The Solyndra debacle grabs so much attention because it’s such a sensational example of the government picking winners and losers, and because it’s loudly wielded as a weapon against the Obama administration. The latter fact is silly considering that the Department of Energy Loan program, what funded Solyndra’s loan guarantee, was actually started by President G.W. Bush. The program’s mission is to “accelerate the domestic commercial deployment of innovative and advanced clean energy,” – and provides loan guarantees to certain companies it chooses to. This means that private banks can fund the companies at low interest rates because, in the event of bankruptcy, Uncle Sam will foot the bill (the program actually set aside $10 billion to cover these losses). So far, including Solyndra, the losses are about half a billion. Private capital was lost as well, as it’s difficult for investors to sit on the sidelines and not play ball with a company that just got $500MM in effectively free money, regardless of whether it’s a good business or not.
The problem isn’t that the government is encouraging the development of renewable energy – that’s awesome. The problem is that the government is helping to pick the winners and losers and, well, even venture capitalists aren’t that good at doing it sometimes. The government definitely isn’t. Why should one company, like Solyndra, be deemed worthy of below-market loan rates while another company struggles to access capital? If this could be done efficiently, fairly, and most importantly, with a solid return, then it might be one of the tactics to bridge the gap between the incumbent trillion dollar fossil fuel industry which is heavily, heavily subsidized, and the budding, better, and less well capitalized challenger (solar). Unfortunately, it can’t, so it’s not.
According to the DOE website, Solyndra was credited with 3,000 permanent jobs. We can make many, many times the number of jobs with the same money. This is not the best use of your money and my money. Our money. There is a better way.
Subsidizing demand generation is more effective than subsidizing upstream supply chain
What if we had taken the Solyndra portion of the DOE loan program and instead of investing in them, we used that money to double the number of total solar installations in the United States? If we took just the $535 million of that $36 billion program that was lost on Solyndra, and chopped it up, and allocated it properly, we could have effectively doubled solar in the US (math coming later in the article).
Currently, more than 100,000 people work in the solar industry in the United States. There have been approximately 190,000 PV systems installed in the US since inception. Let’s, for simplicity’s sake say that doubling the amount of installations doubles the amount of jobs in solar. An extra 100,000 jobs would be over 30 times as many as Solyndra creates for the same amount of money, and would have resulted in a faster lift-off of the market.
Most of the reason that solar in Germany costs $2.50 per watt installed on a house, and here in the U.S. it costs $5.00 per watt, is not because they magically get products cheaper, or even labor is less expensive (it’s actually more). It’s just because our industry is less established. Give it fuel on the demand side of things, and you drop the price and get it closer to what Germany looks like – but you do it naturally and sustainably and using the free markets in the way we are great at. You don’t do it by backing a small handful of horses that you are bad at picking in the first place.
I’m a capitalist. I believe that if you make the economics of something appealing and sexy to an American, they will buy it. I also believe that if Americans buy a lot of a certain thing, the manufacturing and pricing of said thing will naturally find a natural path to being cheaper. This has been done a thousand times before. Remember when only rich people had cell phones?
Back to our Napkin Math
What if we chopped up $535 million and provided a $2,815 cash rebate for the ‘first’ lucky 190,000 homeowners to install solar in the United States. This program would cost the same as the Solyndra failure. It provides the industry with everything the DOE loan program does not: it’s transparent, predictable, measurable, and is applied evenly across the industry. No favorites. We could easily track when the program was approaching its limits and make decisions as to whether it has done its job (lowered the install cost of solar to a level where it is competitive in more places and increased consumer knowledge by increased presence).
In most of the places that my business operates, solar can be a better deal than the utility – in other words – the power is cheaper if you buy some form of pay-as-you-go solar than if you were to buy the same power from your utility. However, there are areas of the country where utility power is still cheaper than solar, and this would help solar get on its feet in those places, until the “soft cost” of installation and cost of products are lowered to compete naturally.
If you need a concrete example of how this soft cost is lowered, take a look at Phoenix, Arizona. Phoenix was a non-existent solar market. Then they released a kick ass rebate through the utility and had some good PR. Big companies moved in to the new micro market. These companies ran into uneducated permitting desks and inspectors who would rather fail everything than make a mistake. They ran into utility delays interconnecting the systems, they ran into etc., etc., etc. The companies with larger amounts of money paid for training for the inspectors, they educated consumers, and they educated the utilities… Soon the price of installed solar dropped, over the course of two years, over 40%.
That’s how you do it. You create the market opportunity by using demand-based subsidies, and the market opportunity you have created does the work for you. Think of it like your own immune system curing a disease (demand based subsidies) as opposed to trying to cure it with surgery (supply side horse-betting).