Recently the Solyndra bankruptcy has been grabbing a lot of headlines. Most of them are permutations of “Obama tainted by Solyndra scandal” or ”taxpayers money lost on Solyndra”. Mainstream media outlets are missing the point big time! The first misunderstanding is that a “failure” means that the government should not have made the investment. Instead, we should recognize that government needs to act more like traditional venture capitalists in making a number of investments and recognizing that some will fail. Secondly, there are more profound questions at stake than the weak assertions that Solyndra used undue influence to gain government support.
Currently there is a lot of doom and gloom in financial circles around the clean tech industry. Solar is still a great investment. It’s nice to see that big venture capital guys like John Doerr of Kleiner Perkins agree. Doerr says, “There were 53 makers of personal computers. There are now three. At one point, there were 83 solar ventures around the world. They’re not all going to make it.” (source nytimes.com). Venture capitalists have a unique understanding of the old adage if at first you don’t succeed try and try again. It’s not uncommon for VC firms to have 19 investments that don’t work for every one that does. Let’s not forget, solar is one of the few industries where America still runs a surplus. If Solyndra does not recover it will be a loss (perhaps one worth avoiding)…but not a reason for the government and tax payers to sour on the entire industry.
While covering this story from the “tax payers stand to lose lots of money” angle the majority of media outlets missed the point. This was actually a calculated risk, that could still work! Jonathan Silver, Executive Director of the Energy Department’s Loan Programs Office, said the loan guarantee program is needed to give U.S. companies the kind of low-cost financing that other nations are providing their renewable energy industries. For example, the China Development Bank is providing tens of billions of dollars in credit to that country’s largest solar panel manufacturers. ”This isn’t picking winners and losers,” Silver said. “It is helping ensure that we have winners here at all.”
Having just returned from a trip touring China’s solar manufacturing facilities, I have to agree with Mr. Silver. One need only look at the largest solar manufacturer in the world, SunTech (SunTech Power Holdings, on the NYSE as STP) to see how serious the Chinese government is about supporting solar. I toured the SunTech campus and it is both huge and technologically sophisticated. They employ thousands of people and make a quality product at a good price. The government has loans and grants with SunTech to the tune of billions of dollars. When the road gets bumpy for SunTech the government is there to help.
The question that no one is asking is why our government isn’t playing the same role? Yes, it is a bad investment to give a company half a billion dollars and then see them fail. But when major banks were in trouble the government deemed them “too big to fail” and stepped in with assistance. Same thing for American car manufacturers. Why not the solar industry? Perhaps we need to adjust this saying to “too important to fail”.
Why is the solar industry too important to fail…because solar energy is going to be a critical component of how America produces energy well into the future. The renewable energy sector will lead a robust American economy. Americans have a huge appetite for energy and thus energy production is essential to our economy. Our current energy mix is weighted heavily towards carbon intensive sources. We are awakening to the fact that this is unsustainable. It’s a good bet that solar energy will play a major role in future renewable energy production.
As to the questions of impropriety surrounding Solyndra’s loan guarantee several points need to be made. There have been accusations that the Obama administration knew Solyndra had a troubled balance sheet, yet still funded the project because of influence from a large political donor. There’s little indication that the administration knew Solyndra was headed for trouble. Although the DOE’s own investigator wrote an email stating, “Solyndra will run out of cash in September, 2011″, this prediction seems uncanny to the point of impossibility. It makes a lot more sense if this was one of many scenarios that DOE investigators modeled while evaluating the loan guarantee. Since congress has cherry picked bits and pieces of investigators’ reports, it is very hard for the public to get the full picture.
It’s clear the final decision on giving Solyndra a loan guarantee was a little rushed so the Obama administration could have a timely photo op. I despise this practice and it needs to be stopped, but there is no concrete evidence of undue influence, just a loose string of associations. There is no good reason to believe that, given more time, the loan guarantee would have been rejected.
Solar States’ Andrew Kennedy suggests the DOE form a review board and, again, act more like VCs. After an investment or guarantee is made, if the review board senses trouble they should intervene and insist on changes that will keep the company solvent or cut its losses in the best way possible. This strategy is a sensible adjustment to current practices.
