Five myths about the Solyndra collapse

at 10:07 AM ET, 09/14/2011


(Bill O’Leary - The Washington Post)

There are still plenty of nagging questions about the collapse of Solyndra, the California-based solar-panel maker that went bankrupt last month after getting $535 million worth of loan guarantees from the Obama administration. Such as: Did the Energy Department fail to do due diligence? And did the White House intervene inappropriately in pressing for the loan guarantees?

But as Solyndra becomes the newest political chew toy, there’s been no shortage of hyperbole about the affair — especially over what it means for energy policy more broadly. On Tuesday, for example, Rep. Cliff Stearns (R-FL), who chairs the oversight subcommittee of the House Energy and Commerce Committee, said that Solyndra’s downfall proves “that green energy isn’t going to be the solution.” That’s quite a leap. So here’s a look at five overheated arguments about Solyndra’s bust:

1) This scandal is no big deal. To the contrary, evidence is mounting that there was something irregular about the way the Solyndra deal got greenlighted. My colleagues Joe Stephens and Carol D. Leonnig have obtained e-mails showing that the White House pressed the Office of Management and Budget to hurry up in reviewing the deal (note, however, that this only came after the Energy Department had approved the loan), even as OMB officials voiced concern about being rushed.

Does that prove the White House engaged in cronyism, shoveling cash toward a political ally? Not necessarily. Democrats have pointed out that Solyndra’s loan process was initiated by the Bush administration and that many key investors were Republicans. Still, there could have been other reasons the deal was hastened. As a former Clinton energy aide stressed to me, it was arguably a mistake to sell the loan guarantees as job-creating stimulus (the program was expanded as part of the 2009 stimulus bill). “It means you try to force huge amounts of money quickly through processes that aren’t quite ready yet,” the aide said. “It’d be better to have a calmer, steadier source of funding.”

2) Solyndra proves that energy-loan guarantees are a flop. Not exactly. The Energy Department’s loan-guarantee program, enacted in 2005 with bipartisan support, has backed nearly $38 billion in loans for 40 projects around the country. Solyndra represents just 1.3 percent of that portfolio — and, as yet, it’s the only loan that has soured. Other solar beneficiaries, such as SunPower and First Solar, are still going strong. Meanwhile, just a small fraction of loan guarantees go toward solar. The program’s biggest bet to date is an $8.33 billion loan guarantee for a nuclear plant down in Georgia. Improper political influence in the process is disturbing, but, at least so far, Solyndra appears an exception, not a rule. (That said, the GAO and others have pointed out potential pitfalls and the need for stricter oversight in the loan program.)

3) The government should leave energy R&D to the private sector. Actually, there’s reason to think the private market is drastically under-investing in new energy technology. As a new report from the American Energy Innovation Council lays out, the utility sector spends just 0.1 percent of its revenues on R&D — the average for U.S. industries is 3.5 percent. The electricity sector is heavily regulated and capital-intensive — power plants last for decades and turn over slowly — and hence tends to focus less on innovation. What’s more, many objectives that may be in the public interest, such as reducing carbon emissions, aren’t fully valued in the marketplace right now.

As such, the AEIC report concludes, “Energy innovation should be a higher national priority.” Right now, the federal government spends a middling amount on energy research (about $3 billion in 2009), compared with the sums lavished on the National Institutes of Health ($36.5 billion) or defense research ($77 billion). And the AEIC report recommends public support for all aspects of the innovation process, from basic research to pilot projects to helping companies commercialize their products. (Solyndra was in that last phase.)

4) Solar is a doomed industry. This view has been gaining popularity, but it’s not borne out by the numbers. Prices for solar photovoltaic modules continue to tumble, even as fossil-fuel prices rise. A June report by Ernst & Young suggests that large-scale solar could become cost-competitive within a decade, even without government support. Of course, grid operators still have to grapple with the fact that the sun doesn’t always shine, but storage technologies continue to improve — in July, a solar plant in Seville, Spain, achieved continuous 24-hour operation using molten salt storage. All told, some 24,000 MW worth of projects are in the pipeline in the United States, led by California. Those projects may not all get completed, but that’s a lot of growth underway.

5) It’s all China’s fault. This one is complicated. China does provide hefty subsidies to its solar industry. As Climate Progress’s Stephen Lacey details, the Chinese Development Bank offers cheap long-term loans to domestic manufacturers that dwarf anything Solyndra ever got. That allows Chinese solar companies to offer cutthroat prices and drive competitors out. And yet, as Westinghouse Solar CEO Barry Cinnamon explains, it wasn’t China that caused Solyndra to go belly-up — the company had invented a solar panel that didn’t use silicon, unlike its competitors, and foundered after silicon prices plummeted.

What’s more, the fact that China hurls money at solar isn’t necessarily a bad thing, since cheaper solar prices can benefit the United States too. The Energy Department seems to have recognized that going toe-to-toe with China on direct subsidies may be futile and is instead trying to focus on complementary efforts to bolster innovation, through programs like its Sunshot Initiative. Also, for all China’s subsidy frenzy, the United States still exported $1.9 billion of solar products last year and actually has a trade surplus in solar with China.

 
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