Another U.S. Solar Firm Goes Bust

(iStockphoto)

Two weeks ago, Steve Sexton wrote about the bankruptcy of Evergreen Solar in Massachusetts. Today it’s California’s Solyndra that’s shutting down.

From the Washington Post:

The unexpected announcement raised questions about whether taxpayers would be responsible for the entire $535 million in loans that the company used to build a Silicon Valley factory. The wisdom of loan guarantees granted to the company by the Obama administration had already been questioned by government auditors and been the target of a subpoena from House Republicans.

The start-up venture has long been an administration favorite, and its Fremont, Calif., factory received visits from both the president and Energy Secretary Steve Chu. Both used their visits to praise the company for creating jobs and leading the way into a new economy fueled by green energy businesses.

The company was backed by venture capital from Tulsa billionaire and Democratic fundraiser George Kaiser. Its political connections had been been criticized by Republicans, who questioned the administration’s focus on the company.

Is it a stretch to assume that Solyndra has a similar problem as Evergreen? As Sexton points out:

Evergreen’s spokesman conceded that the source of the company’s problems is price competition from China, not demand at home: “Make a couple of phone calls and see in the solar projects around the state, where the panels are coming from. They’re not coming from a U.S. supplier.’’

If not, then have we already lost the solar industry to China?


jonathan

Yes.

DaveyNC

Not necessarily. But this is an object lesson in why government should not be in the business of favoring one company or industry over another. Half a billion dollars.....pffffft!

Mike B

China came to dominate the solar industry through government subsidies so going by their example the state should intervene in the market to forge long lasting economic dominance. The problem isn't that we chose to subsidize solar, but that we didn't try hard enough to support the industry. Of course the better move on our part is to help re-balance the playing field through tariffs so that we can compete on a more even playing field.

IE

There goes hope that we can innovate our way out of the trade deficit.

I'm curious, what would have to happen before the mainstream economists and policymakers consider the possibility that the free trade may not be a good idea for the United States in the long run?

Joshua Northey

Free trade is never a good idea. You always want others markets to be free and your to be protected, now whether that is possible/realistic is a legitimate question, but there is no doubt that a purely free trade economy is inferior to one where everyone else is free but you are not.

Protectionism works (depending on your goals).

mfw13

We lost the solar industry and many others years ago when we started underinvesting in science education.

If I remember correctly, I read somewhere not too long ago that China now graduates more engineers from university in one year than the US does in five.

Mike MacDonald

The "we graduate too few engineers" canard has been making the rounds since at least 1990, when America was awash in unemployed aerospace engineers, most of them with security clearances (i.e. citizens). I should know - I'm an electronics engineer. H-1B visas have been pushed for years by IT companies who don't want to pay US market rates for talent, so they import it.

Know how I spent today? Trying to figure out how I can get silicone grease off a chip assembly using only Alcohol and Acetone, which by California law are all that can be used. Know how a Chinese engineer does it - he immerses it in a hot bath of Trichloroethane and in 1o seconds his job is done and he moves on to his next task.

By the way, you'll be breathing his Trike. Hell, he's probably using CFC-113 too (I miss it - it may harm the ozone but you could drink the stuff if you wanted, and it was a great solvent: assemblers could put a cigarette out in it too, back before smoking was punishable by burning at the stake).

We have our environmental holistic healthy paradise - but apparently we can't all get rich selling real estate to each other? BUMMER.

I'd write more but I have to go to my mandatory "Diversity and Inclusion" training. The only growth industry in America is tying our growth industries in knots.

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Cate Long

Noncompetitiveness is likely the reason for the sudden rush of venture capital funded bankruptcies. I’m not proficient enough in solar economics to know. But the story of Solyndra weaves together political influence, big dollars and shortcuts in oversight. Accusations have been swirling that loan guarantees from the Department of Energy were incomplete and rushed.

ABC News has been on the story of the ties between Solyndra and the Obama White House for about a year. In the excellent video above ABC questions the ties between presidential cash-bundler Steve Westly and the Department of Energy. Westly served as California Campaign Co-Chair for Obama for America and also as a member of Obama for America’s national finance committee.

http://blogs.reuters.com/muniland/2011/08/31/dirty-solar/

Brian

Our slow moving Govt policies and our religious backed roadblocks to adopt the true cause of global warming have already put us light years behind China. China will once again eat our green lunches on the way to solar profits.

Luc Vallee

If you search far and wide, you can find the real reason for this situation; and it is a little bit more complicated than it looks like on the surface. Yes, it is competition from the Chinese that are putting other solar firms out of business. But read the following comment from Bronte Capital and you'll discover that some Chinese solar firms are so badly mismanaged that they have currrently no choice but to dump their products on the marketplace. The piece is a bit long but it is fascinating and it sheds light on this murky situation.

http://brontecapital.blogspot.com/2011/08/trina-solar-somebody-got-lucky-but-it.html

Thanks to Frozen in the North for the Info: http://frozeninthenorth.blogspot.com/2011/08/two-fascinating-post-i-am-reading-today.html

Luc Vallée, blogging at The Sceptical Market Observer

Brandon

That Bronte Capital post is completely fascinating, thanks for posting

Shawn

Don't blame me, I voted for Ross Perot.

Allen

Is this yet another case of government intervention distorting the market? Where would these companies be today if the money had been grants for research and development not us as discounts on the real price?

Joshua Northey

"If not, then have we already lost the solar industry to China?"

We may get it back in a few decades when the rising standard of living in China reduces the wage differential to a point that it doesn't dwarf transportation and other costs. Manufacturing has become so commoditized it is hard to "lose" and industry if the fundamentals are there, and hard to keep them if they are not.

Focus on fixing the fundamentals and the industry will come back.

Some good starting points would be:

1) Tariffs on good not produced to meet US standards (worker rights, carbon emissions, whatever)
2) A focus on technical/life skills training for the lower class so that they can be productive laborers instead of dead weight
3) A reduction in benefits to the lower classes to increase the desirability of working

Erik

For an economics blog that loves micro I remain distressed over a relatively simple issue missed here and elsewhere about "green jobs". Energy is perhaps the penultimate commodity good (and an intermediate one at that). THE MAIN thing that providers of charged electrons are going to compete on is price. So it is highly unsurprising that Schumpter's process of creative destruction would work is "magic" on domestic on-shore solar manufacturers.

Now we could complicate the miodel a bit. In addition to price there are issues of reliability. You are not really buying an electron but an entire system and, indeed, one is usually buying the services of a contractor who then is the agent that buys the panels. One COULD argue that in addition to price there are issues of reliability and that domestic manufactures could posit that foreign manufactured panels are likely to give out faster. However, this is an industry where information (about future reliability) is uncertain and costly to obtain. High discount rates are going to be applied by purchasers who are likely to also impose a high discount rate because of their beliefs about continued ownership of the property where it is installed. Thus while the model is a BIT more complicated than one where marginal differences in price are the Sole detainment it is pretty darn close.

I hate to be cute but Dead Dinosaurs Don't have Health Benefits. Price is going to be king...and if I can drive down labor costs to a minimum I am going to have a great advantage.

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John B

A major Presidential fundraiser gets paid over $1/2 billion of "green" money and it basically disappears.

And the US Justice Department prosecutes American businessmen who paid sums to foreign officials to gain influence and business in those countries?

It sounds like the prosecutions were intended to spread the message---if you are going to pay officials, give it to this administration's fundraisers, not to foreigners. And not only will you not get prosecuted, we will deliver taxpayer $ directly to your company.

Not only do taxpayers get taken, but legitimate competitors of the favored companies get put out of business. Oh well, let's blame the Chinese.