The (Real) Lessons from Solyndra

The White House is worried that the story of Solyndra, the solar power company that filed for bankruptcy protection after receiving $535 million in loan guarantees, will follow Obama through the 2012 election season. I’ve got a feeling it will stay with us even longer than that.

Thomas Friedman once wrote that when historians will look back at the end of the first decade of the 21st century, they will say that the most important thing to happen was China’s green leap forward. My hunch is that the Solyndra episode will be one of the examples they will use to make their case.

Chances are that Solyndra will be used as an example of the trends that caused the U.S. to lose the clean energy battle to the Chinese. Yet, there’s also a chance, although a very small one at the moment, that we might not lose the battle. But first, policy makers and the public must recognize there’s a war going on, one the U.S. cannot afford to lose. Here are four of them important lessons from the Solyndra story.

1. This is a dirty war – China is playing dirty to lead the cleantech revolution, whether it’s the unreasonable IP demands in the electric car market, tight supply of rare earth metals, or clean energy subsidies and other policies that seem to violate the World Trade Organization’s (WTO) rules. Whether you like it or not, this is the clean tech battle zone and therefore the U.S. needs the right weapons to be able to respond effectively.

Is providing a $535 loan guarantee to a start-up to develop a high-risk advanced solar technology one of these effective weapons? Actually, the answer is yes. “You can’t really beat China at its own game. It’s going to be very difficult for an American company to be able to compete in the global market, so what U.S. manufacturers have to do is differentiate themselves technologically,” explained M.J. Shiao, a solar market analyst at GTM Research on the Hill.  This is exactly what Solyndra tried to do. With high-risk investments like Solyndra sometimes government funding is the only option. Sometimes it works, sometimes it doesn’t. But there’s no other way, unless the U.S. wants to start playing dirty as well.

2. Washington offers a clear but wrong signal – China wins the battle not just because it spends tons of money on green R&D and innovation, but also because it provides a very clear signal that it will do whatever is takes to become a clean tech powerhouse. While Beijing is full steam ahead, Washington is going back and forth on clean tech, providing very little assurance to entrepreneurs and investors.

What little support there was becomes even tinier after Solyndra. “Can you imagine the Congress voting on anything generous for the solar industry right now? I don’t think so,” said Paula Mints, a solar industry analyst at Navigant Consulting to the Hill. The fact that Washington is so divided on investments in clean tech is nothing new, but it seems inevitable that Republicans will use Solyndra as a reason to kill clean tech investments. Clean tech funding will become a political weapon to win political wars. This offers only one clear signal – U.S. clean tech industry can’t rely on Washington, not for the long-term and not even for the short-term. This is very clear, but also very unfortunate because there is tremendous economic opportunity in the sector.

3. It’s not about the money, it’s about priorities – In both China and the U.S. investments in clean tech come in far behind investments in the military. Yet, the Guardian reports that for every dollar China spends on clean energy, it spends two to three dollars on defense. In the United States, every clean energy dollar is paired with 41 dollars of military spending. If you want to get a better perspective of the investment in Solyndra comparing to the investment the U.S. makes in defense items, check out the chart prepared by Philip Bump – it explains it all.

4. Solar demand and solar supply are different creatures – The Solyndra case sharpens the differentiation between the two. The hope with investment in Solyndra and other solar companies was that solar development would kill two birds with one American stone: create jobs and reduce dependency on oil. Now, it seems that the U.S. will have to be satisfied with one bird because solar demand keeps rising while solar manufacturing is desperately fighting to survive against growing Chinese dominance.

The result is that the U.S. solar power market, which continued to grow at a record-breaking 66 percent pace in 2011′s first half according to Grist, will find itself relying more and more on cheap Chinese solar systems to meet the growing demand. This situation is also a reflection on the different approaches in China and the U.S. While China focused on improving the competitiveness of its solar manufacturers, the U.S. focused on supporting the buyers of solar panels. The bottom line is that solar panels will be no different than shirts or electronics, or in other words – Made in China.

On his visit to Solyndra last year President Obama said China and Germany realize those that lead the clean tech economy will lead the global economy. He was right. Maybe it’s time the U.S. will recognize it as well and take the time to review the lessons from the Solyndra story before it will be just too late.

Raz Godelnik is the co-founder and CEO of Eco-Libris, a green company working to green up the book industry in the digital age. He is also an adjunct professor in the University of Delaware’s Alfred Lerner College of Business and Economics.

Raz Godelnik

Raz Godelnik is an Assistant Professor and the Co-Director of the MS in Strategic Design & Management program at Parsons School of Design in New York. Currently, his research projects focus on the impact of the sharing economy on traditional business, the sharing economy and cities’ resilience, the future of design thinking, and the integration of sustainability into Millennials’ lifestyles. Raz is the co-founder of two green startups – Hemper Jeans and Eco-Libris and holds an MBA from Tel Aviv University.

5 responses

  1. How is it possible for the US to compete with China, when our corporate tax rate is over 25% and China’s cost of labor is so low?

    How is that not mentioned in this article?

    Also, no one wanted to give Solyndra the loan because they knew they would fail…

  2. Thou doth protest too much… WHY is the green/left so insistent on finding “other messages” about Solyndra other than a case of yet-to-be-determined outright fraud? The executives are pleading the fifth. And you don’t just accidentally spend $565 million dollars. This won’t be a story of China’s leap forward – this is going to be known as the Green Enron (except it will include government officials going to jail).

  3. Considering I’m against any corporate subsidies, Solyndra’s bankruptcy is a good thing. Let the free market hand green products rather than the government. Now all we need to do is repeal Reagan’s tax cuts and capital gains tax, as well as return to a gold standard of money so our money can actually get stronger. We need to clean up the government before we focus on greener living.

    Ron Paul 2012.

  4. Agree 100% that our government must aid sustainable energy industries in the battle with China. The question is how? Making large bets on individual companies with emerging technologies is not the best use of government funds. The upside is relatively small — a single company that has an incentive to maintain its competitive advantage by keeping its technology to itself. And the government has little expertise in all the technology and market factors that influence success and failure. A better approach would be for the government to fund basic research at universities. The resulting technologies are more likely to be licensed broadly, and we will develop new generations of research scientists at our universities. Then let the private sector pick and choose which ones have the most commercial potential.

    John Howley

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