DOE report finds Solyndra gave "false and misleading" info

The Department of Energy's Office of Inspector General has released a special report finding that failed solar panel maker Solyndra, Inc. provided the Department with inaccurate and misleading information during the application process for a $535 million loan guarantee.  The report summarizes the results of a 4-year investigation into what went wrong with the Solyndra matter, and what lessons the Department can learn as it proceeds to exercise its authority to grant an additional $40 billion in loan guarantees.

In 2005, Congress established a federal loan guarantee program for eligible energy projects that employed innovative technologies. Title XVII of the Energy Policy Act of 2005 authorized the Secretary of Energy to make loan guarantees for a variety of types of projects, including those that “avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.”

The Department of Energy loan guarantee program was expanded by the American Recovery and Reinvestment Act of 2009, which added billions of dollars of new authority to support renewable energy, electric transmission, and advanced biofuels projects.  The Department's Loan ProgramsOffice has supported a portfolio of more than $30 billion in loans, loan guarantees, and commitments covering more than 30 projects across the United States.

The Department made its first award under this program in September 2009, approving a $535 million loan guarantee to a company called Solyndra, Inc.  Solyndra said it would build a solar photovoltaic equipment manufacturing facility in Fremont, California.  The Energy Department disbursed over $500 million to Solyndra through the program.  But just two years later, Solyndra showed signs of failure, as it ultimately stopped operations and manufacturing, let 1,100 employees go, and filed for bankruptcy.  U.S taxpayers lost over $500 million.

The Solyndra matter drew significant public attention, with even the Department calling it an "ordeal" and many labeling it a scandal.  What went wrong?  Should the government have guaranteed Solyndra's loans?  Was the loan guarantee program flawed?  Or was it acceptable bad luck that the first awardee failed?

Since 2011, the Department of Energy's Office of Inspector General has investigated the Solyndra matter.  Its special report released August 24, 2015, describes the Inspector General's findings:

Our investigation confirmed that during the loan guarantee application process and while drawing down loan proceeds, Solyndra provided the Department with statements, assertions , and certifications that were inaccurate and misleading , misrepresented known facts , and, in some instances, omitted information that was highly relevant to key decisions in the process to award and execute the $535 million loan guarantee. In our view, the investigative record suggests that the actions of certain Solyndra officials were, at best, reckless and irresponsible or, at worst, an orchestrated effort to knowingly and intentionally deceive and mislead the Department.

In particular, the report identified "notable misrepresentations and omissions made to the Department by Solyndra" relating to Solyndra's sales contract commitments and ability to command a premium market price for its panels.  The report suggests this false and misleading information led the Department to approve the loan guarantee, when it might not have done so with the right information.  The report found that Solyndra failed to meet contractual obligations from the loan guarantee documents relating to truth and full disclosure.

The Inspector General's special report also found that the Energy Department's due diligence efforts were "less than fully effective", with missed opportunities to detect and resolve indicators that portions of the data provided by Solyndra were unreliable.  Nevertheless, the report concludes that ultimate blame should fall on the company: "the actions of the Solyndra officials were at the heart of this matter, and they effectively undermined the Department’s efforts to manage the loan guarantee process. In so doing, they placed more than $500 million in U.S. taxpayers’ funds in jeopardy."

The Department of Energy continues to offer loan guarantees for a variety of technologies and projects.  The report suggests that the Department strengthen its due diligence process, and reemphasize to loan applicants their absolute obligation to be truthful, complete, timely and transparent.

POET ethanol plant declines DOE loan guarantee

Cellulosic ethanol producer POET LLC has declined a $105 million federal loan guarantee for its planned "Project LIBERTY" facility in Emmetsburg, Iowa, instead turning to private funding from Dutch company Royal DSM NV.  This choice has implications both for energy policy and for the biofuels industry.

Last year brought an end to a US Department of Energy program to help fund innovative energy projects with loan guarantees.  Before it ended in September 2011, DOE's Section 1705 loan guarantee program backstopped a total of $16 billion in loans for 28 projects ranging from nuclear power to solar, wind to transmission, biofuels to energy efficiency.  Questions about the value and implementation of the loan program grew after the recipient of the first loan guarantee, solar panel maker Solyndra LLC, failed and went bankrupt.

Before the Section 1705 loan program ended, POET was awarded a guarantee for $105 million.  POET is developing the Project LIBERTY plant, which aims to use cutting-edge enzymatic hydrolysis to produce fermentable sugars from corn crop waste, and then to use special yeasts to transform the sugar into usable ethanol.  By 2013, the plant could be producing up to 25 million gallons per year.

This week POET announced that it was declining the DOE loan guarantee.  Instead, POET will partner with Royal DSM, a private business that grew out of a former Dutch national coal-mining company.  Together, the companies will invest up to $250 million in initial capital expenditures for Project LIBERTY.

What does POET's choice mean?  For POET, the terms of the joint venture with Royal DSM are presumably more favorable than the alternative.  Royal DSM's money is likely what made it most attractive to POET, but its experience and markets may have also played a role.

For Iowa, any financial arrangement that realizes $250 million in capital investments in the state is likely to be greeted with open arms.

For other ethanol producers, the deal may signal increased interest in ethanol from the investment community.  The  U.S. Environmental Protection Agency estimates that its renewable fuels standards will require 16 billion gallons of advanced cellulosic biofuel per year by 2022; using the Project LIBERTY plant as a model, this could mean up to 400 new biorefineries will be built by 2022 to meet these standards.  By extension, other recipients of DOE loan guarantees may similarly partner with private-sector entities to complete project financing.