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Solyndra's Failure Shouldn't Tar Green Investments, But It Will

Tough questions about White House influence over a bankrupt solar company shouldn't stop green energy investment.

While firms in emerging sectors implode with regularity (creative destruction is all part of the magic of capitalism), Solyndra, the solar panel manufacturer that collapsed at the end of August, is a special case: It was touted by the White House as the future of green energy, financed in part by government loan guarantees, and had its approval process for those government loans rushed, perhaps improperly.

The political ramifications for the Obama administration are high, with House Republicans desperate to use their oversight to associate the Obama administration with crony capitalism. Critics of the administration, and incentives for clean energy, have plenty to work with, including The Washington Post’s report on pressure from political aides to make a decision on the loan in time for an announcement by Vice President Joe Biden, and the fact that key Solyndra investor George Kaiser is an Obama donor.

On the other hand, the other major investor in the Solyndra project is the Walton family, the Republican-leaning owners of Wal-Mart, and loans to the company began under the Bush administration. Furthermore, the same federal program that made the loans to Solyndra is funding a nuclear plant much-ballyhooed by Republicans.

At first glance this looks like an ugly process, but not one that undermines the program as a whole—White House aides should have known better than to pressure officials on their decision. No doubt further investigations will reveal the truth.

Outside of the politics, the important question is whether this program supporting green tech is a failure, as critics will allege, or if Solyndra is a bad apple that makes a whole bushel of success stories look bad. The evidence tilts overwhelmingly toward the latter.

Solyndra was in part a victim of its sector’s success. As GOOD reported this week, cheaper solar panels are causing a boom in the industry; lower prices are good for consumers and the environment, but increased competition will inevitably end with some firms losing out. Solyndra was doubly affected by a drop in silicon prices; unlike most solar manufacturers, Solyndra didn’t use silicon, and saw its comparative advantage take a hit when the resource became more available.

And the Department of Energy’s loan guarantee program has largely been a success. Despite what you hear, it’s not about “picking winners,” but about helping attract venture capitalists and investors to a fledgling industry. Using $4 billion of government capital, the program has leveraged $37.8 billion in funding for 36 projects, with Solyndra's $527 million making up less than 2 percent of the overall funding and about a fifth of the $2.5 billion budgeted for failures.

This kind of funding for innovative companies is an important investment in long-term economic growth. Right now, the U.S. has a burgeoning solar power sector (we actually export more solar technology to China than we buy from them, a rarity) and establishing it for the long term will help lower energy costs, create jobs, and improve the environment. Brad Plumer points out that, at a time when funding basic R&D is a key priority, the $3 billion public investment in green energy research is much lower than in health research ($36.5 billion) or defense ($77 billion).

We shouldn’t abandon the public sector’s support of energy programs, we should use this experience as an opportunity for needed reforms. Investments like these play a vital role in the hybrid capitalism that has produced U.S. economic success over the last century. Solyndra’s failure is, if anything, a sign that government is playing fair in the market, but don't expect opponents of the administration and clean energy to care.

Photo via (cc) Flickr user jurvetson

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