This story has been updated
Taking responsibility for the loss of $535 million in taxpayer money in a loan to Solyndra, the California solar company that went bankrupt last September, Energy Secretary Steven Chu told a House committee Thursday the loss was “extremely unfortunate,” but was due neither to incompetence by his department, nor to a politically-motivated decision to grant the loan.
Instead, Chu said, the reason Solyndra went bankrupt was an unexpected change in market conditions that blindsided his department.
“The price of solar modules plummeted” due to a drop in demand and the global market became saturated with subsidized products from China and other countries.
“The price of solar panels dropped precipitously … In a single year, it dropped by 40 percent,” he told Rep. Diana DeGette, D- Colo. “There was a large production ramping up, namely in China and secondly, there was a softening in Europe – a lot of (government) subsidies were decreasing and demand was softening.”
Later in the hearing, he told Energy and Commerce Committee chairman Rep. Fred Upton, R- Mich., that “when the bottom of a market falls out, and the price of solar (panels) decreases by 70 percent in two-and-a-half years, that was totally unexpected … This company and several others got caught in a very bad tsunami.”
His testimony painted a picture of a solar energy market in which outcomes were largely determined by government subsidies, both in the United States and abroad.
Chu told the members of the committee that it “remains to be seen” whether any of the $535 million in taxpayer will be recovered, but he predicted that “not very much” would be.
The Solyndra affair has proven to be an embarrassment for the Obama administration, with Republicans alleging both mismanagement by the Energy Department and possible political influence brought to bear on the department by Democratic donors.
Solyndra was the first renewable-energy company to receive a loan guarantee under the 2009 stimulus law. Chu attended a 2009 groundbreaking when the loan was announced, President Obama visited the company's Fremont, Calif., headquarters on May 26, 2010, and the firm filed for bankruptcy on Sept. 6, 2011.
Documents turned over to the committee show that George Kaiser, an investor and fundraiser for Obama, discussed Solyndra with administration officials in early 2010. But Chu repeatedly denied that political considerations had anything to do with the Solyndra loan.
Chu said that Obama administration e-mails in 2009 and 2010 predicting a cash flow crisis for the firm related only to the financing and construction of one fabrication plant, not the survival of the entire company.
At one point he told the committee that “nearly $1 billion of investments by savvy people” – private investors – showed that they had faith that the firm was viable.
Rep. Henry Waxman, D- Calif., the senior Democrat on the Energy and Commerce Committee, said at the hearing that congressional Republicans ought to “stop dancing on Solyndra’s grave and start getting serious about energy policy.”
He accused Republicans of wanting to “surrender” to state-subsidized energy firms in China and of wanting “to maintain our addiction to fossil fuels and cripple clean energy companies that could compete with oil and coal.”
He said that the documents which the White House and the Energy Department had turned over to the committee proved that Chu’s decision to extend the loan guarantee to the California firm was “based on the merits and not political considerations.”
But Rep. Cliff Stearns, R-Fla, the chairman of the Energy subcommittee on Oversight and Investigations, said at the outset of the hearing that the unresolved questions were why the Department of Energy and the Obama administration “tied themselves company so closely to Solyndra and why they were so desperate to repeatedly prop up this company.”
He questioned whether the entire Solyndra investment was “a good deal for anyone but the rich hedge fund investors.”
One focus of the hearing was whether Chu violated federal law by approving a restructuring of the Solyndra loan so that two private investors could move ahead of taxpayers for repayment in case of default.
Rep. Joe Barton, R-Texas, said the loan subordination was a clear violation of the law and that it “absolutely puzzles me,” but Chu said his department’s general counsel had OK’d the arrangement.
The Energy Department faced a difficult decision in late 2010 and early this year, he said: Force Solyndra into bankruptcy or restructure the loan guarantee to allow the company to accept emergency financing that would be paid back first if the company was still unable to recover.
"Immediate bankruptcy meant a 100 percent certainty of default, with an unfinished plant as collateral. Restructuring improved the chance of recovering taxpayer money by giving the company a fighting chance at success," Chu said.