Learning the Wrong Lessons from the Solyndra Bankruptcy

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The Solyndra Headquarters, in San Mateo, California. Photo credit: Solyndra

Solyndra’s recent failure to thrive, despite half a billion dollars in federal loan guarantees and strong growth this year, could be taken as a lesson in the failure of government investment in clean energy technology. But it was, in fact, an example of a stunning success of this strategy. Unfortunately, it wasn’t our success. It was China’s.

An example of the Solyndra cylindrical photovoltaic technology. Photo credit: Solyndra

Solyndra began life with much fan-fare in 2005, with a new thin-film solar technology that used panels composed of printed photovoltaic tubes to capture incident light from any direction. Within two years, they were in production, and in 2009 they received a $535 million loan guarantee from the US Department of Energy. Solyndra built its business plan in a time, just a few years back, when it seemed like their cheaper production technology and more efficient panels would give them a huge advantage. But their business plan was undermined by a competitor that they never expected: China.

In 2005, it seemed like a good assumption that the West would have this technology unto themselves for a while. China had not ever been a leader in the production of semiconductors or energy production systems. However, within five years, China was a world leader in alternative energy production, producing cells cheaper and in greater volume than their western competitors. What happened?

Between 2002 and 2008, the US appropriated subsidies for energy production totaling around 100 billion dollars. Of this, nearly 3/4 went to fossil fuels, and of the 29 billion devoted to renewables, nearly half was in the form of subsidies for corn based ethanol. And this is all without counting the massive, multi-trillion dollar cost of  US foreign policy, which seems at times to be far more devoted to the interests of the oil companies than to the interests of the American people. Essentially, the US commitment to solar production has been half-hearted at best, and that has not changed much since 2008, despite the change of the guard in the White House. Meanwhile, China has been offering a nearly unlimited amount of low- to no-interest loans for solar manufacturing, while promising to take up excess production domestically by paying half the price for equipment in solar power projects, and subsidizing generating capacity at a rate of 60-90 US cents per watt! Is it any wonder that US solar manufacturers are falling left and right when they are having to fight against high subsidies and lower labor costs?

We Americans have a choice to make when it comes to alternative energy. Our global competitors have chosen to back these new energy sources with everything they have. Why not? As long as oil is denominated in US dollars, every watt of energy that they produce by other means is like money in their pocket. The WTO is toothless when it comes to major powers like China, so any complaints of anti-competitive behavior are unlikely to have much effect. And if they build up a big lead now, the US will be forced to buy their energy in the form of Yuan-denominated solar, once we start descending the back side of the peak oil curve. Perhaps this state of affairs is fine; I’m no macroeconomist. But as long as the US is providing massive subsidies for old, coal, and polluting energy technologies, it seems foolish to cede the lead to Asia, especially when building up new industry, and making sure that it flourishes, can help keep America working in a time of crushing unemployment.

Alternative energy technologies are the future; they can power the world, if we make an effort to help them do so. But I fear that this recent, spectacular failure may give credence to skeptical voices who advocate austerity over investment. Saving money is often a good choice, but failing to invest it aggressively enough can be just as bad as wasting it outright. The real lesson of this incident is that the US failed to invest aggressively enough, and were overwhelmed by a competitor that developed much more rapidly than was anticipated. It would have been better to invest more aggressively in these technologies years, even decades, ago, but in a perverse way, now wouldn’t be a bad time either. The nature of the competition for the market is now apparent, and this should make building business plans easier. With our lead in technology and automation, in time, the US can retake the lead in solar technology, but this is only likely to happen if an investment in the future is made now.


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