Solyndra Fallout Continues

It's the rule of unintended consequences. You do something with the best of intentions in one area, and it screws things up elsewhere.

That's exactly what appears to be happening with the Department of Energy's (DOE) loan guarantee program and the projects that are now being affected by Solyndra's demise. As executives and DOE officials are marched in front of members of Congress, less risky projects that could provide jobs at relatively little risk to the government are put in jeopardy.

Last week it was First Solar's (Nasdaq: FSLR  ) 550 MW Topaz PV Farm, which missed a deadline with the DOE because there wasn't enough time to complete the paperwork. Now word has come down that SolarCity's $275 million loan guarantee to install 371 MW of solar on 160,000 rooftops won't be approved in time because of the Solyndra investigation.

Even though the risks of Solyndra's guarantee and the First Solar and SolarCity guarantees are very different, the powers that be don't seem to care.

Risk vs. reward
It's important to make a distinction between high-risk guarantees like Solyndra (which this Fool thinks are a terrible idea) and low-risk guarantees of solar developments. Guaranteeing a manufacturer's investment in essence makes you a debtholder of a manufacturer with lots of risk and very little reward. In a high-technology space like solar, and especially in the very unproven technology Solyndra was using, this risk is very high.

But if the government is guaranteeing a large solar development, the story is different. The government has required 20% equity funding and will guarantee only 80% of the debt. For a solar installation, which can be modeled to predict cash flows within a relatively tight tolerance, the risk of losing money is very low.

But that hasn't stopped the witch-hunt from lumping all solar into the "high risk" category.

Manufacturer fallout
This puts manufacturers in a tenuous position. First Solar and SunPower (Nasdaq: SPWRA  ) have been counting on loan guarantees to secure funding for giant solar projects in the Southwestern United States. If they fall through, borrowing costs could go up, putting these projects in question.

If these projects aren't built in the United States, that puts a dent in the worldwide demand for solar modules. That affects everyone from low-cost producer Trina Solar (NYSE: TSL  ) to wafer and cell producers like LDK Solar (NYSE: LDK  ) and JA Solar (Nasdaq: JASO  ) .

Foolish bottom line
I'm not questioning that a mistake was made with Solyndra. In fact, it was a comedy of errors by the DOE and Solyndra's executive and investors. But the DOE's program needs to be viewed as a portfolio, and the overall impact should be considered. Letting low-risk projects die that could not only provide jobs but also help solar bridge the gap to a more cost-competitive future would be a mistake. And grandstanding isn't helping anyone at this point.

What do you think about the government's handling of Solyndra and its bankruptcy? Sound off in the comments section below.

Fool contributor Travis Hoium owns shares of SunPower, First Solar, and LDK Solar. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of First Solar. Motley Fool newsletter services have recommended buying shares of First Solar. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (4) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2011, at 10:12 AM, TheRealKingMax wrote:

    Funding will be blocked until after the 2012 election. The GOP has no intention of doing anything that might help job creation or the economy because it might help Obama.

    GOP motto: party first, country second (if convenient).

  • Report this Comment On September 28, 2011, at 10:16 AM, MToffgrid wrote:

    As a 20 year veteran of the Renewable Energy industry, I can tell all that if anyone asked me about this technology and company, I would have told them it was a bad idea and bad investment. Glass tubes with deposited thin film is a recipe for inefficiency and waste. At $6 a watt vs $1 a watt for standard crystaline formats, this was doomed. There are a number of technical flaws in this product and design, but from what I could see-this was a true ponzi scheme-they build a huge building, spend scads of money on very large flat screens they did not need-all to be showy and impressive-that is the mark of a fraud in progress. No real viable technology would be this showy or try and start at the top. Just a bunch of speculators taking advantage of taxpayer money which is what a lot of these folks seem to do now. I would say that over 50% of the solar and wind projects are over-blown and will never meet their projected output targets with very high maintenance costs bringing their connected grid cost to over $10 a watt. Just Smoke and mirrors.

  • Report this Comment On September 29, 2011, at 3:55 PM, Chippy55 wrote:

    Get the special prosecutor ready, start with Solyndra, impeach Obama, the go to the illegal war in Libya, impeach Obama, then continue to Operation Fast And Furious, impeach Obama. Throw the bums out of Congress (81% disapproval rating) just like those 65 Liberal Democrats who have lost their jobs. Oh, and then start investigating the ex-Speaker who's relative got money the old fashioned way - by knowing her. Then start over, and if a company wants to start a solar business, go find some investors (not the taxpayer, we've had enough of these shenanigans) sell some stock, get a loan, do anything you darn well please, and once you realize that it take 2 decades to get a return on your investment you'll stop with the pie in the sky nonsense.

  • Report this Comment On September 30, 2011, at 10:47 AM, IBJAMMIN wrote:

    Since when is technology a political issue. It's just stupid. Republicans are supposed to hate alternative energy and energy efficiency. Why? I suppose it's related to ignoring science and not 'believing' in Global Warming. Huh? why is science a political issue? Insanity (rhymes with Hanity). Read the article about how electricity cast is falling in Germany because they made a real push to install solar and wind energy. They have closed 7 nuclear power plants and electricity prices are still falling. Germany is a net exporter of electrical energy. The US is falling behind the rest of the world because of the stupid politicization of these issues.

    The first comment is right on target. The solar detractors that follow are either stupid or coal company shills or both.

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