Wednesday, December 07, 2011

Solyndra, Nuclear Energy and Loan Guarantees

OLYMPUS DIGITAL CAMERA         One of the things that struck me when reading about the bankruptcy of Solyndra and its implication for the federal loan guarantee program is that it seemed so small bore – beyond the entertainment value of any “scandal-worthy” elements attached to it – because it “only” realized the risks associated with the loan guarantee program. That doesn’t impact the social value of loan guarantees as a mechanism for promoting a desirable energy policy. Now, I’m not saying risk is nothing – and Solyndra’s bankruptcy is worth an investigation – but everyone knows that no business is a sure thing. 

But, of course, Solyndra didn’t make nuclear facilities, so it was interesting here only insofar as its downfall might impact upon the loan guarantee program.

Still -

Solyndra had a use as Exhibit A for the argument that solar energy is always a bad investment, but that’s transparently false, so there’s nowhere really to go with that line of attack.

It has also been used as an argument against the loan guarantee program. Bloomberg Government lately has done a good job showing that this is also false:

The DOE’s 1705 loan guarantee program, valued at $16.1 billion, constitutes 1.7 percent of the federal government’s guarantee commitments across all agencies. Solyndra’s guarantee of $535 million is 3 percent of the portfolio.

You can read about 1705 here. Nuclear energy is not included in this program, which is limited to some renewable energy sources, electricity transmission projects and some biofuels. Nuclear energy is covered in the 1703 program (more here), which includes a long list of technologies. 1705 projects had to break ground by September 30, 2011; there is no such limitation on 1703.

But this explanation for 1705 in the Bloomberg report covers some of the bases for both programs pretty well:

The rationale behind loan guarantees in energy is that new-to-market companies or technologies need help overcoming the so-called “valley of death” — the financial predicament an energy company finds itself in when it is too established to receive
start-up venture capital yet not established enough to secure affordable debt financing.

So you can see them as a hedge against risk – not to the companies, which, like Solyndra, could fail, but to the banks providing loans. In exchange, promising technologies and projects move forward.

Solyndra appears to have failed for an exceptionally specific reason rather than because the solar panel market collapsed beneath it:

Solyndra’s silicon-free modules, while more expensive than traditional silicon solar panels, were more efficient and easy to install on rooftops. The company believed that the advantages of its modules would allow them to remain competitive, even against cheaper panels. The company didn’t foresee that a steep decline in silicon prices would lead the price of silicon solar panels to drop 40 percent in 2011, undercutting Solyndra's perceived advantage

While other solar energy companies didn’t suffer because they trade in “traditional silicon solar panels.”

Abound Solar Inc., which received a $400 million loan guarantee, says its thin-film panels are already competitive. The company expects to triple capacity by the end of 2012. SoloPower, which received a $197 million loan guarantee, also says it can succeed because its lighter, flexible panels are useful on commercial and industrial rooftops that can’t bear the weight of older, heavier technology.

Hmmm! I might have wanted a surer sense of how SoloPower differs from Solyndra – sounds awfully similar to me - but it’s probably that SoloPower is using silicon in its panels. There are other examples given of companies that say they are succeeding – I wouldn’t expect them to say otherwise - but you get the idea.

And what about nuclear energy loan guarantees? Well, the report does mention nuclear in several places, but really only in passing.

Most of the loan guarantee rules still apply, but there are some notable differences to consider: solar panel companies are manufacturers, not energy companies, and are often start-ups, not well-established entities; the technology and economics behind Gen III and III+ reactors is well-understood; and there are impressively large loan origination fees to the government that renewable energy sources don’t have to pay but nuclear energy sources do.

Bottom line: the government stands to make money from a nuclear energy loan guarantee. That’s a pretty good deal.

Otherwise, the two are much the same – oh, except that the failure of one solar panel company has no identified knock-on effect on other solar panel companies – except that they may pick up business now lost to Solyndra – much less on any nuclear energy project.

As you may have read, the world spewed out more carbon emissions last year than in any previous year. Nuclear and renewable energy sources did not contribute to any of that, so encouraging their use is both practical and existential.

Loan guarantees provide an effective and relatively inexpensive way to encourage clean technologies. There’s now no reason to believe the failure of Solyndra should change that.

I didn’t really grasp how Solyndra really captured its business in its name: “The design is made a certain manner. It wraps the photovoltaic copper indium gallium selenide (CIGS) compound around a series of tubes until they resemble a row of black, fluorescent lights. Each module is rounded and to catch the maximum amount of light from any direction, so the panels don’t need angled in any way and secured like traditional PV panels.

1 comment:

Joffan said...

Amazingly enough, I have seen arguments that the failure of Solyndra is a rationale to stop giving loan guarantees to nuclear plants (usually under the mistaken impression that many such guarantees have been given).

But the main point - that government loan guarantees are only needed by vulnerable businesses in the first place so the occasional failure is part of the deal - is good. You could almost say that a loan guarantee program with no bankruptcies was a failure - the incentives should have gone to riskier activites.

With regard to Solyndra's name, think "cylinder".