How Paul Ryan Bankrupted a DOE Energy Loan Recipient, and How They Bounced Back
When Beacon Power applied for the Section 1705 loan guarantee program, they probably had no idea that that painted a target on their back. After all, they weren’t even a solar or wind business. Beacon had perfected and patented adaptations to an old nuts-and-bolts flywheel technology, spending $200 million to engineer reliable energy storage and frequency regulation for the electrical grid.
But their mistake was to be the second company after Solyndra to be awarded a Department of Energy (DOE) loan guarantee under the Section 1705 Loan Guarantee Program. By October last year, a few months after Solyndra, they were bankrupt. Here’s the tale.
The grid needs energy storage that can ship power on and off the grid — faster — as it adds more solar and wind. Even without renewables, the technology is needed for moment-to-moment grid stability to prevent blackouts. Gas peaker plants can’t do that in five minutes. Beacon Power developed a technology that could do it in five seconds. Again and again. And not wear out like a battery.
The Federal Energy Regulatory Commission (FERC) has recognized this increasing need for faster energy storage. Under FERC Order 755, which comes into effect in October 2012, grid operators must pay more for faster storage.
So, how could a company that is making faster storage fail?
That’s what I asked Scott Harlan, managing partner at Rockland Capital, the private equity company that bought Beacon’s assets after it went bankrupt.
“Under the old FERC pricing regime they just weren’t getting paid enough to service the debt,” Harlan told me. “The pricing system just didn’t work for Beacon — or any kind of fast-response system regulation service, in the past.”
Beacon thought FERC’s long-heralded higher payments for fast storage would have been in place earlier. “Once the FERC order is implemented,” he pointed out, “the pricing will be much better in this country for these fast-response resources. At that point, the market across the country is much improved.”
But even so, to make it till this October, Harlan said, Beacon would have needed only “something on the order of ten million, not a lot of money.” They just needed to cover operating expenses of the company and service the debt till the FERC order was implemented, and they couldn’t raise outside capital to do it.
So, why didn’t they go back to the DOE and say we just need $10 million till the FERC order comes into effect?
“I suspect that would have been a tough conversation, given everything that was going on with the DOE at the time,” explained Harlan. “Unfortunately, events at the time conspired against them.”
This was last September, just as the Solyndra witch hunt was in full swing, and the DOE was having to testify in front of almost weekly hearings. The hysteria made it difficult not only to get more help from the DOE, but also in trying to raise further funds in the market. Former Beacon CEO Bill Capp told AOL Energy after the bankruptcy that remarks Paul Ryan made at the time were particularly unhelpful.
“In addition to Solyndra,” Paul Ryan said on Fox News in September of 2011, “Beacon Power and First Wind Holdings offer examples of other instances in which the federal government backed risky and financially unstable firms, using taxpayer money to fund an ideologically driven pursuit of unproven energy sources.”
There’s nothing “financially unstable” about a company that invents and builds a product that out-competes gas peaker plants. I don’t know much about investors, but surely the “invisible hand” is smarter than to listen to a rabid politician before investing?
“When you have stuff in the press that’s very negative, it can become difficult to convince the public markets to invest the money,” Harlan told me. “You’re at the mercy of retail investors like teachers unions and such.”
As a private equity company, he said, they are different. “We’re able to make a rational decision, based on real information. As a private company, we make the decisions. There are a few of us, we talk to the company to decide when to put money into it and when not to. It’s a much simpler decision-making process.”
It seemed to me from what Harlan was saying, that Steven Chu’s DOE was right to have funded the company, that they had “picked a winner.”
“Oh, absolutely, yes,” he agreed. “The technology is great. It solves the problem the utilities have in balancing the grid; particularly as you have more wind and solar power coming on the grid — the ability to manage the frequency of the system is somewhat compromised.”
“This is going to prove to be a technology that was very worthy of the DOE’s choice to invest in. We wouldn’t have made the investment in the company if we didn’t think so, because if the DOE doesn’t make money then I’m not going to make money.” In the bankruptcy, Rockland Capital assumed the debts. Income from the now completed 20MW Stephentown flywheel project at the new FERC rate will pay back the loans.
