Explaining Southern California's economy

Solyndra bankruptcy suggests that governments aren't investing enough in solar energy

The Solyndra bankruptcy has taken a vaguely criminal turn, as the FBI in recent days has raided the company's Fremont, Calif. headquarters and paid a visit to the homes of the CEO and founder. Opponents of President Obama's enthusiasm for green jobs have seized on Solyndra's woes as evidence that alt.energy is an economic bust. This is from the LA Times:

"The FBI raid further underscores that Solyndra was a bad bet from the beginning and put taxpayers at unnecessary risk," Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee, and Rep. Cliff Sterns (R-Fla.) chairman of its Oversight and Investigations subcommittee, said in a joint statement. "President Obama's signature green jobs program went from a darling of the administration to bankruptcy to now the subject of an FBI raid in a matter of days."

It's far from clear that there was any wrongdoing at Solyndra. But the allegation that Solyndra was a bad investment by the Department of Energy, which provided a $535 million loan guarantee to the company, doesn't necessarily hold water. If anything, Solyndra might not have had enough funding to make a go of it. A lot of observers are blaming Solyndra's failure on a combination of pursuing a niche solar technology and increased Chinese production creating a solar glut.

I assumed that China's ability to cheaply built mucho solar was due to workers working for nothing. But then I checked out this New York Times report on the Solyndra bankruptcy. In it, Allison Arnold, who works for Mitsubishi, a Japanese company selling solar panels in California, argues that it isn't labor that's the problem, but money:

While some believe China benefits from lower labor costs, Arnold said, "in fact much of manufacturing of solar modules is automated. Really the reason that countries like China are able to sell product at lower cost is they have cheaper access to capital," because of government investments.

This confirmed something I've been suspicious of in the U.S. Green-energy market and have blogged about before: That the core business challenge for alternative energy isn't one of growth but scale. There's simply not enough demand in the economy for solar to attract the level of investment that would be required to scale what are actually reasonably good growth rates. Growth sounds great. But growth without scale is small-time growth.

Arnold makes the useful point that the government needs to not only create a favorable investment climate, but also must provide reasons for consumers to insist on more Green energy, thereby boosting demand. Incentives are everything when you're going up against inexpensive coal-fired power.

This is tricky stuff, especially given the bedraggled state of the overall economy. But it's worth noting that while Solyndra may have done something bad, it would be worse at this point for federal and state governments to pull the rug out from under renewable investment.

Photo: Solyndra

 

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