A Department of Energy program that administered a $400 million loan guarantee for now-bankrupt photovoltaics manufacturer Abound Solar had “several weaknesses,” according to a report from the Office of the Inspector General.
In December 2010, the program issued the loan guarantee to Abound for up to $400 million to construct and commission thin-film photovoltaic solar panel manufacturing facilities in Colorado and Indiana. In September 2011, Abound failed to meet certain milestones and the Program suspended funding to the project. Subsequently, Abound filed for bankruptcy in July 2012. Prior to the filing, the Department had approved the disbursement of approximately $70 million in loan funds to Abound.
The audit revealed that Abound’s failure to meet its project milestones and its subsequent bankruptcy occurred as a result of a combination of market conditions and technical issues that negatively impacted its operations. Weaknesses identified in the way the department administered the loan include failing to consult with the credit review board regarding a change in credit subsidy after the board gave the loan approval.
Specifically, the program lowered its recovery rating estimate, the potential recovery in the event of default, from 38 percent to 8.3 percent prior to loan closing. This change increased the credit subsidy from $71 million to $96 million, an increase of $25 million in taxpayer funds appropriated under the Recovery Act.
Furthermore the program did not resolve conflicting opinions of its advisors regarding Abound’s ability to overcome technical issues, according to the audit report. For example, in January 2011, 1 month after issuing the loan, the program learned that Abound’s solar panels were underperforming by as much as 15 percent and panels had the potential to spark or catch fire. Subsequently, Abound reported that its second largest customer returned $2.2 million of product and cancelled other orders in December 2010, the same month the loan was issued. In the wake of this revelation, the program’s independent engineer and internal solar expert disagreed as to whether or not Abound could fix the issues and whether funding should continue.
The issues identified by the audit occurred because the program had not established “comprehensive policies, procedures and guidance” for awarding, monitoring and administering loans. Management generally concurred with Energy Department recommendations and indicated that it would take or had already, implemented actions to address them, according to the audit report.
In September 2011, solar system manufacturer Solyndra filed for bankruptcy and laid off 1,100 staff after receiving a federal loan guarantee. The company, which was host to a high-profile visit from President Obama in May 2010, filed for Chapter 11 to evaluate options, including a sale of the business and licensing of its technology. The House Energy & Commerce Committee investigated the $535 million loan guarantee made to Solyndra by the US Department of Energy in the spring of 2009.