Solyndra's Collapse Means ______.

The collapse of California-based solar panel maker Solyndra, LLC is old news by now, but the political ramifications of its bankruptcy are not. With many conservatives using Solyndra's $535 million federal loan guarantee as evidence to argue that the federal government stop funding renewable energy, and the mainstream media investigating what this means for the future of solar and other emerging energy technologies, right now is an excellent time for conservatives and liberals alike to air beliefs about energy, innovation, new technology, and the role of government in supporting all three. After Stephen began last week's debate with a stirring call to eliminate federal higher education subsidies, it's Matt's turn to lead off.

Posted by Matt, 12/19/11:

The easy answer to this week's question is that Solyndra's collapse means absolutely nothing. Actually I should clarify that - it should mean absolutely nothing.

Alas, therein lies the problem. Combine a rabidly conservative congressional majority desperate for any excuse to discredit the clean energy industry with an electorate that remains particularly sensitive to any perceived government waste, and you have a toxic political brew that threatens to seriously undermine the future growth of the renewable sector, one of the few industries currently adding jobs in a down economy.

The conservative take on Solyndra, and argument against renewable energy in general, is two-fold: number one, they argue, the government shouldn't be "picking winners and losers" through federal subsidies, loan guarantees, tax incentives, or any other sort of investment. The other argument, of course, is that it's a waste of money - and here's where Republicans have seized upon the $535 million in Department of Energy loan guarantees given to Solyndra to summon the righteous outrage of the anti-spending conservative grassroots.

More Solyndra after the jump...



The problem with these arguments is that neither of them make any sense. The $535 million given to Solyndra, which was itself a small fraction of the $27.2 billion dollars TOTAL in new money that the government spent on renewable energy in 2009 and 2010 (mostly through the stimulus), amounts to just 0.01 percent of a federal budget that will total $3.7 trillion in 2012. Add in the fact that clean energy has the highest investment return rate of any federal program, and the waste-of-money argument disappears entirely.

As far as picking winners and losers is concerned, the government has been picking a winner in energy for a long time, and it's called the fossil fuel industry. Energy markets are no more "free" than I am 7 feet tall. As David Roberts at the environmental reporting website Grist.org writes:

Energy markets are ubiquitously shaped by laws and regulations and quasi-public monopolies and taxpayer-funded infrastructure. More to the point, they are comprehensively rigged in favor of fossil fuels (link). So when it comes to energy, saying "let markets decide" is, more often than not, tantamount to saying "leave the status quo as it is."

The big question is why the supposed party of economic growth wants to stymie an industry that continues to create badly needed manufacturing jobs right here in America. Solar was the fastest growing energy sector in the country during 2010, and government tax incentives and loan guarantees, much like the one given to Solyndra, have helped to unleash a growing flood of private investment that continues to support solar power and other renewable technologies.

So should Solyndra matter? To the extent that it represents one failed company in an industry that is rapidly expanding - no. Unfortunately, with two important tax incentives set to expire at the end of the year as Republicans continue to beat up on renewable energy, 2012 could be a year of regression for clean tech. And while the slowdown of a business increasingly vital to the US economy may benefit whomever ends up being the GOP presidential nominee, it will not be good for America.

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Posted by Stephen, 12/27/11:

Solyndra, Matt, actually comes from the Greek phrase for "Why Government Should Not Play Venture Capitalist". The whole thing proves that governments are not well suited to the venture capital industry and that taxpayers should not be sources of funding for any current government's favorite pet projects. Thus, I will contend that the government ought not be picking favorite industries and subsidizing their growth. I have three arguments for this, an economic one; a warning against crony capitalism; and a financial one.

Matt argues first that the solar industry is bringing jobs and this is always good, but I have three responses. 1- many of these jobs came from simple reclassification of previously existing jobs, and thus weren't really new; 2- others were government positions filled to oversee the subsidies to the industry; and 3- in 2011, the industry created 44,000 jobs, which if job creation is our goal isn't a very big bang for our buck. By Matt's own numbers, that means each job (assuming it can grow by the same number) cost $618,181. Granted, by government standards, that's pretty cheap; meanwhile fracking created 110,000 jobs in 2011. But hey, we can also get into a debate about whether the government should be in the jobs creation business at all (spoiler alert: they shouldn't). Finally, if the government wants a cheap and easy way to create some jobs they better get to work on approving the Keystone XL pipeline! That will create nearly half of the jobs solar did last year, by itself!

Then Matt argues against the traditional claim that government should not be picking winners and losers with two arguments. First, since renewable energy amounts to only 0.01% of the federal budget, its barely noticeable. But Matt, I'd like you to ask the average American family if they'd burn $420 bucks every year, because eh its just 0.01%. If they say yes, just pretend to burn it though, because I'll gladly take it. Next, Matt tells us it has a great ROI. First, we must note that the government isn't actually getting money back from these companies (except interest on loans), but rather this return is generated by consumer savings. So essentially the government takes all the risk and is given 0 upside. Normally, investors look for low risk, high upside, but hey I don't expect them to get it. So all-in-all, between the high risk/no actual ROI (since theoretically the consumer saves if the government writes the loan that leads to cost savings or VC does), and poor price/job created, thus my first point that there is not much of an economic incentive.

As for Matt's statements calling for an end to oil subsidies, we see his true colors. Clean Energy subsidies have never been for economic reasons, but rather personal ideological reasons, and that is exactly why they will never work. Bringing me to my second point: these ideological reasons are what makes it dangerous, and raise the likelihood of crony capitalism occurring.

