Has the Sun Set on U.S. Green Tech?

Photograph courtesy of Living Off Grid on Flickr

Solar panel maker Solyndra, LLC is turning off its lights. After receiving a $535 million loan guarantee from the federal government and raising over $1 billion from private sector investors, Solyndra filed for Chapter 11 bankruptcy. The company is looking into a possible sale of its business or licensing out its technology. Solyndra developed a unique thin-film photovoltaic technology that the company claimed to have the lowest system installation costs on a per watt basis for the commercial roof top market. Earlier this year, President Obama visited a California Solyndra facility to publicize the U.S. government’s investment in green technologies and highlight its incentive programs aimed at promoting clean tech development in the country. The shut down creates a two-fold hit; it exposes an embarrassing vulnerability for Obama administration policy and raises questions about the rationale for U.S. government investment in green technologies.

On the political front, Republican lawmakers are capitalizing on the bankruptcy to highlight a flaw in the Obama administration’s stimulus plans. At a House Energy and Commerce Committee (HECC) panel hearing on September 14, Republicans released a report suggesting that administration officials rushed Solyndra’s loan award and failed to note obvious risks in supporting the company. In response, Democrats argued that Republicans are using the Solyndra bankruptcy to garner criticism for other clean energy projects because of a disbelief in climate change. Congressman Waxman, top Democrat on the HECC noted, “The majority of Republicans on this committee deny that climate change is real. If you are a science denier, there’s no reason for government to invest in clean energy.”

Abroad, foreign governments invest heavily in renewable energy technologies within their own countries and provide incentives for the consumption of the technologies. China leads the way and invests billions of dollars in green tech. Ironically, China’s investment is one of the reasons for Solyndra’s fail. The American company was not able to provide a cost competitive product with those developed in China.

From an economic perspective, renewable energy technology does not follow the traditional supply/demand model. Significant front-end investments are needed for renewable technologies to reduce sufficient costs to allow for competition with coal, natural gas, and nuclear energy. Asian and European governments led the way in these investments and as a result, those countries have a head start in tech development. Not only are Europe and Asian in control of the most cost competitive solar technologies, but they are bringing them to the U.S.

Early policy incentives for the installation of renewable technology in Europe, particularly in Germany and Italy, led to an increase in demand that European companies met with supply, eventually driving down the cost of the products. Technology companies rapidly grew to meet the demand. In response, policy makers relaxed incentives and took a back seat, thereby allowing the market to naturally play out. The lack of incentives resulted in a leveling off of demand, while supply continued to grow as companies worked toward creating better and more cost effective products. Currently, demand is just about tapped out in Europe. Economists predict that European companies will now bring their product to the U.S. market, making it even more difficult for emerging American solar technologies.

Where does that leave the U.S.? Demand for alternative energy, including solar, will rise as traditional energy supplies deplete. The U.S. is one of the world’s top energy consumers, and therefore must play a role in the development of green technologies for security and economic reasons. A mix of policy incentives and public financial backing is needed to ensure the U.S.’s place in the green tech arena. However, the Solyndra bankruptcy is illustrative of the risks of friendly green tech policy. It is probable that the bankruptcy will dissuade lawmakers on both sides of the aisle from supporting future green tech incentives. Lawmakers must search for a swift and creative solution for this bind before we are all left in the dark.