“We plan to continue to own and operate Stephentown, which is fully completed now,” he explained. “It was mostly completed and we just put a little capital in to finish the project. I think it was one and a half million, something like that.”
So, it turns out Beacon Power is “another Solyndra” in that it was another attempt by the Obama administration DOE to use the Section 1705 Loan Guarantee Program to get more clean power on our grid, which is what the program was intended.
In any other time, an innovative company like this, that had been recognized by the DOE as a worthy investment, would have been able to borrow the small amount of additional money to keep going. We live in interesting times, however.
But the company gets to live on, and is expanding, anyway, given new life by Rockland Capital, which kept on 75% of the employees.
“It’s a good company that has great prospects and a great technology, and tremendous intellectual property,” Harlan concluded. “We’re looking to expand. Now we’re now looking at building a project in Pennsylvania using the flywheels and actively looking to expand it across the rest of the country.”
Have a tip for CleanTechnica? Want to advertise? Want to suggest a guest for our CleanTech Talk podcast? Contact us here.
CleanTechnica Holiday Wish Book
Our Latest EVObsession Video
CleanTechnica uses affiliate links. See our policy here.
Without much in the way of mental gymnastics one is easily able to see who owns or presumed VP candidate. It would be humorous if the issue weren’t so serious. What a jerk….
Most of the time [but not all] I vote for conservative individuals at the local and state levels. However, this time around at the national level I am torn between what I know needs to be done to correct our out of control spending and the need to continuing to promote more renewable energy.
The Republican ticket will most likely fail because they are out of touch with over 70% of the American people who DO NOT believe in more of the same old drill-baby-drill stuff. Now It is TRUE that more drilling is needed but that is not going to reduce the cost of gasoline and here is why.
The U.S. has reduced it’s consumption of oil over the last few years and in the past when that happened, the price fell because of a glut of oil on the market but not this time. This time that oil was consumed by China, India and Asia and we can expect more of the same going forward. However, as a country we DO NEED more of our own oil to reduce the flow of $dollars$ out of America. BUT, we also need to promote more renewable energy as a long term strategy since more drilling is only a short term fix. Why; well because most of the oil going forward is going to be shale or tar sand oil and it will be more expensive. There is a limit to how much we can all afford to pay for fuel. But make no mistake; even if we could build nothing but electric cars starting tomorrow [which we can’t] there would still be millions of gasoline powered cars on our roads in 30 years.
WHY do Republicans shoot themselves in the foot with this drill-baby-drill stuff? Most likely because they are for the most part lead by old school lobbyist. Bill O’Reilly who I have a lot of respect for but don’t always agree with, is a good example. For months and months he railed against Solyndra like the rest of the FOX news team. Since he investigated solar for his own home he has become silent on the subject. I think there might be a good lesson in that whole process.
It might just be possible that these old school Republicans don’t have a clue. As you know political candidates are not always the sharpest cheddar in the deli case, LOL It might just be possible they don’t understand alternative or renewable energy systems the way individuals who post on sites like this one do.
I really like renewable energy and believe we need to support it going forward BUT we need to do so in a more cost effective manner. Incentives should be front loaded to spur growth and reduce cost. Incentives should decrease over time a few percentage points every year OR some cost benefit formula. This is already being done where I live by our utilities. Solar incentives started out at $3/watt DC, then went to $2/watt then $1/watt as cost fell. We need smarter incentives like these instead of promoting lifetime incentives like we have for the oil industry.
o.k. time to get down off my soap box. Voting is a privilege, make sure you do it.
What a thoughtful post. In this particular case, I doubt that Republicans in congress were not aware that the FERC Order was about to change things for this supposedly “unstable” company, because the Solyndra witch hunt entailed numerous hearings with the DOE testifying in detail, during which staffers presented copious amounts of supporting docs supporting their reasoning on the loan guarantees.
The impending FERC Order was big news in 2011 when I covered it (think if you google FERC negawatts equal pay megawatts you’ll find when) so congressmembers like Ryan would certainly have known it was about to revolutionise the energy storage market and thus renewable energy, the way the railroad industry did for coal power.
I agree that planned step-down incentives work very well – much better than farting around like some of the EU feed-in tariff shocks. In California, where I put in solar at about the 7th step, I think, in 2010, steps were based on megawatts installed under the CSI program, so everyone knew what to expect.
