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.

Energy Department offers $4 billion loan guarantee program for renewable energy and efficiency projects

The U.S. Department of Energy has announced a $4 billion loan guarantee program for renewable energy and energy efficiency projects.

The Renewable Energy and Efficient Energy Projects Loan Guarantee program is intended to support the first commercial-scale deployments of the next wave of innovative clean energy technologies. Through the program, the Energy Department solicits applications for loan guarantees.  When a successful applicant borrows money for project finance from a commercial bank, the federal government promises to assume the borrower's debt obligation if that borrower defaults.  This guarantee serves as a credit backstop for the borrower, ultimately reducing its cost of financing because the lender knows it has resort to federal funds if the borrower cannot repay the loan.

The current program follows a series of previous Energy Department loan guarantee programs.  These programs have helped finance projects including the NRG Solar, LLC's 290-megawatt Agua Caliente solar photovoltaic array (the world's largest), NRG Energy, Inc.'s 392-megwatt Brightsource concentrating solar power (CSP) plant (also the world's largest), the 845-megawatt Caithness Shepherds Flat wind project, and Abengoa Bioenergy Biomass of Kansas LLC's cellulosic ethanol plant.  While not all of the previous programs' awardees have been successful -- for example, failed solar panel maker Solyndra -- the Department touts the programs as aligned with President Obama's Climate Action Plan, by supporting investment in domestic energy resources and reductions in greenhouse gas emissions.

To be eligible for the present solicitation (48-page PDF), a project must be located in the United States and meet both of the following criteria:

1. Use renewable energy systems; efficient electrical generation, transmission, and distribution technologies; or efficient end-use energy technologies; and

2. Meet both of the following requirements : a) Avoid, reduce, or sequester anthropogenic emission of greenhouse gases; and b) employ new or significantly improved technology as compared to commercial technology in service in the United States. 

Beyond these general criteria, the Energy Department's Loan Programs Office has identified five target areas for awards:

• Advanced Grid Integration and Storage: mitigating issues related to variability, dispatchability, congestion, and control of renewable energy systems by incorporating technologies such as demand response or local storage, enabling enhanced integration of renewable energy into the grid.
• Drop-In Biofuels: developing biofuels that are more compatible with today’s engines, delivery infrastructure and refueling station equipment, enabling nearly identical bio-based substitutes for crude oil, gasoline, diesel fuel, and jet fuel. 
• Waste-to-Energy: projects using waste materials which are otherwise discarded, such as landfill methane and segregated waste, as energy sources.
• Enhancement of Existing Facilities: incorporating renewable generation technology into existing renewable energy and efficient energy facilities to significantly enhance performance or extend the lifetime of the generating asset. 
• Efficiency Improvements: projects incorporating new or improved technologies to further improve on energy efficiency that would substantially reduce greenhouse gases. 

Under the solicitation, the first round of application materials is due on October 1, 2014.  For more information on the opportunity, contact the Energy Department, or consult a professional experienced with financing and developing energy projects.

The Preti Flaherty team advises our clients on all aspects of energy project development, including the pursuit of federal funding and financial support. For more information, please contact Todd Griset at 207-623-5300.