economic climate, it has to start with an understanding of where jobs can actually come from. Hitching behind an industry already ripe for outsourcing is probably not a good strategy.

Related:

• Solar shares fall as Solyndra shuts down
• The Perils of Innovation: Solyndra, Solar's Most Financed Company, May Fail
• Solyndra Solar: Unemployment Checks Make a Better Investment Than DOE's Millions
• Staff finds contradictions in company's finances