Solyndra’s Broken Windows

In the spirit of broken windows posing as “economic development,” lets take a peek at the recent disaster named Solyndra.

Solyndra was a California company founded in 2005, that designed, manufactured and sold rooftop solar photovoltaic (PV) panels.  The company’s solar panels featured a unique design with racks of cylindrical tubes and a mounting system that they claimed to be lighter and less prone to wind damage than other systems.  The technology was supposed to be better and cheaper.  Looks pretty cool, but apparently not cool enough.  After the founder and chairman left in August, the company filed bankruptcy in September and the CEO resigned under pressure.

There have been a lot of changes in “green” renewable energy recently.  Solar power is one aspect of green energy, typically implemented in PV cells (semi-conductor devices generating electricity), concentrating solar power (CSP) systems using mirrors and collectors, and solar thermal used to heat water.  Although troubled by a short-term glut in panels (blamed on Chinese dumping), the solar energy industry has been expanding:

the U.S. solar market is set on a path to grow – analysts are predicting that solar panel installations will double in 2011. [SEIA CEO] Resch touted the fact that the U.S. exports $1.9 billion more solar goods than it imports from the rest of the world, including China. Many states have rebates and other incentives to entice home and business owners to install solar, as well as rules requiring their utilities to buy an increasing amount of solar energy or renewable electricity in general.

A combination of private demand and public incentives, tempered by fluctuating capital markets, appear to be driving growth in solar as in renewables overall.  I tend to think of solar as an off-beat alternative for hippies living off-the-grid, and the number of solar thermal installations far outnumbers electrical generation, but that is changing.  According to the Interstate Renewable Energy Council, grid-connected PV installations doubled in 2010 in the United States.  California leads the nation in PV capacity, with 48% of the national market and about four times the production potential of second-ranked New Jersey.  Other than New York and Pennsylvania, the rest of the Top 10 PV states are as I would expect in the Sun Belt.  In addition to federal tax credits, twenty-six states (and the District of Columbia) offer direct cash incentives for solar projects.

Solar is even reaching the cloudy midwest.  The largest solar farm in Minnesota is undergoing permitting right here in sleepy old Slayton, a 21-acre 2 megawatt multicrystalline PV fixed tilt installation.  While solar is an obvious option in Arizona’s desert where the sun shines 90% of the time, this project aims to help firm gaps in electrical generation from the area’s wind farms—the wind doesn’t blow as much when the sun shines, so solar and wind compliment each other.

(I’ll insert a caveat here:  although my employer has been a long-time supporter of alternate energy development, it’s not my primary area of expertise; I am a sceptic not vested in the success of the industry beyond my general support for rural development.  I’m simply not yet sold on the idea solar could survive without generous subsidies… although I might be convinced.  I reserve my right to change my opinion.)

So back to Solyndra’s broken windows.  An investment is predicated on the idea that a small amount of money today can be turned into more money tomorrow when applied to new and innovative ideas.  Without the ideas, it’s speculation at best and gambling at worst—a simple game of chance.  Public or non-profit agencies often make investments of public and/or contributed funds to “fill the gap” left by private investment attracted to a project, in the name of economic development.  Many people measure success in economic development in terms of jobs created/retained, or private dollars leveraged.  The intent, however, is clearly to create better conditions for long-term wealth creation.  Success in economic development results in a greater long-term gain than the short-term opportunity cost of the public/private funds paid out.

It’s not an easy measure, but by any measure the public investment in Solyndra is all washed out.  In 2009, the US Department of Energy made a $535 million loan guarantee to Solyndra LLC for construction of a manufacturing plant at Fremont, California, the DOE’s first such project during the Obama Administration.  In return for the ARRA stimulus funds, the company promised 3,000 construction jobs, 1,000 manufacturing jobs, additional jobs for panel installers, and unspecified further multipliers.   Although the DOE restructured the loan in February, and the firm also received state tax breaks, within a year of closing the loan the company closed down.

While much has been made of the fact that 1/3 of the company was owned by a billionaire who “bundled” $50-$100k in campaign donations for the current president, this project was well in the works during the previous administration.  There’s plenty of blame to go around, and the questions are many.  Who knew what when? Did the company misrepresent its financial position? Did undue political influence distort public decisions?  The House Energy and Commerce Committee are very interested in those questions, as are the FBI, the press and many others.

The prime question for economic development remains: Was the potential public benefit worth the private opportunity cost?

Hindsight is 20-20, yes, and obviously now we know this dog wouldn’t run.  There is no question that the taxpayers were not well-served; the public trust was broken by Obama’s Energy Dept.  However, this type of spectacular failure is an important reminder that our own public programs have to be very carefully thought-out, with clear purpose, process, and measures of success.

• First, economic development professionals must make sure we understand the industries we work with as best we can.
• Second, we must balance the entrepreneur’s needs for confidentiality and quick decisions with the public’s right to transparency and due deliberation—it is their money after all.

Economic development is by definition a risky business.  We need to be very careful to avoid speculation with the careful analysis required for credible investment decisions.  Hopefully the lessons will be learned.

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