Tuesday, August 16, 2011

As Solar Subsidy Companies Fizzle, Did the Subsidies Do Any Good?

With yesterday’s bankruptcy of Evergreen Solar and a factory closing by Solon, it’s a good time to highlight one of the flaws in subsidizing an emerging technology such as solar power. The government money put into solar power was meant to increase the quantity of products and the capacity to manufacture them, and indirectly to generate more research and development. Unfortunately, at the same time, subsidies also results in higher prices for products. Much of the money from subsidies flows to companies that merely intend to exploit the artificially high prices for as long as they can, and that don’t make much of an attempt to reduce costs so that they can continue in the commodity market that eventually emerges.

While Evergreen Solar is filing for bankruptcy reorganization, bankruptcy is no place for a company working in a fast-changing technology, and its chances of emerging as a lively competitor in the solar business are slim. Solon, in its statements, frankly admits that the company is being run by the accountants at this point. It tells you something that Solon and Evergreen Solar are undertaking the exact opposite strategies in their reorganization plans. They are really just looking to try something other than what they are doing already in the hope that it will work out better.

Solar panel prices were held at artificially high levels for a decade from 2001 until early 2011, largely benefiting companies like BP and GE that made what at best may be described as transitional technology. With prices now sinking toward more natural levels, it seems likely that most of the manufacturers from five years ago will be forced to close by the end of 2012 as new factories set up since 2010 take over the market. Probably the subsidies sped up research into solar technologies more than it held back innovation, but that is not a simple question to answer. It is hard to point to specific places where subsidies helped the industry get to where it is now, and of course, we will never hear from the companies that were prevented from getting started by the competition from the subsidy-funded companies.