By: Wayne Brown
The hot topic in the news this week is the bankruptcy failures of those “green energy” companies so touted by the Obama Administration as revolutionary in the effort to obtain clean, renewable, energy sources for America. Conceptually, that is not a bad idea and bears consideration over time as technology opportunities present themselves or are discovered. On the practical side, as a commercial venture which is “profit oriented” the concept might bear some scrutiny.
Four of the five failing companies in the recent bankruptcy proceeding were in the same business…solar technology. Rather that attempt to track through the individual litany of each failure, let’s take a closer look at the one company which seems to have grabbed the majority focus in this situation. That company is Solyndra. Now this is a company which President Obama visited in 2010 and upheld as a shining example of what America needs to be doing in the hunt for renewable energy resources.
Solyndra was founded in 2005 and established on a new approach to solar energy capture. The traditional approach is that of flat solar panels which are made of a grid of small energy cells which are interrelated in a complex circuitry such that it functions as a single unit. The flat panel offers maximized surface area for the capture of energy from sunlight. The process of constructing traditional flat panel technology is labor intensive and tedious work somewhat akin to working with computer microchips. Thus, traditional flat panel technology has been rather expensive to afford and difficult to justify in terms of payback on investment at the commercial levels of industry.
Solyndra had a better idea for a “mouse trap”. Rather than employ the traditional methods, they would use a cylindrical approach creating long tubular photovoltaic cells which employed large continuous amounts of material rather than working in the small flat cells. This would make the process less expensive and more affordable in the marketplace. While Solyndra appeared to have a good idea, apparently they did not totally control the technology as other companies in the U.S. market followed suite with similar product designs.
By 2010, Solyndra could boast of having over 1000 commercial rooftops equipped with their tubular solar technology in over 20 countries worldwide. The company had built a large headquarters complex in Fremont, California and now employed approximately 1100 people. All eyes were on a new robotic manufacturing facility totaling over 800,000 sf to anchor the company in the market place. Funds for this investment were derived from private investment to the tune of one billion dollars and federal government loan guarantees of $535 million dollars. At the time, Solyndra had annual sales of approximately $140 million dollars. A rather small amount of sales versus investment but the market potential was estimated at upwards of $2 billion dollars so it was assumed that financial growth would continue.
Unfortunately, the economic downturn of 2008 had worldwide effects. This coupled with other financial woes of the global market left many companies who had stepped up for the Solyndra concept reexamining their commitments to investment in solar energy. This was one factor playing into the demise but there were other influences as well. Enter the Chinese. China has energy woes which are becoming more apparent every day. Starting with fossil fuel energy, much of their crude oil consumed is supplied by the world market. 80% of their electrical needs is furnished by coal-fired electric plants. China has less than a 50 year reserve in its domestic coal seams at present. Ultimately, China will be heavily on the world market looking for coal which will drive the price through the roof just as it has crude oil.
China sees solar energy as an alternative to some of their woes so the government invests in it heavily in the hope that its use will reduce the dependence on coal especially in the commercial sectors. In the process, the Chinese have found that they can produce the traditional flat panel solar cell technology at a cost saving of about 70% over previous prices in the commercial market. This is the straw which really broke the camel’s back in the marketplace for companies like Solyndra. The flat panel technology is more efficient in that it has more surface area to capture light. The tubular technology can or was cheaper to produce but lacked the efficiency of the flat panel due to the cylindrical shape of the tube which ultimately reduced the amount of surface available to directly trap the energy. When the Chinese drop their products into the market, customers flocked to the traditional and now more affordable technology. This was a windfall for China in that the primary focus was on solving some of their own internal issues and now they had products to sell which were commercially viable around the world.
Solyndra and the other companies taking bankruptcy all cited the same market conditions which ultimately undermined their technological approach. While there are lessons to be learned here as there are in any business failure, ultimately survival in the marketplace becomes a function of a company’s product, intelligence, flexibility, common-sense, and financial strength. When all those factors do not come to bear, the chances for survival are few.
In Solyndra’s case there are numerous considerations. The company was in business for only seven years. It had grown far too fast and had just taken on over $1.5 billion dollars in debt when it only grossed $140 million annually in sales. Yes, there were some very inviting government loans here but still those loans must be repaid from the cash flow of the company. The company employed over 1100 workers but the new factory was touted as “robotic”. The question then begs, were most of these workers used in production or was the company “administratively heavy”.
Solyndra’s process was expensive upfront to the end customer and had to be looked at for long term value to justify the upfront costs. This was a bitter pill to swallow in an industry in which the costs of “going solar” has dropped in the past year by 30% in the U.S. market alone…more in others. Solyndra’s patented technology had potential long life benefits in an industry where technology is changing greatly on the short-term. Many companies were just not willing to gamble on the payoff of long term dependency on a single technology.
The solar technology business is alive and well today with over 5500 companies in America currently engaged in this market segment in one way or the other. This makes for some competitive conditions and calls for companies to be lean and mean in their daily operations if they are to survive in the pack or become a dominant leader. While some may not agree, the marketplace is the ultimate litmus test for the viability and the need of a given product. Those which cannot survive the marketplace fall by the wayside. In some cases this is because the product was a bad idea and in others it is because the company which attempted bring the product to market was a bad idea. Either way, survival in the market is dependent both on the company and the product…both must meet the muster.
On the environmental side, there are those who clamor that the government has not done enough in subsidizing and upholding these business ventures. They cite the involvement of the Chinese government in the success of the Chinese venture in solar products. There might be some credibility to this argument if conquering the concept provided some primacy over the end result. This is not the case, as solar technology is a free-range battlefield…anyone can jump in at any given time and take the risk. If subsidizing companies to gain their venture into a given area were all it took, then we should be domestically independent in the crude oil arena today as a country and we certainly are not.
At what point does the American taxpayer stop subsidizing an industry which cannot make a profit? That is the question which comes to bear. If there is a true market for the product out there, there will be people, investors, and methods which will come to bear in the marketplace economy to bring it to life without any involvement of the government. Taxpayer subsidies are nothing more than a crutch which props up an entity which cannot stand on its own. There may be some argument for that in the early startup stages but somewhere beyond that point, the business either has to stand on its own or disappear from the market.
Capitalism is about free market competition. At least that is the case in its truest form. When one mixes government intervention into the recipe, then we no longer have a pure market but one that is skewed by the use of taxpayer dollars to keep entities alive which would otherwise perish. In that process, if one stirs in a bit of greed, there is ample opportunity for some rip-off of the taxpayer in the process and little or no accountability in either the company or our government which propped it up. America can no longer afford such behavior without explanation.
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