Solar Firm’s Bankruptcy Reveals Inherent Flaws In Administration’s Energy Policy

Since taking office, one of the central pillars of the Obama Administration’s economic policy has been green energy. The White House painted a rosy picture of a future dominated by clean renewable energy. In the processes of building that future, millions of jobs would be created. Hundreds of billions of dollars of stimulus funds and loan guarantees have been provided for a wide array of projects ranging from high speed rail, biofuels and solar power facilities.

Now on the eve of President Obama’s much-anticipated speech on jobs, the flawed assumptions behind a vision of a green future are becoming evident. One of the poster children for the administration’s vision of the future has gone belly up. Solyndra, a maker of solar panels, was touted by the President just last year as a prime example of the future he envisioned. Yesterday, The Washington Post reported that Solyndra, which received more than $500 million in loan guarantees, has declared bankruptcy.

Even before the President’s visit to Solyndra in May, 2010, the solar panel maker was a dead company walking. The economics behind the venture were all wrong. For Solyndra’s model to work — and the government not to lose a bundle — the price of solar panels had to stay high, demand for those high price panels had to increase, utility-scale solar facilities had to be built and, ultimately, governments had to commit to subsidizing the production of solar energy for years to come or consumers had to be saddled with extremely high energy bills.

But then reality hit. The cost of making traditional solar panels declined, cresting an unassailable advantage for low wage producers in places like China. In addition, new technologies emerged that undercut traditional solar panel makers. But more important, the assumption that a renewable energy regime would be imposed on the country by Washington proved false. If anything, the regulatory process, particularly at the state and local levels, has proven inhospitable to solar. Companies seeking to build large solar farms in sparsely populated but sunny parts of the country and move that energy to population centers have found their plans thwarted by local regulators that refuse to authorize new power lines and by environmentalists (who would have thought) in the courts. In its announcement, Solyndra cited the impact of “regulatory and policy uncertainties” on its ability to attract investment funds. Regulatory and policy uncertainty are code words for “no state subsidies.”

Without question there are some cases where solar power makes sense, even without subsidies. Think Hawaii where all the fuel for power plants must be imported or Nevada where most of the land is government-owned and the sun shines a lot. In these states, small-scale solar generation facilities co-located with their principal consumer can be very effective. But for solar to take off and really make a difference when it comes to the nation’s energy usage or job creation it must make economic sense at scale. The reality is that utility-scale solar power, meaning vast solar farms producing energy equivalent to that of a coal or oil-fired power plant, is generally not yet competitive with the alternatives.

The reality is that solar energy is not ready for prime time. There are too many problems ranging from the efficiency of the panels themselves, the inadequacy of current energy storage technologies to impacts of large facilities on fragile ecosystems. Finally, only a rich and growing economy can afford the higher energy prices associated with a commitment to the current generation of solar technologies. The United States at the moment is neither.