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Obama advisors raised warning flags before Solyndra bankruptcy

Treasury chief Timothy F. Geithner and others were worried that the selection process for federal loan guarantees fell short and raised the risk that funds could be going to the wrong firms.

September 26, 2011|By Tom Hamburger, Kim Geiger and Matea Gold, Washington Bureau

Jim Nelson, chief executive of Solar 3D, a Santa Barbara company that is developing three-dimensional solar cell technology aimed at making more efficient solar cells, said the government should stay out of the business.

"If private investment cannot find a reason to invest in emerging technology to make it commercial," he said, "what is government doing it for?"

Energy Department officials counter that only projects that have met the test of the marketplace are considered.

"We don't pick winners and losers," spokesman Damien LaVera said. "The private sector does." Companies selected for loan guarantees, he added, have been "deeply, deeply, deeply capitalized by the private capital markets."

Many clean-energy investors say the loan guarantees have been essential to getting capital flowing, particularly during the credit crunch. It's important for the government "to bridge this difficult gap between where venture capital is able to fund these companies and where traditional project finance kicks in," said Sunil Paul, a San Francisco-based clean-energy investor.

Rhone Resch, president and chief executive officer at the Solar Energy Industries Assn., credited the program with creating "more than $40 billion of private investment in both energy generation and manufacturing projects," and said the solar projects selected would not have gone forward without government backing.

But government audits in recent years have found problems in the implementation of the program.

A July 2010 report by the Government Accountability Office found that the department committed to back the loans without completing required studies of market, legal and technical issues.

"Without this information, it is not clear that the program could have fully evaluated the risk of the loans it committed to," said Frank Rusco, an analyst for the GAO.

Melanie Mason in the Washington bureau contributed to this report.

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