Three years ago, venture capitalists were pouring billions of dollars into technologies like solar power, wind power, biofuels and fuel cells. The federal government followed, directing some $44.5 billion into clean technology from late 2009 to late 2011 through loans, subsidies and tax incentives.
But now the clean-tech industry is facing leaner times, in part due to cheaper natural gas prices, the effects of the financial crisis and China’s growing solar industry.
On Thursday’s Fresh Air, Washington Post environmental correspondent Juliet Eilperin, who covers the industry’s struggles in Wired‘s February issue, explains how and why the clean-tech industry boom hit a wall.
That wasn’t supposed to happen, she says. In 2008, venture capitalists invested more than $4 billion in clean energies like solar and wind power, according to the National Venture Capital Association. But then the natural gas boom helped decrease natural gas prices, lowering the incentive to switch to renewable energies. At the same time, the price of silicon — an important component in both semiconductors and solar panels — dropped after China heavily entered the market. This, too, made alternative energy sources less desirable.
Those affected included the now-bankrupt solar energy company Solyndra. Solyndra’s initial goal, says Eilperin, was to develop a solar panel that didn’t rely on silicon — a business plan developed at a time when the price of silicon was skyrocketing upwards.
“People thought, ‘We’ve got to come up with an alternative source of solar energy, we have to figure out another way that’s not reliant on silicon in order to make a price,’” Eilperin tells Fresh Air’s Terry Gross. “That’s when you saw entrepreneurs like Chris Gronet, the engineer behind Solyndra, look for a very different model in order to move away from [silicon,] what had been the rock of the solar industry in this country for several decades.”
The Financial Collapse
But just as Solyndra was taking off, the financial industry collapsed and venture capitalists began looking elsewhere with their investments.
“You saw significant drop-off after the recession hit, in the fall of 2008,” says Eilperin. “Really, it was the Obama administration’s influx of money, which started coming out with the stimulus package in 2009 — that … prevented the clean-tech industry from cratering in the U.S., because you saw such a retrenchment within the venture capitalist community.”
Eilperin says the Obama administration was trying to help compensate for the venture capitalists that pulled out of the solar industry, and also trying to deliver on its promise to address the issue of climate change.
“They found that it was easier to direct dollars to federal energy projects than it was to pass national limits on greenhouse gases, which could have been another way that would have made the clean-tech industry competitive,” she says. “But they were obviously also closely in contact with Silicon Valley entrepreneurs and saw what was happening. … you just had a collapse of the financial markets … and [they saw that] everyone was suffering from a lack of cash.”
One of the companies to benefit from the government was Solyndra, which had a loan application pending when President Obama took office. The company received a $528 million federal loan guarantee in September of 2009 from the administration.
“It was their signature deal and it was the first deal that they struck under the federal loan guarantee program,” she says. “And that’s why it became so important politically as well as just psychologically. It was a defining technology bet for the administration, not just for [Solyndra.]“
Building A ‘Dud’
But Solyndra didn’t realize, says Eilperin, that dropping silicon prices were making their alternative solar project what she calls “a dud.”
“They didn’t see, when they were doing the groundbreaking, that things were doomed,” she says. “But they did become concerned by the fall of 2010. They had to abandon plans for a $300 million public offering. They had another loan application to the federal government in the pipeline which was withdrawn. So they became very concerned because they had an expensive machine that was responsible for producing [the alternative solar energy cylinder] and the machine just wasn’t pulling its weight. It wasn’t working. And at that point, they were very concerned about the viability of their company.”
On Capitol Hill and in public meetings, the company continued to exude confidence, she says. But some administration officials began to grow concerned. Emails obtained as part of a congressional hearing indicate that federal officials were worried that a visit by President Obama to the company’s Freemont, Calif., headquarters could be “embarrassing in the not too distant future.” The company declared bankruptcy in August of 2011, not long after an internal White House memo obtained by The Washington Post revealed that it had no profit gains between 2009 and 2011.
Targeting Obama’s Energy Loans
Solyndra now features prominently in a new $500,000 ad campaign created by Crossroads GPS, a conservative advocacy organization founded by Karl Rove. The ad calls the Solyndra loan “an insider deal.”
Eilperin says whether the Solyndra loan was an insider deal is “a complicated question.”
“There’s certainly not the clear evidence of cronyism that some might suggest,” she says. “For example, there are initial investors in Solyndra such as … venture capitalist firm RockPort Capital … who did meet with top advisers at the White House and did talk up Solyndra. But there hasn’t been the kind of smoking-gun memo to imply that the Obama administration was interested in backing Solyndra to, for example, repay campaign contributors.
“That said, there’s no question that the White House put pressure on the Office of Management and Budget as well as the Department of Energy to push this loan through quickly, and they did ignore some of the advice. … Whether the connections can be spelled out as clearly as Obama’s opponents want [them] to be, that’s something that we’re going see in the months to come.”
Regardless of the outcome, Eilperin says the Solyndra bankruptcy has made it much more difficult for the federal government to invest in the clean energy sector.
“There is no question about that,” she says. “This loan guarantee program has been exhausted, the money has run out and no one is talking about reviving it.”
That outcome, she says, has made opponents of clean energy quite happy.
“The oil and gas industries have benefited for many years and decades from federal assistance,” she says. “And there is no question that they celebrate the demise of solar. … [The fossil fuel industries] have tax credits that are permanent. … There is no question, that when it comes to federal support, traditional fossil fuel energy gets more support than the renewable energy industry.”