In case you hadn’t heard, there has been a bit of a contretemps brewing the United States Capitol over the bankruptcy of a large solar panel manufacturer. Solyndra, a California-based company, which had received a $535-million Energy Department loan guarantee and hosted a tour by President Obama, is seeking Chapter 11 bankruptcy protection. Congressional critics are baying about the poor decision making of the Obama Administration in the provision of the loan guarantee and are questioning government interference in the green technology sector in general. Supporters of the green tech sector are adamant that this setback is due to aggressive tactics on the part of international competitors and should not dissuade the United States from continued government support and investment in this area.
According to the Ron White in the Los Angeles Times:
Experts said that solar energy was still among the most promising of all of the alternative energy sources, but they added that due diligence was necessary to pick the best companies. Some said a consolidation of the industry was inevitable.
(Source: http://articles.latimes.com/2011/sep/01/business/la-fi-solar-shutdown-20110901)
It must be said, with the present brinksmanship in Washington, D.C., it can be quite difficult to get to the heart of the matter. For those willing to take a little more time some interesting data comes to light about the quality of decisions being made across the board, and this may point toward a more considered path for innovation requiring systemic change.
Living in New Jersey, a state that recently surpassed sunny California as possessing the largest commercial social market in the USA, I have seen the benefits of public / private partnerships in creating the economic forces that will support profound change. These innovative partnerships mean that the ecosystem of solar energy in NJ is robust and driving towards self-sustainability even as federal energy credits (SRECs) are dialed back.
This progress is demonstrated by the fact that the commercial solar market in NJ jumped 170 percent from the first to the second quarter of this year, according to the Solar Energy Industries Association, a trade group. As a result, New Jersey’s photovoltaic (PV) installations now account for 24 percent of all those in the USA — up from 15 percent at the end of March. This situation makes the Solyndra implosion all the more head-scratching.
The primary competitors to Solyndra are in Japan, Germany and most especially China. The US solar industry has been at the forefront of investment and advances in solar technology for nearly three decades. US-designed solar panels have the ability to produce more energy per square foot than nearly all other solar panel designs. Solyndra was a market leader in solar panel efficiency. This is a critical factor in the reasons behind their demise when compared to their international competition.
In the USA the innovation focus has been on producing ever-higher levels of efficiency from solar panel designs. Aggressive targets have been set and met. Which sounds great doesn’t it? Except for the fact that the rest of the world hasn’t been setting their targets in the same manner. In China, most especially, backed by strong and sustained government subsidies, the focus has been on producing the highest number of solar panels at the lowest cost. They are not as good as the US panels, but they are “good enough” to capture significant market share as their price point is so low by comparison.
Solyndra’s press release captured the heart of the different decisions that had created their need to seek bankruptcy protection:
Despite strong growth in the first half of 2011 and traction in North America with a number of orders for very large commercial rooftops, Solyndra could not achieve full-scale operations rapidly enough to compete in the near term with the resources of larger foreign manufacturers. This competitive challenge was exacerbated by a global oversupply of solar panels and a severe compression of prices that in part resulted from uncertainty in governmental incentive programs in Europe and the decline in credit markets that finance solar systems. [Emphasis added.]
(Source: http://www.solyndra.com/news/)
Rather than choosing to innovate only on the technical side, Solyndra needed to understand all the variables at play. They needed to understand the feasibility of their product (their technological capability), they needed to understand the viability of their product (their business model), and the desirability of their product (their customer’s willingness to purchase.) Instead of making their strategic decisions based on all three variables, to their detriment they seemed to only focus on the first.
A deeper consideration of the how they could transform the solar panel market by effectively partnering with government, as other nations have and continue to do so, was vital. As the US government controls the environment that led to regulatory and policy uncertainties in recent months, creating significant near-term excess supply and price erosion, Solyndra’s demise was almost a foregone conclusion.
But wisdom in hindsight is nothing more than cold comfort. Smarter, more balanced choices could have led to a more balanced outcome and prevented the loss 1,100 jobs. It remains to be seen if all the parties with a stake in the green technology sector will reconsider their positions in the USA, or if this too, will become a case of an innovation opportunity lost.
