The Lessons of Solyndra

Washington D.C., September 9, 2011 — Pondering the collapse of solar PV manufacturer Solyndra and the earlier business failures of Evergreen Solar and SpectraWatt, all recipients of Department of Energy loan guarantees, several points seem clear to me.

The first is that the Obama administration has made a mistake by investing economic recovery funds in highly speculative ventures such as solar photovoltaic firms. Congress is complicit in this, agreeing that some $35 billion of the 2009 stimulus funds could be directed to “green” technologies through DOE.

Thus the stimulus funds became tools of “industrial policy,” something conservatives, and some liberals, have rightly warned against in the past. Those warnings, unheeded by conservatives and liberals alike, correctly predicted that the government would not be very good at picking winners and losers. Anyone who has followed the history of the energy department and Congress when it comes to energy technologies knows that the warnings are well directed. The agency has a wretched record of investing in losers.

In the cases of investments in solar, the administration was blinded by its visions of a green future. But “green” and “clean” aren’t terms that have any economic meaning. They are propaganda terms, designed to mislead, not to lead to correct action. In the case of Solyndra, the government wagered over $500 million — and that’s not government money, that’s your money and my money — on a bad bet from the beginning. I don’t have any problems with private investors making bad bets. It’s not my money. I do have problems when the government makes bad bets with my money.

David Brooks, a perceptive New York Times conservative columnist, wrote, “The gigantic public investments in green energy may be stimulating innovation and helping the environment. But they are not evidence that the government knows how to create private-sector jobs.”

Barry Cinnamon of Westinghouse Solar recently explained the nature of the risks the government was taking with Solyndra. “The first bad bet,” he wrote recently in Greentech Media, “was that refined silicon, the feedstock for the solar panel industry, would stay expensive.” Solyndra’s panels don’t use silicon. And silicon prices have fallen dramatically in recent years.

This is basically the same bad bet that the U.S. government, in the form of the Atomic Energy Commission and the congressional Joint Committee on Atomic Energy, made consistently in the 1960s and 1970s, betting that uranium was a scarce mineral and prices could only go up. The result was billions of dollars wasted on distorted international markets, boom-and-bust conditions in the Colorado Plateau, useless breeder reactors and worthless spent fuel reprocessing.

The second bad bet that Cinnamon outlined was that Solyndra’s “flat-roof” installations would overcome the high costs of their technology. Again, that was a bad judgment, as other flat-roof products blew up Solyndra’s calculation.

In the end, Solyndra’s basic business plan had eroded to the point where it consisted of losing money on each sale and trying to make it up in volume.

Economic stimulus money should have been spent on things that would stimulate the economy as quickly as possible — bridges, roads, schools, public buildings, telecommunications, basic infrastructure, even old-fashioned car companies. The Obama folks and their congressional enablers from both parties thought they were being clever, using the stimulus money to fund trendy things that they thought were good ideas in the long run. They were wrong, and we will pay.

Another lesson we should learn from the solar crashes is that it serves no useful end to blame China. The apologists for the failed investments, including the companies themselves, wring their hands and complain that China is subsidizing PV more than we are. The implication is that we should throw more good money after the bad, chasing the Chinese in a race we can’t win..

That dog not only won’t hunt, but it won’t get off the porch. We heard the same thing from Detroit and Pittsburgh when Japan was eating our steel and auto industries. It wasn’t until we realized that lame excuses were no excuse for bad cars that things started to change. I just bought a new van. It’s a Chevy, because it was by far the best vehicle that I could find for what I need, not because it was made in America. My second choice was Nissan.

As Westinghouse’s Cinnamon comments, “Solar panels are commodities being sold on the worldwide market on a dollar-per-watt basis — much as aluminum is sold on a $/kg basis. It is crystal clear that cheap and easy-to-install solar panels are exactly what the U.S. needs to reduce our energy costs and create installation jobs.”

A final lesson is that “loan guarantee” is a slippery term, another case of propaganda used to delude and disguise. Because these are loan guarantees, not real loans, the faro dealers in Congress and at the White House tell us, there is very little risk. The real money comes from the private sector, which won’t invest unless the risks are manageable. The government will never have to face loses because the private investors will be on the hook first.

Let’s look at Solyndra. Here’s what the New York Times reported: “Although the government typically guarantees loans made to a company by a commercial bank, that was not the case for Solyndra. Solyndra borrowed the money from the Federal Financing Bank, part of the Treasury Department, so in effect, the government was lending the money to the company directly.” Now, about that distinction between risky loans and less risky loan guarantees?