It seems that Uncle Sam’s Mickey Mouse loan deal to the now-bankrupt solar manufacturer Solyndra was not only a bad investment decision, but likely a contributing factor to the company’s implosion.
The new factory built with Department of Energy funds foisted fixed costs on a company already struggling through an industry shake-out, [investors] say. What’s more, the debt paradoxically made raising more money difficult. Once the government demanded priority in the event of failure, private investors were less likely to prop up the company.One Solyndra investor said that, in retrospect, “the worst thing that happened to Solyndra was the loan.”
The loan, it appears, bought a factory that was too large, too expensive, and ill-suited for the market.
The company brought in 3,000 workers to build the factory, but it quickly realized it had far too much capacity. The old factory alone could be outfitted to produce each year panels with power output of 110 megawatts each year. And the new factory would add another 500 megawatts. Yet sales for 2010 ultimately reached only 65 megawatts.“The mindset of the management was if we make it, people will buy it,” said the former executive. But the new factory added heavy fixed costs such as payroll, lease payments, and utility bills. At the same time, projected revenue wasn’t coming in, magnifying the monthly drain of cash, the former executive said.
The orders never came, and the administration suddenly has a lot of explaining to do.Government investment in private companies is always a very tricky game. The problem is that the rationale for government investments are usually very different from that of the private sector. In the private sector, investments are simply made for profit. But in government, where profit (at least in the balance sheet sense) plays second fiddle to policy (or political) objectives, it’s much easier to make bad investment decisions.In contrast to the private sector’s clear-cut search for profits, RAND’s Charles Wolf, Jr. says that the government’s internal processes (“internalities”) are often poorly connected or disconnected from outcomes. Government frequently cares more about how something looks (to key groups of supporters, to the press) than about what it does.With Solyndra, because profitability was not the highest priority, the coup for Washington was the investment itself. But it was no coup: it was a catastrophe for the White House as well as for the workers who suddenly lost jobs they thought were secure. With front page stories in the major media, the Solyndra debacle is quickly turning into the Bay of Pigs for the “green jobs” myth.One clue that would have tipped anybody but a clueless green off to the problems with Solyndra early on: many of the “private” backers of the company weren’t in it for the money, either. Philanthropically motivated green venture funds were backing a company that attracted little interest from hard nosed, bean counting for-profit types.In any case, this is the story line the administration is left with, even if the allegations linking the administration’s interest in the project with a big campaign donor fade away: Overzealous and amateurish green bureaucrats wrecked a green start up in their haste to throw money at it, spending stimulus funds to kill what might otherwise have been viable jobs.Solyndra: one of the most beautiful words in the English language — to the GOP.