U.S. Expects $5 Billion From Program That Funded Solyndra

The U.S. government expects to earn $5 billion to $6 billion from the renewable-energy loan program that funded flops including Solyndra LLC, supporting President Barack Obama’s decision to back low-carbon technologies.

The Department of Energy has disbursed about half of $32.4 billion allocated to spur innovation, and the expected return will be detailed in a report due to be released as soon as tomorrow, according to an official who helped put together the data.

The results contradict the widely held view that the U.S. has wasted taxpayer money funding failures including Solyndra, which closed its doors in 2011 after receiving $528 million in government backing. That adds to Obama’s credibility as he seeks to make climate change a bigger priority after announcing a historic emissions deal with China.

A $5 billion return to taxpayers exceeds the returns from many venture capital and private equity investments in clean energy, said Michael Morosi, an analyst at Jetstream Capital LLC, which invests in renewable energy.

“People make a big deal about Solyndra and everything, but there’s a lot of VC capital that got torched right alongside the DOE capital,” Morosi said. “A positive return over 20 years in cleantech? That’s not a bad outcome.”

Congresswoman Marsha Blackburn, a Tennessee Republican, said that while the loan program may be well intended, “what we have seen is incredible mismanagement, and it’s become the poster child for crony capitalism.”

Taxpayer Losses

“Taxpayers want us to completely end the program,” she said in a telephone interview Nov. 11. “When you look at what’s happened with solar, some of the battery companies, you see that most of these companies are bankrupt and are no longer in existence, and the taxpayer is left holding the bag.”

Blackburn said she’d prefer a tax-credit-based incentive system to loans or grants.

The potential gains are the first estimate for the loan guarantee program released by the Energy Department. The $5 billion to $6 billion figure was calculated based on the average rates and expected returns of funds dispersed so far, paid back over 20 to 25 years.

The agency’s goal is to fund clean-energy projects that banks and other investors have been reluctant to support, and any additional profits are simply a bonus, said Peter Davidson, the program’s director. Project applicants typically view the Energy Department as a lender of last resort.

“When these project developers took their projects to conventional financing sources, those lenders said, ‘Sorry, there’s too much risk here.’ That’s the gap that we’ve filled,” Davidson said in a phone interview.

Four Failures

The failure of four companies has cost about $780 million. Solyndra burned through $528 million of a $535 million loan guarantee before filing a bankruptcy plan approved in October 2012. The California-based solar manufacturer went bust pursuing an alternate photovoltaic technology that became too expensive as panel prices plunged worldwide.

The electric carmaker Fisker Automotive Inc. filed for bankruptcy in November 2013. Abound Solar Inc. and Vehicle Production Group LLC failed in 2012.

The Energy Department didn’t disclose terms for investments in specific companies, and it declined to estimate how much the rest of its portfolio may earn.

“There’s no picking winners and losers -- we’re just open for business and people apply,” Davidson said.

Loan Rates

Loans for individual companies, many pursuing breakthroughs in solar, wind and geothermal energy, typically were issued or guaranteed at about 37 basis points above Treasuries at time of issuance. Those rates may increase to T-bills plus 50 to 150 basis points as more loan guarantees become loans, the department said.

The department currently is finalizing requests for bids on nuclear power projects and considering ones linked to energy-efficiency projects and advanced fuels.

Supporters of the loan program say it has filled a gap in the market that emerged with the recession. Private financing, especially tax equity, dried up after markets crashed in 2008, leaving open the need for federal funding, said Joe Aldy, who worked in the White House as a special assistant to the president for energy and environment from 2009 to 2010.

“We had conversations on, ‘Look, we could have a much higher fail rate if you can show us one or two wins,’” said Aldy, who is now an assistant professor at the Harvard Kennedy School. “The people in the VC world who made a lot of money with IT and Internet companies -- they made their money on the EBays and the Googles and the Facebooks. They lost money on a lot of other things.”

Biggest Success

The program’s biggest success story has been Tesla Motors Inc. The Elon Musk-backed electric carmaker paid back its $465 million federal loan nine years early. Abengoa SA, which received a $132.4 million guarantee, opened in October a biofuels plant in Kansas.

The government’s loan guarantees are comparable to insurance, Aldy said.

“The whole point of insurance is that there should be claims against the insurance,” he said. “If we only go after projects we know are going to succeed, all we’re doing is subsidizing people for what they’d do anyway.”

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