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Solyndra Shakeout Seen as a Sign of Success for Wider Solar Market

Some economists and advocates of alternative energy say the collapse of the less-competitive Solyndra signals progress in a maturing global solar market.

Sep 21, 2011
Solyndra installation at Nova Coop in Verona, Italy

The collapse of Solyndra, the Silicon Valley startup that received a $535 million federal loan guarantee, has become a cause célèbre for Republican lawmakers who contend that President Obama's clean energy programs are a drain on the American economy.

But while the company's crash and burn continues to cause a sensation in Washington, some economists and advocates of solar energy say that behind the scandal is a common story of any industry—that of a business that got squeezed out by rivals with a cheaper technology.

And that may be a good sign.

Similar to other industries, the shakeout of the less-competitive Solyndra signals success in a maturing global solar market, they argue. Some suggest that solar sector investments are now a safer bet for the U.S. government than ever before.

"Solar is a large and robust industry, and it is delivering on its promise," said Adam Brown of the San Francisco advocacy group Vote Solar. "Costs have come down far faster than the investors in Solyndra had any reason to anticipate. The irony about Solyndra is that it is a victim of a great success."

Two years ago the Department of Energy awarded Solyndra a $535 million loan guarantee to develop a new type of cylindrical thin-film solar photovoltaic panels. (It eventually received $528 million.) On Aug. 31, after DOE refused to restructure its loan for a second time, the company shuttered its Fremont, Calif., factory and filed for bankruptcy.

Emails released by the House Energy and Commerce Committee as part of its investigation show that the firm faced financial distress long before its loan was approved—but DOE plowed ahead anyway. That revelation has made the loan guarantee program a target for GOP lawmakers.

But Solyndra executives and many industry analysts attribute a large part of the firm's failure to an unforeseen plummet in prices of polysilicion, a solar panel feedstock that was prohibitively expensive when Solyndra came onto the solar scene in 2005. The startup uses a silicon alternative known as CIGS, made of copper, indium, gallium and selenium elements.

When the prices of crystalline silicon modules dropped about 40 percent between 2010 and 2011—due mainly to reduced demand in Europe and generous government incentives offered in China, Malaysia and South Korea—Solyndra's cost advantage vanished and it couldn't compete.

Despite Solyndra's flameout, the solar price drop "is fundamentally a good thing," said Shayle Kann, managing director of the solar practice at GTM Research, a green technology research firm with offices in the United States and Germany. "It means that we can open up new demand. And it means that we are getting to a point where solar is competitive with retail grid prices."

Brown said that Solyndra getting priced out the market is an example of "what competitive enterprise is supposed to be all about"—where "the strong survive."

James Barrett, chief economist at the nonprofit Clean Economy Development Center in Washington, D.C., explained that companies in the government-supported Internet technology sector have frequently lost out to rivals with more innovative and cheaper solutions. "As markets mature, destruction occurs," he told InsideClimate News. "The notion that the subsidies we're giving to renewables firms is a distortion of the free market, is not true on its face."

But Christopher Horner, a senior fellow at the Competitive Enterprise Institute, a free market advocacy group, said Solyndra's collapse underscores the need for private investors, not government, to pick energy technology winners.

Private investors "are investing their own money and therefore engaging in proper due diligence and risk assessment," he said.

Industry Makes Plea to Preserve Loan Program

The DOE loan guarantee program was enacted under President Bush in 2005 with bipartisan support. Supporters told InsideClimate News that while its design may not be perfect, rejecting the program due to Solyndra would be a worse alternative for the country's energy future.

"It is critical that we don't overreact as a country," Rhone Resch, president and CEO of the Solar Energy Industries Association, told reporters on a conference call Tuesday.

Solyndra's loan comprises 1.3 percent of the program's portfolio of 40-plus projects, and it is the only one that is known to be troubled. To date, DOE has closed or issued conditional commitments of $37.8 billion to nuclear, wind and solar power generation projects, plus green manufacturing, electric-vehicle production and energy efficiency. Solar manufacturing projects, including Solyndra and three other firms, account for 3 percent of all the grantees.

The DOE has confirmed that it will proceed with issuing $10 billion worth of new loans for 15 new renewable energy projects by Sept. 30. Nine are for solar projects.

That decision is likely to be hotly contested by Congressional Republicans that oppose the program, especially if the House committee's investigation continues to turn up concerns about the procedures and transparency of the DOE financing operation.

Some proponents say they support an airing of grievances, if it leads to improvements and not the program's end.

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