Why We Can't Let Solyndra Failure Kill Support for Solar

Yes, one Obama-backed solar energy company that got a huge government loan went belly-up. But the sector still needs support or it will wither.

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The solar firm Solyndra filed for bankruptcy two weeks ago -- two years after it received a $535 million loan from the U.S. government. Immediately, the firm's Chapter 11 filing became the major story in the clean energy community, and it continues to dominate talk this week. On Wednesday, the House Committee on Energy and Commerce held a hearing, "Solyndra and the DOE Loan Guarantee Program," where a number of members of Congress questioned whether the U.S. government should be subsidizing such "speculative ventures" at all.

Solyndra had raised nearly $1 billion in private capital, but the reason that everyone in Washington is following its collapse so closely is because the $535 million loan was given with stimulus funds through the Treasury's Federal Financing Bank -- and then guaranteed by an increasingly controversial program to support green technology run by the Department of Energy (DOE).

It appears that the process for approving and vetting this loan may have been short-changed due to pressure from the White House. Whether this makes the loan "shady," as some have said, will be determined by the investigations ongoing through the FBI and Congress.

Either way, policymakers should be careful not to besmirch the entire concept of clean energy subsidies because of this one bad experience.

The DOE's loan guarantee program is the most important of the government's clean energy subsidies. It was the centerpiece of Title XVII of the Energy Policy Act of 2005. This was the section of the bill devoted to creating incentives for new technologies that reduced greenhouse gas emissions. It was offered as an amendment in the Senate, supported by both Republicans and Democrats, as the consensus method for mitigating climate change. The argument at the time, put forth by Republican senators like Chuck Hagel and Pete Domenici, was that we should fight climate change by investing in new technology, not by government mandates or a carbon price.

It shows how far the debate on climate has fallen that these arguments -- and voices -- are seldom heard anymore. Whereas six years ago it was a question of "how" government policy should address climate change and support the development of clean technology, today those who question the science dominate the climate debate in Congress. That means that the question has become "if" the government should create incentives for clean technology or not.

In this new context, the argument has taken hold that any spending and subsidies for clean energy are a "boondoggle" or just throwing money down a rathole. There is a real danger that the short cuts that may have been taken on the Solyndra loan will poison this important subsidy program.

The solar industry is in a period of rapid flux right now. It is seeing drastically reduced prices; they have dropped from about $2 per watt in 2009 to about $1.40 today and are moving toward $1 per watt in 2012. This rapid drop in prices will soon make installing new solar competitive with traditional electricity generation, like coal or natural gas. Firms such Solyndra, whose business models required a high price, will have a hard time staying in business under such intense competition.

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Andrew Holland is a Senior Fellow for Energy and Climate at the American Security Project. He regularly writes on the American Security Project's Flashpoint blog. You can follow him on twitter at @TheAndyHolland.

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