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Gloria Gonzalez

Gloria Gonzalez

Gloria is a writer for Environmental Finance.Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance, investment…

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Chu Defends Solyndra Loan Guarantee in Five-Hour Testimony

The US Department of Energy (DOE) did not break the law when it restructured a loan guarantee for now bankrupt solar panel manufacturer Solyndra, Secretary of Energy Stephen Chu said, even though he acknowledged the US government is unlikely to recover much of its investment in the failed company.

Chu testified for nearly five hours during a contentious Congressional hearing about the department’s decision to issue the $535 million loan guarantee. Some Republican legislators contended the guarantee was made for political reasons and on behalf of George Kaiser, a major donor to President Barack Obama’s campaign who was an equity investor in the company, which Chu repeatedly denied.

“I want to be clear: over the course of Solyndra’s loan guarantee, I did not make any decision based on political considerations,” he said.

The loan guarantee to Solyndra went through more than two years of rigorous scrutiny and healthy debate, Chu asserted.

But the company faced unexpectedly deteriorating market conditions, namely an expansion of solar photovoltaic (PV) production at the same time as demand was softening due to the global economic downturn and the reduction of subsidies in countries including Spain, Italy and Germany. This led to a 70% drop in the price of solar cells over a three-year period.

The secretary said it was a “difficult choice” to later restructure the loan guarantee. This allowed some private investors to move ahead of the government to recover funds in the event of a default, so that Solyndra could receive $75 million in emergency financing. The DOE could have either forced the company into immediate bankruptcy, which meant 100% certainty of default with an unfinished factory as collateral, or allow Solyndra to accept emergency financing that would be paid back first, he said. 

“Once the factory was complete, Solyndra would have a fighting chance at continuing or it could offer that factory sale as a whole unit,” Chu said, meaning there was hope of recouping the taxpayer’s money.

Nearly $1 billion of original equity investment from Solyndra’s investors remains subordinate to the debt owed to the government, but “I’m anticipating that not very much” of the government’s investment will be recovered, Chu acknowledged.

Several Republican legislators argued that the DOE’s decision violated the language of the 2005 law creating the loan guarantee programme.

“I believe that the Solyndra loan restructuring programme was in violation of this law and your department did not follow the plain language of the law, because ‘the obligation shall not be subordinate to other financing’,” said Joe Barton (R-Texas).

“We believe there was no violation of the law,” Chu responded.

Chu repeatedly refused to apologise for approving the loan guarantee or its restructuring.

“It is extremely unfortunate what has happened to Solyndra, but if you go back and look at the time the decisions being made, was there incompetence, was there any influence of a political nature, I would have to say no,” he said.

Congress appropriated nearly $10 billion to cover potential losses in the DOE’s total loan portfolio, acknowledging the inherent risks of funding new and innovative technologies and ensuring that these loans were properly accounted for in the budget, Chu noted.

The failure of Solyndra should not discourage the US government from investing in the clean energy sector, Chu said. Global clean energy investments reached a record $243 billion last year, with solar PV systems representing a global market worth more than $80 billion, he said. In the past year and half, the China Development Bank has offered more than $34 billion in credit lines to China’s solar companies, Chu said.

“When it comes to the clean energy race, America faces a simple choice: compete or accept defeat,” he said. “I believe we can and must compete.” 

By. Gloria Gonzalez

Source: Environmental-Finance

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