Back in March 2004, amid a flurry of press releases, then-Mayor Richard M. Daley announced a deal that promised to save taxpayer money, reduce natural gas consumption and bring “green” jobs to Chicago.

But taxpayers might see red when they learn how the deal turned out. More than seven years later, the initiative has been quietly suspended amid problems with some of the equipment – and acknowledgements by city officials that taxpayers will probably lose money on the deal and never realize the energy savings that Daley touted, the Better Government Association has learned.

The arrangement centered on solar-powered hot water heating systems made by North Carolina-based Solargenix Energy LLC with technology designed at the University of Chicago.

The city agreed to spend up to $5 million on the eco-friendly systems, and install them on more than 100 public buildings, such as firehouses and police stations, yielding an estimated $7 million in energy savings over 30 years.

In exchange for that commitment – and an additional $1.7 million no-interest loan through the Daley administration – Solargenix agreed to open a factory in Chicago, employing at least 15 workers, and build the solar equipment there.

“This is an excellent example of what we can accomplish through the synergy of the city, the private sector and our universities,” Daley was quoted as saying at an event marking the opening of the factory at 36th and Morgan.

But the deal never lived up to expectations. The city didn’t anticipate the high cost of installation, while Solargenix lost money and hasn’t seen its business flourish in Chicago as hoped. The company’s Bridgeport plant was eerily quiet on a recent weekday – no panels were being made and only two workers were seen on the factory floor.

“It makes me sad we haven’t been able to create a better situation,” says Jeff Myles, Solargenix vice-president of administration.

In the end, the BGA found that one of the few beneficiaries of the deal appears to be a businessman with close ties to Daley: United Service Cos. President and CEO Rick Simon, the former chairman of the Chicago Convention & Tourism Bureau and a South Loop neighbor of the ex-mayor.

A venture led by Simon owns the building at 3622 S. Morgan St. where Solargenix opened its factory. Not only that, Simon bought the structure in April 2003, three months before Solargenix signed a contract with the Daley administration, public records show. The factory was ready for business around the time of the March 2004 news conference with Daley, and Solargenix remains on a month-to-month lease with Simon.

He declined to comment, other than to insist that clout played no role in the arrangement. Daley did not return telephone calls from the BGA.

Solargenix executives say the city didn’t steer them to the building.

Tom Brennan, chief financial officer for Solargenix, would not reveal specifics of the lease, but said his firm searched a variety of city locations before leasing 27,000 square feet at the Bridgeport property owned by Simon.

Now that the relationship with Chicago’s municipal government is basically non-existent, Brennan said it’s unclear what the future holds for the company’s manufacturing plant here.

“Who knows what will happen?” he said. “We could stay in Chicago or produce [the panels] somewhere else.”

Altogether, the city has paid Solargenix just over $2.8 million to buy more than 1,200 solar panels and install some on public buildings, according to Larry Merritt, spokesman for the city’s Department of Environment.

As for the $1.7 million loan, Solargenix made one payment of $340,000. The agreement was amended in July 2006 with the city effectively forgiving the remaining $1.36 million in exchange for 1,037 additional panels, according to Merritt.

But overall, the city has installed just 409 panels on 27 municipal buildings, including the Chicago Cultural Center, and a fire and rescue station at Midway Airport, the BGA found.

Hundreds of others were given to sister agencies or private properties, such as a South Loop homeless shelter under a grant program.

The remaining 465 panels were put in storage, where they remain, according to Anthony Pascente, spokesman for the city’s Department of General Services.

So how and why did the program nosedive?

Merritt says a 2008 city audit determined some solar thermal systems weren’t functioning properly because of issues relating to pressurized glycol, a critical component of the solar water heating process. (Commonly used as a deicing agent, glycol prevents water in the storage tanks from freezing during Chicago’s harsh winters. It also plays a critical role in the heating process, transferring solar energy collected via the panels to the water.)

Merritt says the city has since fixed the glycol-related issues and the affected systems are now functioning properly.

However, the city has shelved the program anyway because the cost of installation is so high, nullifying any savings the city would reap on its natural gas bills, Merritt said. The city “has suspended the installation and is considering options for the remaining panels,” he said.

This past April, the city hired an outside engineering consultant, MWH Americas Inc., to evaluate the solar thermal systems and other clean-energy technologies that the city has embraced.

Solargenix’s systems work by converting the sun’s rays into clean, inexpensive energy that helps heat water. Employing a technology created at the U of C, the panels are said to collect sunlight more effectively than panels made of lenses or mirrors. They don’t require direct sunlight, eliminating the need to be rotated or moved throughout the day, according to the company. While solar power is supposed to become the primary energy source, natural gas still can be used as a backup, or supplement to the sunlight.

Lakeview’s Grace Street Towers, 635 W. Grace St., was one of the private structures that received free panels through a city grant, but building managers covered the installation, which cost upward of $100,000, according to a source familiar with the project. Aside from some of the 40 panels coming unhinged in a storm – apparently an installation problem, rather than a manufacturing problem – the technology has not translated into much, if any, savings on natural gas bills at the senior housing development, the source said. In recent days, the panels were removed and replaced with another model from a different manufacturer.

The South Loop’s Pacific Garden Mission also received free panels, and hasn’t realized great savings. The homeless shelter installed a system – spending $420,000, half of which was covered by grants – after receiving 100 free panels from the city in 2007. Because installation costs were so high, the shelter is unlikely to recoup its investment, says David Fuller, director of facilities and systems at the 156,000-square-foot facility at 1458 S. Canal St.

“Nothing against Solargenix but I wouldn’t do it again,” Fuller says. “I’d go with a different technology or use the money [they paid for installation] to improve the efficiency of the building.”

Solargenix maintains there’s nothing wrong with its systems. The company never guaranteed the city would save a specific dollar amount on its natural gas bills once the systems were installed, Myles said. The $7 million in expected savings was based on the city’s own projections, he said.

What’s more, any problems the city or other owners have experienced are likely the result of normal wear and tear or improper installation, not the design or technology, Brennan says.

“If they’re not maintained or installed correctly, there can be some issues,” he says. “You need to take care of them just like you would any type of HVAC equipment.”

This article was written and reported by BGA investigator Andrew Schroedter. He can be reached at aschroedter@bettergov.org or (312) 821-9035.