Solar Bankruptcies: Not a Problem, Just a Shakeout

By Cynthia A. Arcate 22 September, 2011

Recent high-profile bankruptcy filings by solar panel manufacturers (Evergreen Solar in Massachusetts and California-based Solyndra) have caused some to wrongly question the viability of the solar industry and, indirectly, the pursuit of solar power by customers. The truth is that these events are less about the strength of the industry and more about the faulty wisdom of government financing of nascent technologies.

When Evergreen first took Massachusetts jobs overseas then filed for bankruptcy, critics cried foul that Massachusetts had provided a multi-million dollar investment, including direct grants. Solyndra has provided a more sensational storyline on the national stage after the Silicon Valley solar company accepted more than half a billion dollars in federal loan guarantees.

But what is happening in the solar panel manufacturing industry is typical of any industry that has a shakeout as technology and production efficiencies evolve by new and different competitors. As we are learning from the development of PowerOptions’ innovative solar program, panel prices are plummeting and competition in that space is fierce. A few companies falling by the wayside in no way reflects overall problems in the industry. In fact, the long view will show this is classic survival of the fittest and it reflects a helpful maturation of an industry – not its demise.

The biggest takeaway from both cases is that government is not good at picking winners and losers – nor should it.
Solyndra received over $500 million in federal loan guarantees. As the FBI investigates, it appears that the relationship with federal officials may be questionable and that federal officials were not smart in choosing this particular company for backing.

A little known fact about Evergreen Solar is that some smart, sophisticated venture capital firms and others provided the seed money that started the company in the first place. They used tried-and-true venture capital investment practices and made savvy investments that netted them a return, in some cases, of four times their investment when Evergreen went public in 2000. That’s what happens when people with keen business sense and experience invest funds with a clear exit strategy. But evidence shows most government officials simply are not that savvy. More importantly, they can’t afford to guess wrong, politically or financially.

So, the lesson learned here is not that solar is in trouble but that government can do a lot to support clean energy and other sectors – like tax credits and other incentives. But it should absolutely stay out of the venture capital business.

What do you think? Leave a comment, and let us know.

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