Friday, June 15, 2012

Politics and The Global Cleantech Shakeout

For all the enthusiastic comparisons of the cleantech sector to infotech or microelectronics that we've encountered in the last decade, one rarely employed analogy is turning out to be more apt than the rest: Cleantech seems just as capable as dot-coms and chip makers of undergoing an industry shakeout and consolidation at the same time it experiences growth rates that most other industries would envy.  US and European solar firms continue to fall by the wayside, and this week saw the sale by the world's leading wind turbine manufacturer, Vestas, of one of its Danish plants to a China-based competitor.  Because the cleantech industry has been driven mainly by policy rather than market forces, and has thus been deeply intertwined with politics, the global shakeout now underway will continue to have political repercussions.  Should Europe's monetary problems unleash a new financial crisis, then both the cleantech shakeout and its political fallout could expand.

The strained comparisons this week between the failures of Solyndra and Konarka, a much smaller solar panel maker, likely won't be the last example of this that we'll see this year.  Although I can understand the temptation to link these two situations, the contrast between an award-winning company that took more than eight years to go bankrupt in an economic and competitive environment vastly different than the one in which it was launched, and a business that was already doomed on the day that its half-billion dollar federal loan was inked should have dissuaded anyone from raising this issue.  The analogy looks even worse when you realize that Solyndra was only able to undertake the massive expansion that drove it into bankruptcy as a result of serious deficiencies in the DOE's due diligence process, which failed to spot the crashing price of polysilicon, the previous spike in which had underpinned Solyndra's business model.

Past shakeouts have left other industries in excellent shape, despite the pain they entailed.  Numerous US automakers went out of business during the Great Depression, which was also a period of great innovation that set up the survivors to become a pillar of the US economy for the next half-century.  It's premature to write the epitaph of US cleantech, which could yet emerge much stronger.  At the same time, have we ever experienced such a shakeout in an industry so dominated by government subsidies and industrial policy, against the backdrop of globalized competition with similarly supported industries in Europe and Asia?  The ultimate outcome looks highly uncertain.

In the long run, the administration's investments in cleantech will either look farsighted and courageous or tragically mistaken, rooted in a "green jobs" fallacy that emerged as an expedient Plan B after successive failures to legislate a price on CO2 and other greenhouse gas emissions.  Of course this year's election won't take place with the benefit of history's verdict.  Its energy aspects are likely to be dominated by the behavior of oil and gasoline prices and a potential string of further high-profile cleantech bankruptcies, if the economy remains weak.  (The list of DOE loan guarantee recipients doesn't lack for candidates.) Is it due to defects in our system or merely human nature that such events seem destined to overshadow the positive energy visions that both sides will present to voters?