Tuesday, November 1, 2011

Solyndra and Sustainability

There has been much noise in the media this last while over the dramatic collapse of solar technology innovator Solyndra, after receiving a very large - and spectacularly unsuccessful - US Government guaranteed loan financing.

Much energy seems to be getting spent looking for people to blame, and reasons to blame them.  This unproductive finger-pointing is keeping us from the more difficult, but important, work of understanding the fundamental design flaw in the government guarantee program as a tool for using taxpayer dollars to shape market choices.

It would have been better if the DOE spent those same dollars by taking up the role of customer in a project financing, buying power at prices sufficient to make the project viable, economically, and re-selling that power to the local load serving utility or other commercial customer at prices that come closer to a competitively determined market clearing price.   The Government would absorb the negative spread, in order to subsidize initial efforts to commercialize this new and needed technology solution.

This is effectively the Defense Department model, and it works quite well there.  The Government contracts with private enterprise to purchase the output of new and needed technology innovations, paying pretty much whatever it takes.  Stabilized by a reliable customer willing to buy volume at a price that works, the Enterprise can focus on building its knowledge base, its network of commercially important connections and its routines for delivering new and needed products to the market.

Some don't make it.  If the Military proves to be the only customer willing to pay the price, the Enterprise must either build its prosperity solely on making Military sales, or it must find something else useful to do.

Some do.  Stabilized by Military contracts, they perfect their ability to deliver products to the private sector on commercial terms.  Witness: the mircowave oven.

Another solution that works: targeted tax credits.

Tax credits are anathema in some circles.  I don't get it.  A properly constructed tax credit program is a proven, effective, "minimally invasive" technique for using taxpayer dollars to adjust market dynamics to align them more closely with the public good.

An effective tax credit program does have to be designed properly, but we have a proven design in the Low Income Housing Tax Credit.  This is a true federal-state, big-small, public-private partnership program that has effectively and efficiently delivered decent housing to decent Americans who just need a little extra help getting by. It has done this for more than 30 years.

There are Energy Tax Credit programs, but for some reason, the design of the Energy Credits does not build on the successes of the LIHTC design.

Why is that?

1 comment:

  1. I think in the case of Solyndra there are more pieces to the puzzle. The Chinese heavily subsidize their solar industry. That is why they can produce panels much more cheaply than we can here. That makes our American products uncompetitive, as with many American products.
    As to the tax credits, I am on the fence with that one. I have seen too many companies using that to cut their taxes either by threatening to move out of a town, or offering to move into a town if the town coughs up. In the case of Evergreen Solar, they got $58 million in state aid and then shut manufacturing and moving it to China. Now the state is trying to recoup some of that money.
    Now we really do need to get out of fossil fuels, but how do we get companies to come here and stay here and build our future? How do we compete with countries like China that pay $70 a month to workers? Do we demand that our workforce become peasants?
    There are a lot of things to sort out.