Well, I guess the reports of the solar manufacturer Solyndra’s death weren’t so exaggerated after all. Just a few months premature.
Solyndra declared bankruptcy on Wednesday and laid off its 1,100 employees. I’ll have more to say about this after I chat with the smooth-talkers who got me to report in June that Solyndra “no longer seems to be on the verge of a humiliating collapse.” In my quasi-defense, I did write: “Of course, Solyndra could still fail.” The early word is that the financing they had lined up at the time fell through after the market soured this summer. Whatever. I should have been more skeptical.
So what does this mean for the federal loan guarantee program, which awarded Solyndra its first loan, for $535 million, and is now presumably about to own an awesome California factory full of robots that produce non-traditional rooftop solar panels that not enough roof-owners want to buy?
Politically, it’s a disaster; President Obama visited the factory last year, and hailed Solyndra as “a testimonial to American ingenuity and dynamism.” Republicans were already gunning for this program; now they’re going to have a field day. One of Solyndra’s investors, George Kaiser, was an Obama fundraiser; there’s zero evidence that had anything to do with the loan–which actually was set in motion during the Bush administration–but the critics probably won’t mention that.
Substantively, though, this shouldn’t freak anyone out. Solar is one of America’s most vibrant industries; it grew more than 100% last year. We’re now a net exporter of solar technology to China, although that’s partly because China is doing more to subsidize solar energy. China is also doing more to subsidize solar manufacturing; the Chinese government has handed out about $20 billion worth of loans to just four companies. That’s the main reason the price of solar panels has dropped so much faster than Solyndra expected. On the whole, that’s a good thing, although 1,100 people don’t feel that way today.
This is all part of a larger discussion about industrial policy, and at some point I’m going to write about it in the magazine. But when it comes to the loan program, this shouldn’t raise any particular alarm bells. Solar is a tough market, and as I told my hosts at the time, Solyndra’s factory in Fremont felt a bit too awesome; they had a very complex process for making what is normally a pretty simple product. Solyndra’s version did have certain advantages, particularly ease of installation. And according to the Energy Department, the company sold more than 1,000 installations in 20 countries, increasing its sales revenue 2,000% in three years. But they couldn’t keep up with the competition on cost.
We’ll see whether the political system can deal with this kind of failure. One of the cool things about Obama’s stimulus bill, which dramatically expanded the loan program, was its emphasis on competition, its embrace of risk in pursuit of real public benefits. As one of the Energy Department’s top officials told me, the push for clean energy is going to require some pioneering work, and pioneers can’t be afraid to fail. Which is exactly the right attitude. Until something fails.
As I wrote in June, the Energy Department may have the world’s biggest project finance team, but it’s not a bank. And as you may have noticed in recent years, even banks have been known to misjudge borrowers:
That’s the nature of loans; not all of them get paid back…The point of the loan guarantee program is not to make failsafe loans to failsafe companies; it’s to promote the growth and commercialization of alternative energy at a time when commercial banks are reluctant to take risks… The program is not about picking winners and losers; it’s about picking a sector of the economy and letting the market pick the winners and losers.
Well, Solyndra was a loser. And yeah, I feel like one, too.