Thank you for the positive feedback Susan. I am quite sure you are correct that most of the republicans knew about the pending FERC Order. Even though they knew, I wonder how many actually cared?
For example, I know that solar PV in some areas of the country can be cost competitive and flywheel technology can be used in other locations for grid stabilization. I also know my neighbor could care less about either one, LOL.
Have a great day.
There’s a difference with your neighbour, though. As someone “in the know” to be trusted on a company’s financial stability, Ryan getting in front of cameras to say that a company was financially unstable when he knew that the big change in FERC payment rates would begin to supply income is different from just not giving a damn.
Thanks for the post, Tom.
Given the huge support for renewables (and against fossil fuels) in the public, it really is a wonder that national-level Republicans have decided to draw a line on the energy front. Even state- and local-level Republican politicians support renewables in many places.
In my opinion, it’s just a sign that the national-level GOP has become very detached from the public and what we want and need, and too influenced by the big money industries and lobbyists they spend their time with.
Not the GOP alone, but they’ve clearly taken it to a ridiculous level. A totally diff party than not long ago even. 🙁
my 2 cents. 😀
Excellent well balance response.
Thanks for this piece, Susan. I was thinking that Beacon had died due to not-working technology.
Wonder why those folks who are so concerned about Solyndra and Beacon are saying nothing about $18 billion loan guarantees for nuclear plants? (Someone else wondered this first. More of us should wonder this….)
Yes, so had I, Bob. So it was very encouraging to find out that the tech lives on anyway, and talking with this rather savvy guy I realised that at least one energy storage solution is in good hands.
Me too. Was wonderful to read this!
And certainly, we should do more to wake people up to the loan guarantees going to nuclear plants that are extremely risky (financially).
I think that facts matter and the ability of a company to make it’s debt service from rules is one thing- another thing is about the comparative excellence that a truly sustainable business model allows. The burden should be on renwables not on the grid- and presently renewables are being blighted by outrageously under payment when in the hands of individuals who don’t take the marching order towaste all they produce so as to not suffer the insult of extemely small compensation or having to share what ‘there’ sunlight produced with others connected.
Regarding these flywheels they are to me obviously subsidy queens without real tecnical merit and don’t even save there cost in spinning reserve fuel. WIth so much that pays for itself and how to invest in we don’t need to be subsidising coal by wasting money on the worst just because it’s work order ready, out of the excellent box scraped from the rejected but mature technologies barrels bottom. The concept is great- but you can’t force it by using ‘working’ small radius knee jerk simpleton engineered cloned to scale unsustainable shit that you hope will create an entity hungry for something that works enough to use there existence to conjur up whath you stopped the free market from providing in your zeal to do what’s easy without actually throwing money at the problem- only wanting ‘work’ done, busy busy busy.
I take it personally as we all should. These things are poop. They are energy hogs, expensive per amount of energy stored, being used as a false mark by battery companies, keeping real flywheels from getting contracts just like “volts” keep electric bikes offshore and little toe sized prints from dominating most of our new treads.
Details matter. Facts matter. Energy storage with inertia requieres you contact accelerator engineers- we have spent trillions educating them worldwide- THERE technology is mature, they can get this done in minutes on the back of a napkin. THEy would not use ‘spokes’, would not abuse carbon fiber, would not like childs toys makers print stickers with “fiber” printed in caps and died that color nor just lather it on all over the shit and call it sophisticated.
Like the hub motor on a bike the flywheel is itself a potential motor. And they brag about the challenge of connecting the spinning mass to the generator via the shaft in simulations premissed on the utterly flawed design that can’t optomise it becaause the vairable that are pathetically OPPOSITE in ratio to what any child wiht any abiliity can tell in a heartbeat …
I wish I’m wrong. I know though I couldn’t believe the designs- the air views of all those blue cans- private money sees the business model- but not the science. We have an entier financial industry that lacks any fluency in the birds and the bees- who sense reality only from dry simulations of revenue from artificial demand instead of rational choice.