Third, since US Venture Capital is the deepest in the world, there is no shortage of money that is willing to invest in a good idea (17% of VC went to clean tech in 2010). Therefore, any company that needs money and has something that could be potentially profitable, has amble access to capital. Furthermore, it's the few that the private sector has passed on, like Solyndra, that NEED government funding, thus their risk is inevitably higher. Thus, the real argument Matt is making, there is a market failure so government must step in, is entirely wrong since VC is investing in as much solar as they can find!

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Posted by Matt, 12/30/11:

I'll get to as much as I can here because there's a lot to rebut and not much space. For starters, as I cited in my first post, the National Academy of Sciences concluded this year that $400 million in taxpayer investments in clean energy R&D yielded a $30 billion return. Unless you consider a 75-1 investment return to be a waste of money, I'd argue that the government has been a pretty successful VC, at least when it comes to energy. Even if that money is only realized through consumer savings, the last time I checked consumers pay taxes too.

But the broader argument is a contextual one. Stephen did nothing to address the fact that energy is one of the most highly regulated and manipulated sectors of our economy. I don't think I even called for an end to oil subsidies, because that's not the point. It's about the fact that ALL energy is subsidized. Investing a modest amount of federal money in solar and other renewable technologies isn't crony capitalism; it's leveling the playing field.

I know that Stephen is an aspiring investor, so presumably he understands that in the VC world, not every investment works out, and the fact remains that Solyndra is a ripple in a sea of clean technology innovation. The overall economic benefits of investing in renewable energy are more than worth a few Solyndras, and the conservative clean energy witch hunt has done nothing but prevent us from having an honest discussion about how best to support the growth of an industry with a ton of potential that runs the risk of not being realized.

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Posted by Stephen, 1/3/11:

Matt, first let's discuss VC. Remember my third point? US VC is the deepest funding market in the world, making it incredibly fair to say that hungry VC firms will gobble up an potentially profitable companies. So if the concern is that alternative energies could be profitable won't see the light of day, we shouldn't be concerned.

Now, onto why the study you've chosen to highlight is nonsense. First, you realize those are savings to the taxpayer, not money the DOE got back, right? Loan guarantees (like the ones provided to Solyndra), consumption incentives (like those given to purchasers of solar) and tax breaks (given to oil) don't actually bring money into the treasury. So, the taxpayer would have received these savings anyway in something of a free rider scenario. However, when private VC takes the risk, the taxpayer doesn't. Lastly, the study highlights select cases that succeeded. The US, by your own admission spent nearly $30B on alternative energy between 2009 & 2010, and its been spending over a billion every year since 1980. My math says that's more than the taxpayer's benefits.

Finally, Matt, I think we finally understand what this debate is about, as you said and I agree, about leveling the playing field. Two points - first, the only reason the government needs to step in and level the playing field is because it already chose a favorite industry (oil) and has created an uneven playing field. However, if government got out of the VC game all together, then wouldn't the playing field be leveled? Remember, when the US subsidies oil, its still playing VC. Second, the private VC world is motivated by profit, not favoritism and thus is the best way to ensure that the best companies receive funding and not just political favorites.

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Posted by Matt, 1/4/11:

VCs with deep pockets may be eager to invest in potentially profitable businesses, but there's a difference between the early-stage profitability of a tech start-up and that of an energy company. ALL energy requires a ton of seed money (think of how much infrastructure - not to mention manpower - it takes to build a power plant, or even to put solar panels on your home), which makes energy projects a much bigger risk for investors without the offsetting benefits of federal tax credits or subsidies.

Every modern source of "conventional" energy has received some form of federal assistance - from coal and oil to hydro (which, incidentally, put millions of people to work during the Great Depression) and nuclear power (recipient of millions in loan guarantees similar to the ones given to Solyndra). In the last two years, investors have pumped a growing pool of capital into solar and other clean tech sectors, but it's simply not profitable to invest in a large energy project without something to lessen the risk.

With any large-scale undertaking, the private sector cannot do it alone. Government provided the initial push behind the internet and signed away the land grants that helped develop the railroads; if you'd like, take a second to review the list of NASA spinoff technologies developed with government research. Solyndra was a victim of the broader success of the solar industry - it couldn't compete with rapidly falling prices - success which would not be possible without the support of the US federal government. Failing to see this lesson, and using one bankrupt company as an excuse to curtail the future growth of the entire solar industry, would be a huge mistake.

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Posted by Stephen, 1/7/11:

I believe at this point it's clear to even Matt that he's wrong, let's just look at the evolution of this debate to see why. Matt opened his position by telling us solar added lots of jobs, but it turned out there wasn't much bang for the buck there, nor was there a large total number of created jobs. Then, he argued that "hey, why not? its only 0.01% of the budget!" -- but that too was ridiculous because you wouldn't light 0.01% of your income on fire. Then he said it wasn't fair! Oil gets subsidies! You're right Matt, oil subsidies are the result of exactly what you want, government VC.

In his next statement, Matt abandons most of these arguments are presents that the government is actually good at picking winners and losers, thus it should stay in the VC game. He cites a study, but it turns out these wasn't ROI but hypothetical savings for the taxpayer :(.

Finally, Matt abandons these arguments and goes on to his final claim: only government can nurture this poor, defenseless, fledgling industry! Wrong! Maybe right in China, where private capital markets are shallow, but in VC hungry America, there's more than enough capital out there looking for returns that will take high risk positions on (keyword) POTENTIAL profits. Remember, the US has the deepest angel investors in the world. Lastly, Matt I'm not sure how you determined that oil and coal had government subsidies from the start, I've never heard this. Their true reason for becoming so profitable was that consumer and industrial demand did so, not government subsidies. Unfortunately for solar, there just isn't enough demand yet to make it profitable, but don't fret unlike government VC dollars tend to think long term. Free markets = fair markets.