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Solyndra, The Fifth Amendment and The Threat to the US Utility PV Pipeline

If there had ever been any doubt, it is now clear that the result of the Solyndra debacle has been to heavily politicize the government’s clean energy loan guarantee program and any other measures remotely connected with the support of clean energy.

From that point of view, just about the most disconcerting headline that clean energy advocates could be faced with was associated with a report by The Hill late Wednesday night –

“Solyndra Executives To Plead The Fifth At Hearing”

The hearing in question was of course called by the House Energy and Commerce subcommittee on Oversight and Investigations. And the reaction by the committee’s senior ranking members was fairly forthright:

“Who exactly are Solyndra’s executives trying to protect and what are they trying to hide?” full committee Chairman Fred Upton (R-Mich.) and Oversight and Investigations subcommittee Chairman Cliff Stearns (R-Fla.) said in a joint statement.

“We would encourage Mr. Harrison and Mr. Stover to reconsider this effort to dodge questions under oath and hide the truth from those American taxpayers who are now on the hook for their $500 million bust,” they said.

I have no desire in the context of this article to discuss the politics behind all of this. My sole point is that clean energy investors now have no option but to recognize that the heavy politicization of this arena can only have one affect – that is, that until the 2012 election is behind us, this politicization process is going to have a dramatic affect on the financing pipeline for clean energy projects in the US. Exactly how bad this will be we are yet to discover. However, the market will no doubt have to price in the uncertainty. And in general, the fear factor leads markets to react to political uncertainty by pricing in an excessively negative risk premium.

Recent experience with regard to the ‘negotiations’ over the budget deficit should have made this more than clear.

For the solar industry this is a particularly pressing issue. As government deficits and reduced tariff levels have resulted in a dramatic fall in demand for solar out of Europe, there have been seen to be roughly three important alternative sources of new demand:

  • The US – and particularly the US Utility-scale sector, which currently has a massive pipeline 
  • Japan – with the prospect of major Utility-scale projects as a result of the country’s new Renewable Energy Bill 
  • China – with the country’s belated focus on domestic solar power generation via the introduction of a feed-in tariff. The 1-2 GW per annum which may result from this is, however, dwarfed by the increase in supply being built out by the country’s solar module manufacturers. 

From this perspective, the promise in the US Utility-scale PV pipeline is critical to the health of the solar industry going forward. To put this in perspective, data from SolarBuzz shows that the US Utility-scale pipeline grew to stand at a full 24 GW in September, up from only 17 GW two months previously. This number relates to all non-residential PV – ie both Utility-scale and commercial. However, the majority of the projects relate to Utility-scale.

The glaring issue is that there has been and continues to be a financing gap for projects of this scale and the DoE’s loan guarantee program has been essential in seeing many of these projects move forward.

The threat to the Utility-scale pipeline is therefore two-fold: 

  • The Section 1603 Treasury Program, which has been critical in ensuring the financing of many of these Utility-scale projects, is set to expire at the end of this year. The extension of the program now looks set to become a major election issue. Not a good sign. 
  • In the short-term, there are around 14 new loan guarantees, nine of which are for solar projects, looking to be finalized by the DoE by the end of the month. Again, the final approval of these loan guarantees is likely to become heavily politicized in the current environment. 

In relation to the later point, the House Committee on Energy and Commerce already appears to have raised questions concerning these upcoming loan guarantee approvals in a letter to Energy Secretary Steven Chu.

In particular, the loan guarantees at issue are reported to include $4.38bn in loan guarantees related to three solar projects being developed by First Solar. At time of writing, reports also suggest that at least one of these, the planned 550 MW Topaz project, will not move ahead by the 30th September deadline.

As the threat to the US Utility-scale pipeline becomes increasingly clear this is likely to have a further depressive impact of solar stocks.

As I have discussed previously, I had already taken profits on the last of my clean energy stocks by the end of last month and I no longer have exposure to the sector for the moment. The macro-economic and fiscal environment simply presents too many risks at this time. For a fuller discussion, see my article on the issue from the beginning of the month here.

Given all of the present risks, this certainly seems a time to keep your powder dry and invest another day.

Disclosure: I have no positions in the stocks discussed.