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Selling our souls for solar: The greed factor

01. December 2011 By:  Cheryl Kaften, pv magazine

"Please, sir, I want some more." When Oliver Twist diffidently asked for more gruel in the eponymously named Charles Dickens novel, was he being hugely greedy or driven by hunger?

Greed always has been an ambiguous term - subject to interpretation; based on the circumstances. In a capitalistic society, greed is celebrated during boom times and denigrated in lean times. For example, during the mid-1980s, investment bankers were acclaimed as "Masters of the Universe," who were respected and honored for their cutthroat success; in 2011, they are characterized by the "Occupy Wall Street" movement and its nationwide outposts as the avaricious, tightfisted one percent.

But today, as always, greed is one of the driving forces behind innovation, competition, acquisition, and expansion, as well as imitation, piracy, infringement, and insolvency. The same could be said for risk. And in recent weeks, both terms have dominated global discourse, due to the failure of one small startup in Fremont, California, which accepted a huge federal loan before it fell flat.

Since Solyndra went bankrupt in September - squandering a $535 million loan from Uncle Sam - political pundits have contended that the outcome was obvious before the money changed hands, because the company was too greedy to acknowledge the inherent risk and the government was too eager to intervene in a high-stakes private venture.

U.S. talk show host Thom Hartmann recently summed up that point of view:  "The Obama Administration’s vaunted initiative to catalyze the U.S. clean-energy industry - under attack for betting half a billion dollars on the solar-panel manufacturer Solyndra - has become a case study of what can go wrong when a rigid government bureaucracy tries to play venture capitalist and jump-start a nascent, fast-changing market."

Hartmann said he had much greater respect for a company called Solar Trust, which "turned down government loans, because they knew they wouldn’t have a productive use for the money."

However, that’s not quite the story, according to Uwe T. Schmidt, CEO of Oakland, California-based Solar Trust. Schmidt said he did receive a $2.1 billion loan guarantee from the U.S. Department of Energy, when his company was seeking capital for construction of the Blythe Project, a 1,000-megawatt solar thermal plant in the California desert in Riverside County. But the terms of the federal loan guarantee would not allow Solar Trust to switch in midstream to flat panels from the parabolic mirrors the company had intended to use at the site, and he knew he could not profit in a volatile market, based on his original business plan. He chose to pursue private financing which, in the end, provided better return on investment (ROI) and more flexibility.

Schmidt’s instincts were correct, but one valid case in point cannot possibly indict the entire DOE loan program. According to Jesse Jenkins, Devon Swezey, and Alex Trembath of the Breakthrough Institute, a think tank based in Oakland, California, the broad success story of the Loan Guarantee Program (LGP) shows why federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and commercialization. "The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects. Financing tools and direct investment from the federal government can help bridge this well-known 'Commercialization Valley of Death,'" they state.

Further, they comment, "Instead of 'picking winners and losers,' as the program’s critics allege, the program actually reduces risk for a suite of innovative clean energy technologies and allows venture capitalists … to invest in the best technology. Rather than picking winners, the LGP enables innovative companies to compete in the marketplace, allowing winners to emerge from competition. And while Solyndra is shutting its doors, companies like SunPower, First Solar, and Brightsource Energy, which also received loan guarantees and other support from the federal government, are industry leading success stories."

The authors contend that the risky nature of such projects is the very reason why a government should support them. After all, should a government distribute its largesse only to established companies in industries with stable growth - companies that do not have ambitions to introduce the next big product breakthrough? Do we label startup companies that are brash and bold enough to want to push the envelope, and brilliant enough to find a way to do it, as greedy and incautious? And should public funds help finance a private initiative?

As Cambridge, Massachusetts-based economist Jodi Beggs points out, there is a valid case to be made for private ownership of seemingly public goods. The questions she thinks should be asked before such a loan is qualified are:

• Do the [possible] benefits to society of this project outweigh the costs?
• Could private enterprise provide these goods or services, if government funding were unavailable?
• Is there a compelling reason to ensure that everyone has access to these goods or services?

For many renewable energy advocates in America, the answers to questions one and three above would be an unreserved "Yes". Faith Popcorn’s New York City-based company BrainReserve, which spots trends for business and consumers before anyone else does (she was the woman behind "cocooning" several years ago), sponsored a survey recently, which found that "90 percent believe it’s important to be environmentally responsible, and 'need'  companies to do the same."

