Where Solyndra Went Wrong, and How it Harmed All Energy Development

With the one-year anniversary of the bankruptcy declaration of Solyndra, just as with the anniversary of the BP oil spill, some reflection on lessons learned and what can be done in the future is warranted. Solyndra has become a red-hot political issue, which is not surprising considering we are approaching an election in which energy policy is a major factor.

Political rhetoric aside, the case of Solyndra does bring up some important issues in regards to government involvement in the energy sector; specially, how it should finance new technologies, mitigate risk for the private sector, and aim for overall greater American energy security. There is a role for the government in supporting research and development (i.e. on the university/national laboratory level), as well as providing loan guarantees to private corporations to offset financial risks for energy projects that serve the public good (e.g. new nuclear power plants). Each of these provide a valuable service to the American public. 

First, by funding otherwise non-lucrative research for a technology in its infancy, the government can create a knowledge base for private companies and individuals to draw on and eventually bring a technology to market that would have otherwise remained in the theoretical realm. The case of hydraulic fracturing or ‘fracking’ in regards to natural gas is one such example of this. The government provided the resources for this technology to bring it from experimental to the point that it became worthwhile for private companies to invest their own resources, and now the country as a whole is reaping the benefits of the investment in terms of greater profit to American corporations, lower energy prices for American consumers, an increasingly competitive manufacturing base, and greater geopolitical energy security. American taxpayer money was spent but as an investment, an investment that has yielded results beyond anyone’s expectations.

Second, the government can also provide a valuable service to the public good by providing loan guarantees for proven technologies such as nuclear power. The financial externalities (insurance costs, regulatory delays, fluctuating energy prices, etc.) all make investing in a new nuclear reactor an extremely risky venture for a utility company. Unlike their peers in Europe and Asia, American utilities are by and large private corporations, and though they may seen like financial juggernauts with values in the billions, the cost of building a single new nuclear reactor in this country can easily top that amount. Therefore, it becomes financially illogical for these companies to invest in a proven power source that will definitely increase American energy security while decreasing carbon emissions over the long-term just because of short-term uncertainties. Indeed, this is the true role of government, to step in for the public good where the private sector is either unable or unwilling to act.

The problem with Solyndra was that is straddled these two categories. There is merit to the argument of the government supporting projects of basic solar infrastructure and facilities, but Solyndra was producing an unconventional, more expensive form of the technologically against market trends, not a good strategy for the most fiscally secure corporations. Add to this the perception of inside dealing or crony capitalism ( not saying there was, but administration officials should have forseen the appearance of such perception), and you have not only a recipe for a major political scandal/election issue, but also a means to harm legitimate energy investment in the future, as now not only is the government shying away from granting loan guarantees for good projects but private companies are hesitant to accept them. 

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Jonathan Gillman

Gillman has been working in the traditional energy sector in Washington D.C. for the past several years after completing his degree in Political Science from the Johns Hopkins University, where he also completed his Masters degree recently in Government/Security Studies.

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