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Getting past Solyndra: Government support for emerging technologies in clean energy plays a critical role in advancing innovation

By David B. Goldstein

The anti-clean-energy echo chamber has been publicizing the bankruptcy of Solyndra, a manufacturer of solar energy panels, arguing that President Obama's clean energy job creation program is ineffective. But most of this criticism is just political posturing and not really trying to learn from these failures, which importantly have not prevented solar energy from growing dramatically while reducing costs.

One direct source of the problem is that China has succeeded in reducing the cost of manufacturing first-generation solar panels to such an extent that many companies around the world cannot compete. Notwithstanding this success, most American solar companies remain ahead of their overseas competition, as I illustrate below.

The issue of American industry remaining competitive with China is, of course, not unique to clean energy: many American producers are challenged to keep up with Chinese competition. But with solar, the Chinese government has been particularly effective in developing an industrial policy that provides Chinese manufacturers with a number of advantages in the global solar industry, including access to lower cost capital, subsidized electricity rates, free access to land, cheaper labor, domestic manufacturing requirements, and a much shortened permitting process for factories.

America, in contrast, has generally avoided industrial policy. Opponents of industrial policy argue that the market can pick winners better than government can, and I believe that this principle is generally correct, but I also think that innovation needs government support. The lesson from China is not to tremble and retreat in the face of its challenges. We are a great country of innovators, and we need to support that.

We would do well to focus on the success stories in our domestic solar industry, which include American companies like: First Solar, which is producing next- generation solar panels cheaper than their Chinese competitors; SolarCity, which is using an innovative business model to bring hundreds of megawatts of solar to military bases; and Amonix, which is developing innovative high concentration solar photovoltaic (HCPV) technologies. These are only a few of many examples of success in the made-in-America solar industry.

Such vigorous competitive forces are good for the consumer. They bring the price of solar—and other clean energy and energy efficiency investments—down over time while product quality improves.

However, when developing policies to support emerging industries, the details are critical. So some closer examination of the issue of government support for clean energy can be helpful.

One existing challenge with energy incentives for maturing technologies occurs when they don't reward production, but rather focus on cost.

Cost-based incentives are employed by many governments around the world, probably because they are so simple to administer. This can make some sense for very early stage energy technology companies, which pose a real risk of not performing and thus are much more likely to receive financing when incentives are tied to cost, instead of production. But solar energy has been in existence for decades and no longer falls into this category. The challenge for solar is to ramp up production and cut costs through greater deployment.

Last year, the amount of solar installed in America doubled from the previous year, and growth hasn't slowed even in a tough economy. The failure of a few solar companies has to be placed in the context of the explosive overall growth of this sector of the clean energy industry. The right response to these few failures and to general fiscal concerns is not retreat from innovation and healthy competition with China; the right response is to make sure we're using the right policies for the right stages of technology development and generally have a much greater emphasis on performance-based policies.

The Natural Resources Defense Council believes that government support for emerging technologies in clean energy plays a critical role in advancing innovation and bringing the costs of these innovations down (that ultimately benefit consumers), and that the long-term effects repay the Treasury hundreds of dollars for each dollar spent on incentives.

David B. Goldstein has worked on energy efficiency and energy policy since the early 1970s. He currently co-directs the Natural Resources Defense Council's Energy Program. Goldstein initiated and coordinated the dialogue that led to the adoption of tax incentives for efficient buildings in the U.S. in the Energy Policy Act of 2005.

November/December 2011