Lastly, there is the issue of Solyndra’s intellectual property. Congressional hearings investigating the federal government’s loan guarantee to Solyndra are not asking the right questions. What happens should a Chinese company buy Solyndra’s intellectual property (IP) and hardware? Does America as a whole lose as a result? One scenario is the Chinese take their loot and, again with help from the government, turn it into successful products. Congress should be more concerned about keeping important IP in this country than trying to score political points.
As a solar energy provider I recognize the advantages of Solyndra’s thin film wrapped tubes approach. Solyndra has developed an extremely light weight product that does not require screws or weight to hold it down. This means even the most sensitive roof can support a solar installation. Additionally, because of the round shape it can collect solar irradiation from any angle thereby simplifying installation by eliminating the need for a more complicated superstructure to support panels at a specific angle. There are numerous applications I have investigated where only Solyndra style products will work, assuming they are cost effective. The only question remaining is how to make it cheap enough. This is an issue that can be solved given more time and money. Hundreds of millions of dollars is a lot of money, but in comparison to what China and other countries are lending to their clean tech companies it is tiny. Clean tech innovations by their nature are capital intensive and take a long time to produce results. The government should be investing more money (not less), be patient while the technology matures, and have reasonable oversight in place to ensure success or cut the losses. And don’t be upset when some don’t pan out, that’s just part of the process.
P.S. Nothing like a congressional hearing for high drama. This clip follows the usual angry congressman and guilty looking guy sitting behind a table script. Except, I am usually mad at the guy sitting behind the table for evading or refusing to answer the congressman’s questions. Here the congressman looks a little frazzled and the guy behind the desk sounds pretty reasonable!
@greenskeptic @politico I think the Politico piece gets some right, but misses the bigger issues. Check out: http://t.co/PjcLl6Cb
Author asks why Gov’t isn’t playing same role as Chinese in solar devel.; points to bank bailouts. WE ARE NOT COMMIES! http://t.co/4TUOh588
There is plenty of room to debate the role of government in free markets, however simply stating that we are not commies does not forward this debate. This comment sounds a lot like McCarthyism, a mistake not to be repeated.
“Instead, we should recognize that government needs to act more like traditional venture capitalists in making a number of investments and recognizing that some will fail”
Venture capitalists make very risky investments for the chance at very big profit. They are barely this side of gamblers. Also, in this case, the government stood to make nearly $0 on the deal, so it was a A. spend nothing or B. spend $500,000,000 bet. No win possible except for the stock holders of Solyndra, and of course the economy (to a much lesser degree) and America’s standing in the technical production world. The odds on this bet were very bad whether the company did well or not. Additionally, they have the money to do this, not because they print it, devaluing the savings accounts of every citizen of the country, but because they made a HUGE TON of money on the 20th project the last time.
“If Solyndra does not recover it will be a loss (perhaps one worth avoiding)…but not a reason for the government and tax payers to sour on the entire industry.”
agreed entirely by the way. nicely put.
“…the loan guarantee program is needed to give U.S. companies the kind of low-cost financing that other nations are providing their renewable energy industries…”
Interest rates are lower than they’ve ever been. Why would financing need to be any more low-cost? I would love to know how they came up with $500,000,000. When you apply for a business loan, you need to justify the amount to some degree. Was it for manufacturing capacity or something? I ask because I do not know.
”This isn’t picking winners and losers,” Silver said. “It is helping ensure that we have winners here at all.”
I had NOT considered it from this perspective, however the US isn’t guaranteeing funding 25 solar manufacturing groups – they’re guaranteeing funding for one. Not the same as China really – unfortunately. I would love to see the kind of program that China is doing in a country like ours, but we simply can’t afford it. China is comparably very rich – they have no debt at all, whereas we can barely make our payments…
“When the road gets bumpy for SunTech the government is there to help.”
SunTech makes a ton of money, a large proportion of which goes to the government. It is a win-win for China, without question!
“when major banks were in trouble the government deemed them “too big to fail” and stepped in with assistance.”
something that should never have happened. you can pick and choose pieces from “Free market” and expect it to work… You’re very right though – it isn’t fair to ANY other industry when the government does this. Solar, and many other industries are more important to this country than bank (on many levels). They should’ve gotten the support before the poorly run banks.
