Why Governments Shouldn't Pick Commercial Winners

We already have private sector businesses with solutions that are scaling rapidly. The scary thing is that governments do not know who they are, and therefore have no good way to coordinate with them.

Solyndra, a solar tech company in California that was granted $535 million in loan guarantees by the government, recently filed for bankruptcy. Why? Let’s start at the beginning.

When the Obama administration came into office, there was an existing loan guarantee program created in 2005 under the Bush Administration. Solyndra applied under this old program and received $535 million from the Department of Energy in 2009. Using old data and outdated advice from self-interested venture capital firms, the administration pushed ahead.

The Washington Post reported that House Republicans are stepping up a Solyndra investigation.  But Solyndra is an example of how government officials from both sides of the aisle should not step up, but step out of picking winners.

For those of us who have been in the solar PV industry for some time, the news of this bankruptcy was not at all surprising. After all, the great solar bubble burst in September 2008 sent solar prices down by 33% in the first six months alone. Today’s prices are 70% below 2008 prices. With solar PV prices dropping and markets expanding, if Solyndra had picked a niche instead of joining the commodity market, it might have succeeded.

In any commodity market, innovations in manufacturing and competition are combined to lower cost. This is exactly what is happening in manufacturing of solar modules.  The companies that are able to drive down cost while remaining profitable will be successful. The shakeout will continue to lower prices as the market becomes more efficient. The irony is that more people will be able to afford solar as costs come down to meet grid parity market-by-market.

We have seen the same market efficiencies occur in industries—look at what has happened to the price of computers in our lifetimes. Yet there were many brand name company casualties along the way. Remember Commodore (Amiga), and NeXT?

Despite Solyndra's failure, the solar industry continues to mature and grow.  Solar Energy Industry Associate (SEIA) statistics show that there are more than 5,500 companies operating in the U.S. solar energy supply chain, employing nearly 100,000 Americans. This includes material suppliers, component manufacturers, installers and other support services such as marketing, legal and financial professionals.

Last week, SEIA released a new study revealing these facts: The U.S. solar industry was a net exporter of solar energy products in 2010 by $1.9 billion, and it was a net exporter to China by more than $240 million. 

There are many other ways the Government can and should participate—by being a customer, funding early stage R&D, using the bully pulpit to get reticent consumers to trust well-tested technology, and fund an infrastructure bank that uses low cost Government money for well-proven, low-risk technologies.

And please remember, I am not for the government subsidies to save us. As I wrote earlier, permanent subsidies should end as well. More than ever, we need the government to articulate infrastructure visions and plans that support new sources of energy, solve the world's growing water and food scarcity issues, and create new markets and industries.

We already have private sector businesses with solutions that are scaling rapidly. The scary thing is that governments do not know who they are, and therefore have no good way to coordinate with them.

In the next week, President Obama plans to present a vision and plan to stimulate the economy and drive jobs. With the right vision, the companies and technologies can plug in, and the market forces, and industry gurus will help determine the ultimate winners.

[Image: Flickr user Sister72]

Jigar Shah is CEO of the Carbon War Room, a nonprofit that harnesses the power of entrepreneurs to implement market-driven solutions to climate change and create a post-carbon economy. 

 

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1 Comments

  • Richard Zimmerman

    Undoubtedly we will continue to see a variety of notable failures in the renewable energy arena just as we did in the early days of the dot.com revolution.  However, while companies will fail, the leading edge technologies they foster will likely be picked up by some other company if the technology can compete in the marketplace.  Unfortunately with capital so scarce it is almost sacreligious for the government to be so inefficient in the way that in spends our money.  I agree with Jigar that government involvement would be much more effective in helping to fund early research similar to what has been done with the space program and the DOD.