Across the pond, that’s not necessarily the story. For example, as wind energy generation takes off in Scotland, with 2,574 megawatts of installed capacity as of April 2011, critics carp that electric bills will rise, along with utility profits. A letter to the editor of the Berwickshire News recently complained, "The Scottish Chambers of Commerce Chairman [Mike Salter] told the organization’s recent annual dinner that government energy experts predict greater reliance on 'very expensive' renewable energy projects will lead to consumers’ electricity bills doubling…. And for what? The only sensible answer to this admittedly rhetorical question is 'to line the pockets' of the landowners, multinational corporations, and brass nameplate offshore investment trusts who, with the direct connivance of our elected representatives, are taking you and me, and all other electricity consumers for a massive ride."

The response to bullet number two above will differ with every startup’s business plan and every legislator’s party affiliation. But is it wise in this global economy to leave the fate of an entire nation’s renewable energy sector to capricious and variable market forces, without attempting to provide any advantage, especially when other world powers, with China chief among them, are using public schemes to achieve a competitive edge? 

Deng Xiaoping, the leader of the People's Republic of China from 1978 to 1992, famously said, "To get rich is glorious." That sentiment, which seems more an expression of greed than it is an accolade to "the service of 'the greater good'" of others, as expressed by Nikita Khrushchev, the leader of the of the Soviet Union’s Communist Party, in 1961, signified Deng Xiaoping’s imminent break from Maoist philosophy and his aim to make China a "modern, powerful socialist country" by creating a "socialist market economy." 

According to Washington, D.C.-based Pew Charitable Trusts, China invested $34.6 billion on clean energy in 2009, compared to an $18.6 billion investment by the United States. Today, China is emerging as the world’s clean energy powerhouse,  but not without some pushback from other nations over its "greedy" trade policies.

The U.S. Department of Commerce is now investigating whether China is practicing "price dumping;" as well as taking a look at China’s subsidies, to see if they fail to conform to competitive law. SolarWorld Industries America Inc., a. subsidiary of the German manufacturer, SolarWorld AG, petitioned for the initiation of the investigation, along with a number of other U.S. manufacturers. "We have to defend ourselves against artificially low prices that are only possible by Chinese multibillion credits; material subsidies; and massive violations of environmental and social standards," said CEO Frank Asbeck.

This proactive inquiry into one clean energy sector represents a major step toward ensuring fair market practices, but without some strong consequences, Americans will not be appeased.

Why the continuing outcry? Perhaps it is the nation’s scattershot approach to renewable energy support. Should the government have backed one favorite rather than betting on a broad field of technologies? Is half a billion too big a bet to place on one promising, but imperfect, product sector, let alone on one small entrepreneurial startup?

More than 20 years ago, when Sony’s Betamax and Philips’ VHS formats for video recording went head-to-head, with plenty of would-be competitors in the margins, the embryonic video industry was said to be demonstrating the power of vigorous market forces. We had faith that eventually those forces would eliminate the weaker technology and advance the stronger system, with all of the concomitant monetary and material awards that it deserved. We knew that, in the following shakeout, one brand would unseat the other, leaving the industry stronger and more solidified.

It’s unclear when, or if, a similar clean energy shakeout will occur, and to whom the benefits will accrue. Uncertainty and risk may be easier to tolerate in a good economy than in times when unemployment in the U.S. hovers at 10 percent; bank card defaults at five percent; and mortgage defaults at two percent.

Finally, we stipulate that optimism, not greed, was the reason why Solyndra took the U.S. government loan. Despite the poor economy, the green technology sector is expanding rapidly, providing opportunities for those who have the ideas and the infrastructure to jump right in.

So we have come full circle: The term, greed, remains ambiguous, depending on your ambitions. In the 1987 movie, "Wall Street," Michael Douglas in the character of über investment banker Gordon Gekko, delivered a famous "Greed Is Good" speech at a shareholders’ meeting. In a grandstanding, self-congratulatory oration, Gekko said, "Greed is good. Greed is right. Greed works. Greed clarifies - cuts through and captures the essence of the evolutionary spirit. Greed in all of its forms - greed for life, for money, for love, for knowledge - has marked an upward surge in mankind."