Could Solyndra's Failure turn into Customer Benefits

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The fallout from the Solyndra bankruptcy has turned the entire US DOE loan guarantee program into a political food fight.  The President is wisely silent on the issue, but his Republican rivals are like pigs at the trough over the headline grabbing incident in an effort both to tarnish President Obama as well as score points by being against Federal spending—a two-fer.

The US Department of Energy Loan Guarantee Program has issued $38.6 billion in loan guarantees and says those projects have created 63, 947 jobs.  Let’s see that works out to $603,625 per job created or saved, as the saying goes.  Where do you sign up for one of those jobs?

But underneath the 2012 presidential politics of this what are the real implications for the solar industry and the utilities that are depending upon it to deliver projects needed to meet their renewable portfolio standard targets on time?

  1. US DOE LOAN GUARANTEES ARE A SUPER-COMMITTEE BULLSEYE.  The administration seems to realize that funding for the loan guarantee program has never been in more jeopardy.  When the super-committee needs to cut $1.3 trillion in Federal spending it likely will target programs people don’t like and loan guarantees are tied to the same track as oil and gas subsidies with the train racing toward them.
  2. US DOE WILL RACE TO THE FINISH LINE ON LOAN GUARANTEES. Despite the prospects for funding cuts, DOE still believes in its venture capital role for the clean energy economy so it seems plausible that it will rush approval for as many projects as possible before the September 30, 2011 fiscal year-end deadline. Some estimates are that as many as 15-20 additional projects could be approved, but First Solar announced that its Topaz Solar Farm would not be among them as DOE says it cannot complete the due diligence and processing in time to meet the September 30th deadline. Two solar project loan guarantees were approved last week:
  3. WILL UTILITIES BUY UP PROJECTS AT DISCOUNT PRICES?  Along with the announcement that DOE would not be issuing a loan guarantee for First Solar’s Topaz project the company said it would put the project on the market.  The question is whether a flood of these stranded solar projects will come to market as the risk of loan guarantees rise?  This ‘bubble’ could represent a good buying opportunity for utilities who planned to buy output from the projects to meet their RPS targets and now find short sale prices very attractive.  Will regulators permit it or risk that the projects will fail due to lack of deep pockets funding?  One logical conclusion is that the Solyndra fallout will quicken the consolidation of the solar sector and provide utilities with an opportunity to acquire attractively priced assets, build ratebase, and satisfy regulators they will not backslide on meeting their RPS targets—a three-fer.
  4. EXPECT MERCHANT ENERGY COMPETITION TO INTENSIFY.  Utilities may also face buy side competitors for solar assets if merchant energy companies and private equity team up to go bottom fishing.  A similar thing happened in the aftermath of the Enron meltdown when trading dried up and plenty of assets churned.  This would be a good buying opportunity especially if projects can be picked up in pre-packaged structured bankruptcy proceedings to bleed cost out of them so they have better prospects of profitability.  It also is a good time for players with strong natural gas assets to partner with projects requiring backup in ways that add renewable to their ‘cleaner than coal fossil’ portfolio bragging rights. A strategy of wind and solar companies selling out, pardon the pun, to merchant players with large natural gas portfolios is a practical, safe harbor play that offers both sides a blended position attractive to all.

The Solyndra crisis will be well worth it, if the consequence is to reduce the dependence of renewable energy on unsustainable subsidies, drive down the project costs and quicken the pace toward grid parity prices even if it requires a few big bankruptcies to strip out those cost to clear the market.

And then there is this—-we will try desperately to keep our big mouths shut and not break into a spontaneous chorus of Amazing Grace as the government gets hammered over its profligate spending habits and failed industrial policies of picking winners and losers hoping, against the audacity of hope, that the Solyndra controversy combined with the desperate need to cut spending drives a stake through the heart of such government intrusion into competitive markets—-and that will be the best customer benefit of all.

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