“It’s a good bet that solar energy will play a major role in future renewable energy production.”
Agreed, though we need to figure out how to generate power on demand, not just during the day. Storage is still a huge problem. When the grid needs power, we need to be able to spin up sources. The new EPA regulations have made our quick-to-spin-up stations illegal to use. The result is a very shaky supply. Example: we had major flooding in Detroit last week. A small township call Grosse Pointe Farms has storm drain pumps to keep the levels in the drains low enough not to flood into people’s houses. They have 8 pumps actually. When #7 and #8 kicked on last week, the demand on the grid was not able to be met quickly enough so they failed to start. More than 500 homes were flooded – most basement contents were a complete loss. My parents lost in the order of $10,000 worth of materials. If other homes lost similarly, thats $5,000,000 in loss in one day (not to mention the high school pictures, year books, etc that I’ll personally never see again) just because Detroit Edison / DTE isn’t allowed to spin up their rather new “environmentally unfriendly” quick backup plants for an hour to meet demand. This did happen at night, so solar wouldn’t really have helped, unless it was installed at the pump station and has IMMENSE batteries…
“It’s clear the final decision on giving Solyndra a loan guarantee was a little rushed so the Obama administration could have a timely photo op. I despise this practice and it needs to be stopped,”
The problem is not that it needs to be stopped – its that it should never have been started. I know everyone is guilty of it, but it is an embarrassment. The photo op didn’t help the country at all – if anything it could be argued that this move was made ONLY to strengthen the public opinion of our current administration. For the country to pay $500,000,000 just so that we can feel better about our president is pretty expensive PR… I know you know all this though.
“There is no good reason to believe that, given more time, the loan guarantee would have been rejected.”
Of course there is no good reason to believe that it would have been accepted either. When the administration stepped in to speed things up, no decisions had been made either way…
“After an investment or guarantee is made, if the review board senses trouble they should intervene and insist on changes that will keep the company solvent or cut its losses in the best way possible.”
Fantastic idea. If you have skin in the game, you have a responsibility to make sure you don’t get cut.
“Congress should be more concerned about keeping important IP in this country than trying to score political points.”
These full-time, career politicians are entirely focused on political points. We have no evidence that ANY of them will EVER do ANYTHING but try to score political points. It pays their bills (as much as the top 1% of this country – $270,000/year). Why give that up “for the good of the country”?
“The only question remaining is how to make it cheap enough. This is an issue that can be solved given more time and money. Hundreds of millions of dollars is a lot of money, but in comparison to what China and other countries are lending to their clean tech companies it is tiny.”
Any idea how far they got? Just curious.
“don’t be upset when some don’t pan out, that’s just part of the process.”
You’re right – we can’t just bet on one horse and really hope he wins.
We’re simply too broke as a country to make investments in anything. I think we need to shift our priorities entirely to be able to fund technology like this, but I think it is imperative that we do so.
“Venture capitalists make very risky investments for the chance at very big profit. They are barely this side of gamblers. Also, in this case, the government stood to make nearly $0 on the deal, so it was a A. spend nothing or B. spend $500,000,000 bet. No win possible except for the stock holders of Solyndra, and of course the economy (to a much lesser degree) and America’s standing in the technical production world. The odds on this bet were very bad whether the company did well or not.”
Yes, my associate at solar states Andrew Kennedy made the same point. The Gov should get some sort of ROI (a modest one, but still something). Governments role is to ensure a fair society where its citizens have equal opportunities to prosper. You have pointed out time and again how the top 1% is running away with all of the money and I totally agree. So, the gov does not need to make VC returns for it to be a great investment. If Solyndra (or another investment) turns into a SunTech, that is a huge win for the economy and the American people. This should be the goal.
“they have the money to do this, not because they print it, devaluing the savings accounts of every citizen of the country, but because they made a HUGE TON of money on the 20th project the last time.”
Good point!
“Interest rates are lower than they’ve ever been. Why would financing need to be any more low-cost?”
It is not low interest financing that’s the issue. It’s finding financing at all. Having tried to raise funds for a solar project that is actually financially solvent, I know how hard this is. Banks are not lending to solar. Thus why we need the gov to step in. I look at it as one of those “for the greater good” type of things. This is the proper role for gov… Not propping up banks and car companies.