The grid is a gheto- it’s a sieve leaking as fast nearly as hearts and souls caxn be dumped into it. Maintaining frequency has value- but a value that can be calculated and when you exceed that value in expenditure you only fund jobs as if real work isnt’ being neglected- but it is.
Fund what needs to be done. Stop confusing economic development with necessary research. REQUIRE any company prove it isnt’ dependent upon future assistance in order to ge any assistance or have binding performance criteria.
WE gambled that solar AWOULD ANOT come down in price by moving to production premature and now we embarass ourselves with ridiculous tariff”s that even if they withstand challenge are against public interest. I welcome CHina to return some of the income we give them from using there dollars in fossil fuel demand lessening PV even thoug hit’s still far to expensive compared to efficiency.
Efficiency is letting people ride bikes. BITING down hard and surving without autoworkers who are not worht the extinction and near term disaster there ‘quality of life’ impose. Again there is work to be done- and they can do it even if at a merit wage even if that means rich democrats children aer not able to move out of there homes they grew up in so sauna’s never used or whateve can be the resulting madness.
Rotational inertia shoudl not be pimped poorly like this- enough proof we are all fat and lazy as ‘America’ is now understood by all who know othe testing scores rue. Specificallly this report makes an emotional argument- tha tburing fuel to spin a generator needing only a clutch- yeah, a clutch, not an entire new poorly engineered wheel etc. is not good enough- you have to get into the numbers- how much fuel, at what cost, and understand that if we don’t use it it will be compressed and shipped to be used inteads of heatpumps in asia, which frankly is worse hten being flared. But not as bad as these whining mad bearing wearing out continously wheels. They suck so bad, they mock our intellect, they subsidise coal, it is coal that is the slow poke and renewables could get us to dump it instead of enaable it further by carrying it on it’s coat tails with such ROI guarantees by those high on zines instead of best adn brightest bushy tailed and ready to ask stupid questions.
Obama hired a geek- a guy hwo knows how ot wear a suit but was lucky or specialised no Newton and one afraid to fund basic research insteadof just wing it himself knowing nothing and lacking the ability to do so clearly.
It was not about republicans per se. It was about idiots thinking they are genuis’ps jus becauseu the real geniuses don’t bother to be hazed so they can have there jobs taken by the rich.
Can I get a translation?
Or perhaps I’m better off being left in the dark….
Spinning reserve is not a new problem. However AI solves it far better then brute force- in any city emergency generators abound- all they need is sophisticated prestarting- intead of every week atthe same time you power them p more frequenty when they might be needed and you stop installing pv panels with built ininveirteris that prevent there double use to provide teh milliseconds needed from batteries if the generators have failed to prestart. (the pv grid snycing mosfets can allow the ancient emergency ICE backups to substitue at about ten percent the cost of ‘flywheels’ centrally located. It’s not batteries or flywheels but only logic and a few milliseconds you don’t e ven need the ai need only know what the fucking temperature is with 1980’s era neural networks on past performance and that’s it- not networked thermostats- the buildings are simple things after all and ‘clouds’ have little impact in demand even in SMUD land. ALl you have ot do is in the worst case require emergency genertors for all business’s and provide low intgerest financing for thme and there even mesh networking and you have so solved the problme so overkilled it the bluff that renewables can ever be too much for the gird to handle if done right- if cabled to the jet stream and dragged through the ocena to make hydrogen on it’s way to it’s users like COlumubus discovered freaking America it’s not hard. it realloy isn’t. ALl you have to do is offer bucks for solutions and let hte people be heard. WE have tens of thousands of people who are infinitely smarter then 90 percent of hte phd’s in the lasthalf century watching cable tv or in prison a million spent on laptops for those serving life would put even chinese coal power plant plans in the shredder.
Are you saying your money is in clean coal?
I’m sorry just look at the picture! Are you all blind? Do you see it’s narrow? It’s high speed? It’s a fucking G machine when that’s the variable to be minimised. They need to move mountains ever so slowly- not spin vertical needles an rpm below self destruction. This is a high school freshman if ‘AP’ multiple choice question- tall and skinny or fat and out diameter bearinged? Many units are the biggest unit that might amortise per location? Take those two to gravity wave theoraticians, there must be dozens of them now, and put them ina room till a third of them agree and you have your answer. Or you cna listen to me.