The Solyndra debacle exposes the U.S. government's poor means to its clean-energy policy ends. The U.S. solar panel maker's bankruptcy shows how poor risk assessment, and crony capitalism, undercut federally guaranteed loan programs. Germany's mandated long-term, fixed-rate contracts for alternative power sources, on the other hand, work better. They shrink the state's role picking winners and maximize market forces.
For Solyndra to secure its $535-million (U.S.) backstopped loan, officials in the Office of Management and Budget needed to assess the viability of the company's untested technology. At the same time, the agency may have been under pressure from elected officials eager to proclaim success in clean energy and to create jobs through stimulus programs. Whether or not these Republican allegations prove true, individual investment decisions were made by people subject to political and bureaucratic incentives without an economic stake in the outcome.
There's a better way to encourage innovation in the sector. A little over a decade ago, Germany removed the government from the process of gauging the viability of a specific company or energy source. Instead, it mandated the country's power grid to buy clean energy for 20 years at fixed prices. The rates vary depending on the source, with those requiring more invention, like solar, commanding a higher price than, say, hydro power. The benefits of technological advance also were built into the system. Prices are revised annually, meaning solar capacity installed in 2011 is paid less than it was in 2006.
Clean energy now represents a little over a fifth of German power. Although heavy industrial power users are more substantially disadvantaged, the average German pays only an extra €4 (about $5.50 U.S.), a month for electricity. The system also has helped enrich some Chinese manufacturers of solar power cells. But by limiting the government's role to the initial policy decision, the enabling legislation and the annual revision of rate schedules, Germany instead has largely put the market in charge. Maybe the Solyndra experience will help American politicians see the light.
