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Learning From Solyndra

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A rough period for supporters of U.S "cleantech" industries and policy supports just got rougher with the announced impending bankruptcy of Solyndra Inc., a California maker of solar modules that received a $535 million loan guarantee from the U.S. Department of Energy.

Inevitably, tough new questions are going to be asked about the wisdom of clean energy subsidies and loan guarantees.

Inevitably, a new round of second-guessing will soon question whether the U.S. can or should compete in globalized manufacturing industries, whether in cleantech or other areas.

Which is as it should be -- within reason. Policymakers absolutely must study what went wrong at Solyndra in business terms, but it is also imperative that they not overlook the strengths and opportunities of the emerging "clean" economy, lest America fall further behind in this crucial sector of the global economy.

To the first point: There is no doubt Solyndra's collapse appears to counsel humility about the challenges of scaling up new technologies in tumultuous, unforgiving global markets. After all, while some like Matt Hourihan of the Information Technology and Innovation Foundation have noted the role of aggressive Chinese industrial policy in driving solar module prices down, others have argued that Solyndra simply bet on the wrong low-silicon / higher-priced technology and got busted when silicon prices declined in recent years with the world recession. Future policy needs to get better at assessing technology pathways and market trends.

Likewise, to the extent there were irregularities in the Loan Guarantee Program process that awarded Solyndra its consideration (multiple problems have been uncovered by the Government Accountability Office), aggressive steps should be taken to ensure the integrity of this and other government investment programs. Investing in fast-moving technology, whether by government or the private sector, is tough work that requires impeccable rigor and no special pleading.

Nonetheless, it would be a serious mistake to over-interpret regarding the Solyndra crack-up, whether to generalize about the solar industry and cleantech or to broadly indict particular technology and development policies.

Begin with solar and cleantech: To be sure, several companies with more expensive products like Solyndra have faltered this summer, citing price declines and Chinese competition. Yet for all that the U.S. solar and broader "cleantech" industries remain crowded, vibrant, and growing as producers and innovators proceed rapidly down relevant technology, price, and scaling curves.

Solyndra's more expensive technology failed in the market because conventional photovoltaic companies -- including many in the U.S. -- have so dramatically driven down the price of conventional panels through technology and process gains, as notes solar executive and blogger Arno Harris. In that connection, the Brookings-Battelle Clean Economy database my team prepared in developing our recent "Sizing the Clean Economy" report identified 121 different solar photovoltaic manufacturing companies operating in the United States last year. Through the decade employment at solar PV and more general "cleantech" establishments has been growing 10 and 8 percent a year -- more than twice as fast as that in other industry establishments.

Also relevant is a new study by GTM Research for the U.S. solar industry that found that the U.S. is a net solar exporter, with a positive trade balance of $1.8 billion. While many of the modules are imported, nearly 80 percent of the final costs for solar photovoltaic systems goes to U.S. companies. The U.S. even has a positive trade balance with China in this subsector; because of exports of polysilicon and capital equipment.

As to the matter of policy, the blow-up of one particular loan guarantee to one particular company with one particular technology should not be spun into any broad new chilling of U.S. efforts to compete more aggressively in cleantech and other advanced manufacturing industries.

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.

Beyond that, the fact remains, notwithstanding an imperfect loan guarantee program, that U.S. clean energy policy as a whole is -- as we argue in our recent report -- incomplete, fragmented, and uncertain.

Winning policy environments around the world foster strong and steady domestic demand for clean energy; provide patient, smart, and risk-tolerant financing; and invest in innovation. However, this nation has been falling short on all of those fronts even before the Solyndra mess. It would be a tragedy if the failure of Solyndra occasions further weakening of U.S. cleantech policy.

In the end, the failure of Solyndra should refocus the nation's efforts on getting general energy policies right; developing rigorous, market-informed finance strategies; and working even harder to rebuild the economy on a firm and environmentally responsible basis. Let's make that what we learn from the Solyndra collapse.

Mark Muro (Twitter: @MarkMuro1) is a senior fellow and the policy director of the Metropolitan Policy Program at Brookings, where Jonathan Rothwell is a senior research analyst. They are co-authors of the Brookings Institution report, "Sizing the Clean Economy: A National and Regional Green Job Assessment."

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