What the Solyndra case says about the government and cleantech

A quick Google news search on Sunday of the term “Solyndra” produced 3,830 results, ahead of “Tom Cruise” (3,210) but still safely behind “Lady Gaga” (12,300).  It’s fair to say that Solyndra’s bankruptcy and the ensuing congressional investigation into how Solyndra secured its loan guarantee has become both a national story and quite possibly the worst PR the renewable energy industry has ever had. It comes at a time when the Obama administration is out with a Hail Mary push for a jobs package. The timing is awful for Obama, but it raises another question. How far should a government go in helping cleantech thrive and compete?

One of the undercurrents in this story is that China is playing dirty in how it supports its solar industry. The allegations are widespread and have been spearheaded by Oregon Sen. Ron Wyden. In October 2010, he sponsored a letter warning that China’s policies of restricting export of key raw materials needed to manufacture solar panels, along with its requirements that U.S. companies that manufacture in China must transfer their tech and only procure from local producers, were slowly strangling the U.S. solar industry. China has aggressively supported green technology with $216 billion in subsidies, more than double what the U.S. has spent, a point that a 301 petition to the U.S. Trade Representative’s office made last year.

There are a number of reasons why the solar industry is struggling: tariff rollbacks in Europe, the falling price of silicon and oversupply of panels in the global market being some of the other factors that sentenced Solyndra. China’s behavior is not the whole story.

But a snapshot of how forcefully the Chinese central government supports the renewable energy sector is a reminder that China views renewable energy as an industry that will be massive, even if today it’s only making slow but steady progress toward profitability. Put simply, China is doing everything it can to ensure that its companies own that early market so they can own the mature market.

Which brings me back to Solyndra. The loan guarantee was 1.3 percent of the DOE’s entire $38 billion loan portfolio, and the DOE goes into these deals assuming 10 percent of them will go bad. It’s safe to say that without DOE loan guarantees, many of the energy projects the DOE is tasked with supporting, including the largest loan guarantee of $8.3 billion for a nuclear energy project in Georgia, would not have gotten off the ground, because securing financing in private markets was too costly or simply not possible.

The cozy financial relationships that many East Asian governments have with their top corporations is a far tougher political sell in the U.S., where, as the conservative uproar over Solyndra shows, many in Congress simply don’t believe that the government should be financing clean energy. Companies like Solyndra, which require a lot of debt capital to build facilities, will find it almost impossible to raise venture capital right now. Estimates are that the solar market will be worth around $75 billion by 2016. So the question becomes, How can the government support solar so that U.S. companies can participate in that future market? One possibility that deserves further consideration is a way for the government to receive some of the financial benefit from the companies it finances and not just suffer the losses of the Solyndras. (And, yes, there will be more.)

Think about it. Assuming a 10 percent fail rate for a loan guarantee program totaling $38 billion, the government would need to amass equity worth $3.8 billion from the recipients of its loans to cover its presumed losses and make the program pay for itself. It doesn’t seem like that much to ask for. And when you look at all that China is doing to help its renewable energy industry, sustaining programs like the DOE loan program is the bare minimum that the U.S. will need to do if it wants to help U.S. renewable energy companies compete.

Question of the week

What role should the government have in supporting cleantech?
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Adam Lesser

Cleantech Curator Gigaom Research

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