US: Scandal 'Abounds' in Obama administration

On the back of Abound’s bankruptcy announcement, the U.S. House Committee on Oversight and Government Reform has held a hearing, during which former executives testified. While the process has been branded an "Obama bashing" exercise by some, it was reported that the aggressive price cutting from Chinese manufacturers played a pivotal role in Abound’s demise.

On July 18, nearly three weeks to the day after Abound Solar announced it would file for protection under the U.S. Bankruptcy Code, the Republican-dominated House Committee on Oversight and Government Reform held a hearing to determine whether the firm’s "rags to riches to ruins" narrative would create more reservations about the Obama Administration’s green energy investment choices and oversight procedures. They were looking for another Solyndra – and there were some obvious similarities.

During the three hour hearing, which the Examiner described as more about "bashing Obama and creating an excuse to eliminate renewable energy programs this year" than oversight, witness after witness testified that a number of convergent factors in the global solar industry – including falling costs, government subsidy cutbacks and Chinese competition – have combined to turn 2012 into a tough year for manufacturing in the United States, and not just for startups.

"We never expected [module] prices to fall that fast, and so far," said Craig Witsoe, former CEO of Abound Solar, at the three-hour hearing. Referring to the U.S. Commerce Department’s anti-dumping (AD) and countervailing duty (CVD) complaints against China’s solar manufacturers, and the punitive imposition of tariffs on those goods, he commented, "Abound supports recent initiatives to enforce fair trade with import tariffs, but this action is unfortunately too late for the company."

Thomas Tiller, Abound's former chairman, agreed, adding, "Abound’s technology and business made solid progress until the second half of 2011, when panel prices dropped by 50 percent in a year, due to aggressive price-cutting from Chinese competitors using older crystalline-silicon technology. With over US$30 billion in reported government subsidies, Chinese panel makers were able to sell below cost and put Abound out of business before we were big enough to pose a real competitive threat to China’s rapidly growing market share."

Prior to the hearing, Representative Cliff Stearns (R-Florida), the chairman of the House Energy and Commerce Committee’s oversight panel, which has held several hearings and collected thousands of administration emails relating to Solyndra’s Department of Energy loan guarantee, said he didn’t think Abound’s closure warranted its own investigation. "We know why they went bankrupt. We warned them they would go bankrupt," Stearns told reporters. "The larger question is why the Administration was pursuing a green-energy policy in which companies are going bankrupt and wasting taxpayer money."

"Incompetence, carelessness and cronyism"

While the competitive issues in the industry were clear during an election year, the Republicans on the committee wanted to ensure that the buck stopped where they thought it should – at the Oval Office. The Chairman of the House Oversight and Government Reform Committee, Representative Darrell Issa (R-California), went on the offensive, hitting the Obama Administration with accusations of causing what he characterized as a "scandal".

Issa stated, "After Solyndra went bankrupt … major questions arose about the nature of the decision-making process at the Department of Energy and how safe American taxpayers were in light of the risk associated with the decisions made by political appointees at the department. It is becoming abundantly clear that billions of dollars of the public’s money were put at undue risk.

"The investigation has revealed a pattern of incompetence, carelessness, and cronyism at Obama’s Department of Energy. The DOE Inspector General has testified that the money given to the department via the stimulus was akin to attaching a garden hose to a fire hydrant. The DOE was flooded with cash and did not have the infrastructure to spend it in a sound fashion." (See video)

However, Representative Dennis Kucinich (D-Ohio), questioned Issa’s use of the word scandal, suggesting that an inquiry should be completed before accusations are made, not the other way around. Ranking Member Representative Elijah Cummings (D-Maryland), agreed, characterizing the Abound Solar investigation as “an alleged conspiracy in search of the facts.”

Lower risks

Cummings positioned the Democrats for a strong defense. "Today," he said, "we will hear from an industry expert who will explain why, despite the failure of some projects like Abound, the risks in the department's loan guarantee program are substantially lower than Congress expected when it created the program."

