Holiday Reading: What Abound Solar’s Bankruptcy Says About the DOE Loan Program; It has a 96 percent success rate and the endorsement of an independent Republican consultant.

Holiday Reading: What Abound Solar’s Bankruptcy Says About the DOE Loan Program; It has a 96 percent success rate and the endorsement of an independent Republican consultant.

Herman K. Trabish, July 19, 2012 (Greentech Media)

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As with the Solyndra bankruptcy before it, last month's financial failure of Abound Solar has presented an opportunity for politicians to rail against the U.S. Department of Energy (DOE) loan guarantee program. But according to Abound executives speaking Wednesday before a U.S. House of Representatives financial oversight committee, the real culprit in the thin-film solar panel manufacturing startup's demise last month was China.

At least, that's how former Abound CEO Craig Witsoe explained his company’s failure in his Wednesday testimony. Abound’s progress, Witsoe said, was “solid” until “panel prices dropped 50 percent in one year due to aggressive price-cutting from Chinese competitors using older crystalline silicon technology.” That Chinese competition was backed, Witsoe said, by “over $30 billion in reported government subsidies” and was therefore “able to sell below cost and put Abound out of business before we were big enough to pose a real competitive threat.”

Abound was funded with more than $300 million in private investment and about $70 million drawn from a potential $400 million, Witsoe said. The two funded production lines “enabled a nearly doubling of panel efficiency from 45 watts per panel in 2009 to 85 watts per panel in 2012.” Whether that would have been improvement enough to allow Abound to compete with its key cadmium-telluride based thin-film solar panel competitor First Solar, let alone the polysilicon solar panels now flooding global markets from China, will never be known.

The market’s “very fast and severe decline,” Witsoe said, “affected many U.S. companies.” General Electric, which announced plans to enter the thin-film solar panel business in 2011, cited Chinese competition when it recently announced it would delay cad-tel production by at least 18 months, he noted. The tariffs imposed on imported Chinese panels, Witsoe said, “were simply too late for our company.”

One example of the partisan vitriol on display at the July 18 hearing of the House committee on government oversight and reform was a Representative’s poster with a picture of the President and a map of China, with the heading “President Obama’s jobs program” and the words “from shovel ready to Shanghai” written across the map.

Representative Jim Jordan (R-Ohio), who chaired the proceedings, described the program as “a bad bet” and accused DOE officers of “failing to protect taxpayers.”

“The real scandal,” replied Subcommittee ranking member Dennis Kucinich (D-Ohio), “is the systematized illegal dumping of subsidized Chinese solar panels. We’re attacking our own business people and meanwhile the Chinese are eating our lunch.”

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David G. Frantz, acting executive director of DOE's Loan Programs Office (LPO), testified that collectively, LPO projects are expected to support nearly 60,000 jobs. Of nineteen electricity generation projects funded by the LPO, Frantz said, nine are in operation and six are complete.

Other LPO-backed projects include the first two U.S. all-electric vehicle manufacturing facilities; one of the world’s biggest wind farms; one of the first U.S. commercial-scale cellulosic ethanol plants; the first new U.S. commercial nuclear power plant licensed in three decades (conditionally); a groundbreaking 28-state distributed photovoltaic project that will put solar panels on commercial rooftops; the biggest utility-scale photovoltaic solar power plant, the biggest concentrated solar power plants and two of the biggest thermal energy storage systems in the world.

Conservative Republican Herb Allison led an Independent Consultants Report on the LPO, Frantz testified. After thoroughly reviewing each loan, Allison’s report found DOE “is using the appropriate risk factors in assessing each loan.”

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Speaking on the other side of the issue. Veronique de Rugy, a Senior Research Fellow at the George Mason University Mercatus Center, noted that “We don’t know how big the failure rate will be in the end."

De Rugy pointed out that DOE loans put at risk taxpayer money for “projects that would not have been funded in the open market without a government guarantee because they are too risky, and projects that could have gotten a loan but were happy to benefit from the lower interest rate available through a DOE loan guarantee.”

De Rugy also said that loan guarantee programs transfer risk from lenders to taxpayers, may inhibit innovation, and increase the cost of borrowing. “Such guarantees,” she said, “distort crucial market signals.” The worst impact, she added, is that “guarantees introduce political incentives into business decisions, creating the conditions for businesses to seek financial rewards by pleasing political interests rather than customers. This is called cronyism, and it entails real economic costs.”

But, as Gregory Kats, president of independent consulting firm Capital E, noted in his testimony, “The purpose of loan guarantee programs is to fund companies and projects that have desirable benefits and that probably otherwise could not get commercial funding." Kats said that his LPO review “suggests that total defaults are likely ultimately to be in the range of $400 million to $800 million, or about one-quarter the amount projected and budgeted.” That, he said, includes Solyndra and Abound. Overall, the program has had a 96 percent success rate, he said.

“A fair assessment of outstanding portfolio financial profile and risks proves that the DOE loan program has been prudently managed,” Kats said. “There is a global hyper-competitive race to see which counties will dominate clean energy. Abdication of U.S. federal support,” he said, by “failing to make substantial additional loan guarantees to expand U.S. strength in renewable and clean energy, strengthen U.S. jobs, competitiveness and security would be self-defeating.”

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