“I had NOT considered it from this perspective, however the US isn’t guaranteeing funding 25 solar manufacturing groups – they’re guaranteeing funding for one. Not the same as China really – unfortunately. I would love to see the kind of program that China is doing in a country like ours, but we simply can’t afford it. China is comparably very rich – they have no debt at all, whereas we can barely make our payments…”
The US has made a number of loans and loan guarantees to renewable energy companies as part of the DOE program. And they are attempting to make 5 more before the stimulus deadline end at the end of the month. I agree China is rich and we are comparatively poor, but we need to make smart investments to get back on track.
“something that should never have happened. you can pick and choose pieces from “Free market” and expect it to work… You’re very right though – it isn’t fair to ANY other industry when the government does this. Solar, and many other industries are more important to this country than bank (on many levels). They should’ve gotten the support before the poorly run banks.”
Agreed!
“Agreed, though we need to figure out how to generate power on demand, not just during the day. Storage is still a huge problem. When the grid needs power, we need to be able to spin up sources. The new EPA regulations have made our quick-to-spin-up stations illegal to use. The result is a very shaky supply. Example: we had major flooding in Detroit last week. A small township call Grosse Pointe Farms has storm drain pumps to keep the levels in the drains low enough not to flood into people’s houses. They have 8 pumps actually. When #7 and #8 kicked on last week, the demand on the grid was not able to be met quickly enough so they failed to start. More than 500 homes were flooded – most basement contents were a complete loss. My parents lost in the order of $10,000 worth of materials. If other homes lost similarly, thats $5,000,000 in loss in one day (not to mention the high school pictures, year books, etc that I’ll personally never see again) just because Detroit Edison / DTE isn’t allowed to spin up their rather new “environmentally unfriendly” quick backup plants for an hour to meet demand. This did happen at night, so solar wouldn’t really have helped, unless it was installed at the pump station and has IMMENSE batteries…
Ouch, sorry to hear about your parents (and your) loss… That hurts my heart.
Energy storage has come a long way, batteries are probably not the best way to do big time
energy storage. Steam seems to be the preferred method these days.
“Of course there is no good reason to believe that it would have been accepted either. When the administration stepped in to speed things up, no decisions had been made either way…”
Good point!
“these full-time, career politicians are entirely focused on political points. We have no evidence that ANY of them will EVER do ANYTHING but try to score political points. It pays their bills (as much as the top 1% of this country – $270,000/year). Why give that up “for the good of the country”?”
Hurts me how right you are!
“Any idea how far they got [how far Solyndra got on lowering the price of its panels]? Just curious.”
This is a tough one. Because it’s not an apples to apples comparison. Solyndra is around $3 per watt. Chinese panels are around $1.25. That seems like a big difference, but the Solyndra panels do not need racking, tilting, nor ballast weight. So overall materials and labor costs are much lower once installation starts. Including the other elements I estimate Solyndra to be around 50 to 80 cents more expensive. That said, weight savings using the Solyndra model means they are the only game in town for some types of applications (if one decides to take the leap).
“I would love to know how they came up with $500,000,000. When you apply for a business loan, you need to justify the amount to some degree. Was it for manufacturing capacity or something? I ask because I do not know.”
Interesting question. I think it was to build larger manufacturing facilities. I have read a few articles that indicate Solyndra was doing better BEFORE the loan. They ramped up too fast and they overshot demand because their price point was low enough.
A great opinion from @solarstates: http://t.co/iLT087M0 A list of solar companies I put together: http://t.co/PnmbQhow
@AndyLauppe To build off of Micah’s response, I believe that the Government doesn’t necessarily need a “financial” benefit. They should receive their money back and a very modest return as Micah stated but the intangible benefits to the citizens of a country are more important. These benefits include job creation and clean energy. While the financial benefit should be there, the Government has the responsibility to step in and fix the “tragedy of the commons” which is our pollution level and the current lack of jobs. This is the ROI that the Government should be aiming for, not necessarily a financial only ROI.
If the government only picks winners and no losers, it’s not taking enough risk.
Many of the criticisms I’ve read about Solyndra is that the technology is “not scalable.” This term is not defined, but if what they mean is that it is not possible to continue to cut costs by increasing volume, my question is “why not?”