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Solar Offers Opportunity Despite Setbacks

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The news on Wednesday that solar power company Solyndra declared bankruptcy might seem to the casual eye to be one more nail in the coffin of the U.S. solar power industry.

Europe and China might be ahead of the United States in trying to harness the energy of the sun to meet the world’s energy needs, but U.S. companies are still in the mix.

The New York Times reported Thursday that U.S. failures in the marketplace are boosting an already successful Chinese solar energy sector that, while technologically behind Europe, South America and Japan, has the benefit of heavy government investment in the form of cheap loans, tax breaks, cheap or free property and massive economies of scale.

Europe, too, is actively pursuing solar, with Italy having recently instituted a feed-in tariff that provides incentives for products that are at least 60% European manufactured.

That incentive not only boosts European companies but is providing a boost to U.S. companies with manufacturing facilities in Europe. Arizona-based First Solar has been producing thin-film modules in Frankfurt, Germany, since 2007 and intends to double manufacturing capacity.

And the United States solar power industry actually boasts a trade surplus with China. According to GTM Research and the Solar Energy Industries Association (SEIA), in a report released at the end of August, the surplus amounted to $247 million, thanks to solar exports of $1.9 billion. ThinkProgress reported on that and also on the size of the government subsidies China provides to its solar industry; a chart on the site shows that U.S. government investment in Solyndra was dwarfed by Chinese investment in any one of its companies.

In a self-perpetuating cycle, China’s cheap products put even more pressure on remaining companies to lower their prices. Shayle Kann, a managing director of solar power studies at GTM Research, a renewable energy market analysis firm based in Boston, said in the report that solar equipment pricing is set by the Chinese “and everyone else prices at a premium or discount to them.”

Does this mean that the U.S. should abandon the solar market as too risky a proposition, with the failures of Solyndra (which had a $535 million federal loan guarantee from the Department of Energy), Evergreen Solar of Massachusetts, SpectraWatt of New York and BP Solar of Frederick, Maryland—that last having suspended production this past spring? After all, those four companies accounted, according to GTM Research, for nearly a fifth of the solar panel manufacturing capacity in the U.S.

By no means, according to numerous sources within and outside the industry. As the battle rages over whether the Energy Department should not have spent so much stimulus money investing in a company that went bankrupt (after creating 1,100 jobs), there are a number of other factors to remember, both for policymakers who doubt the wisdom of government involvement and also for investors who may be wondering whether to sink their own money into the sector.

Investment in any new technology carries risks along with the potential for huge rewards. Mark Muro and Jonathan Rothwell at the Brookings Institution said in an opinion piece on Huffington Post, “The growth of manufacturing- and capital-intensive industries often requires government engagement. And yet, competition and innovation inevitably involve creation and destruction. That means it’s a fact of life that, as awkward as it is, government efforts will need to accept a modicum of failure in order to create much greater and lasting value.”

Dave Llorens, CEO of One Block Off the Grid, wrote on the Huffington Post that “the government made an investment mistake; Solyndra was not a good business.” To prevent such a loss of taxpayer money in the future, said Llorens, “we need to approach it like investors in the private sector who know their way around evaluating cleantech investments rather than doling out money to the first in line.”  

Another factor is the creation of new and better paying jobs. The Brookings Institution found that “[t]he clean economy offers more opportunities and better pay for low- and middle-skilled workers than the national economy as a whole. Median wages in the clean economy—meaning those in the middle of the distribution—are 13% higher than median U.S. wages. Yet a disproportionate percentage of jobs in the clean economy are staffed by workers with relatively little formal education in moderately well-paying ‘green collar’ occupations.”

Steve Vassallo, general partner at Foundation Capital, had written for Forbes in January, before the bankruptcies, that although venture capital investment was substantially down in solar it was “one of the brightest opportunities still on the horizon.” Why? Because of new models of financing that could make residential solar “a practical and profitable business reality:” a solar power purchase agreement (PPA). Through a PPA, a homeowner no longer has to foot the upfront bill for installation of a solar power system, putting such systems within reach of anyone with a sound credit rating.

The need for private solar energy systems is even stimulating a new derivative: bundled solar leases. Although it remains to be seen whether that is an investing arena that will pay its owners dividends, the solar leases that are to be bundled, according to a Forbes report, are those of lessees with strong credit ratings—unlike the bundled mortgage securities that sent the economy lurching down the road to recession.


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