Jonathan Silver, former executive director of the DOE Loan Programs Office, who resigned shortly after the Solyndra bankruptcy, said, "On the whole, this is a successful portfolio … The funds represented by investments that have failed represent less than three percent of the total portfolio. This is a record the private sector would consider remarkable, but it is particularly impressive for a portfolio of technologically innovative projects being built at commercial scale for the first time anywhere. The expected loss on the Abound transaction, which we are here to discuss today, represents less than four one-thousandths of one percent of the total financings."

Noting that, "The Department takes our responsibility to U.S. taxpayers seriously and… strives to be an active manager – continuously monitoring projects, their market environments, and other identified risks to seize all opportunities to minimize exposure to loss," David G. Frantz, acting executive director of the Loan Programs Office, went on to remind the committee of the reasons for greentech investments.

Taking his cue from President Obama’s stump speeches, Frantz said, "Securing America’s economic leadership in the future requires that we support innovation and deployment today. The troubles of some segments in the solar manufacturing market should not overshadow the great work that the department’s loan programs have done to date, or the need to continue to find ways to support clean energy deployment in this country."

Cautionary move

In 2010, Abound Solar was awarded a $400 million Department of Energy (DOE) loan guarantee to build two factories to make thin film panels using cadmium telluride (CdTe). It completed one plant, in Longmont, Colorado, and never began construction on the second, which was planned for Tipton, Indiana.

The company obtained $300 million in private investment, and $70 million from the DOE loan guarantee program, before it was cut off by the federal agency in a cautionary move. The loan guarantee was structured so that Abound had to meet certain targets and, when it failed to do so, it was prohibited from receiving additional payments. The solar firm last received money from the Energy Department in August 2011, before Solyndra’s collapse on September 1. Thus, its total government take was not peanuts – but, in context, not a prolific amount.

And, as aforementioned, a number of solar companies, both established and in the start-up phase, and in the U.S. and globally, have fallen on tough times recently.

Just days after the Abound Solar failure, GE Solar, a well-funded company, announced that it had stopped construction on what would have been the largest solar factory in the United States, a CdTe thin film solar plant planned for Aurora, Colorado. Plans for the 400 MW factory had been announced after GE purchased Primestar Solar in April 2011. Now, the project will be delayed for at least 18 months, according to company spokesmen. Following a 50 percent drop in module prices, GE has returned to the lab to develop an improved CdTE product that can compete more successfully against such contenders as First Solar.

Meanwhile, Tempe, Arizona-based First Solar, ranked among the top ten producers worldwide last year, is experiencing its own difficulties. The U.S.-based thin film manufacturer posted a non-GAAP loss for the first quarter (Q1) of 2012 of US$449 million or US$5.20 per share. It is further closing its manufacturing facilities down in Germany’s Frankfurt (Oder).

And just yesterday, it was announced that U.S.-based concentrated photovoltaic (CPV) company, Amonix has closed its manufacturing plant down in North Las Vegas. The company was said to have been subsidized by more than US$20 million in federal tax credits and grants.

Among the factors contributing to the bankruptcies, consolidations, and management changes in the United States (as well as in Europe) this year are:
Competition from China, which has been accused of both dumping its products on U.S. shores at below-market prices and opening the floodgates on an oversupply of modules;
The decline in the cost of a key solar component, polysilicon, which has put even more pressure on manufacturers to cut their margins; and
Cutbacks in the availability of government subsidies.

The solar industry response

Rhone Resch, president and CEO of the Solar Energy Industries Association urged the U.S. not to abandon its solar sector, particularly given the amount of jobs that have been created over the past two years. "The closure of any American factory is troubling," he said. "However, it is important to remember that the U.S. solar industry is a bright spot in an otherwise sluggish economy. Over 100,000 Americans have jobs in solar, more than double the amount from two years ago. Costs of solar products to consumers continue to drop, while the deployment of solar systems across the U.S. increased by 85 percent over the last year."

He went on to refer to the history of solar in the U.S, and to underpin the future the industry could enjoy in the country: "We hope as the subcommittee conducts its oversight, they take an even-handed approach and do not kill a program that is delivering results… America invented solar technology, and I have every conviction that our companies can and will continue to thrive in the global marketplace. It would be short-sighted to cede this ground to our competitors in Asia and Europe and let a $10 billion, high-tech industry slip away as the U.S. did with flat screen televisions. Let’s keep the leadership, the jobs, and the industry here in America."