Solyndra's demise--setting the record straight
commentary Lux Research analyst Matt Feinstein cuts through the noise on bankrupt solar company, and says Solyndra's inability to compete should not diminish the prospects of other U.S. solar players.
Editor's note: This is a guest column. See the bio of Matt Feinstein below.
Nearly $1 billion in venture capital funding, a massive U.S. Department of Energy (DOE) loan guarantee, and a disruptive technology expected to translate U.S. clean-technology innovation into economic growth--all have kept mentions of Solyndra alive in the business press and solar industry circles well past. A number of interconnected conclusions have been drawn. Some are true, some are false, others lie in the middle. Among them:
Claim: Unexpected drops in polysilicon prices destroyed Solyndra's business case.
Reality: Indeed,--falling from the order of hundreds of dollars per kilogram to roughly $50 per kilogram today (and destined to fall further)--rippled downstream, allowing module prices to fall from $3.80 per watt in 2008 to $1.50 per watt today. However, the drop was hardly unexpected. In February 2009, the Lux Research State of the Market Report "Finding the Solar Market's Nadir" stated: "In 2009, securing polysilicon will cease to be a major concern for an industry plagued by module oversupply, and polysilicon prices look ready to fall, even before the material goes into oversupply relative to (polysilicon) manufacturing capacity in late 2009."
Claim: Chinese manufacturing will always win, thanks to significant governmental support.
Reality: While Chinese government support allows for ease in scaling production, that wasn't an issue for Solyndra. Solyndra set up two fabs--extremely advanced facilities, at that. Fab 2 was constructed with former manufacturing mistakes in mind, featuring highly automated processes and set to maximize yields and throughput. However, the company's low yields and high production costs are design constraints--and certainly not born of a lack of governmental support or competition from industry elsewhere. Lux warned of Solyndra's high manufacturing costs over a year ago: "Manufacturability proving difficult with low yields, and costs remain very high...positive gross margins a moving target."
The company's investors believed Solyndra would win, and the loan guarantee program did its job in enabling the company to scale operations, as well as in providing the opportunity for the company to prove its technology a competitive option; failure to do so was the fault of Solyndra alone. States will continue to offer support of the industry domestically, and companies will continue to manufacture in the U.S.--and are scaling in Mississippi, while plans to ramp up operations in Oregon.
Claim: The solar industry in the United States is now doomed.
Reality: The failure of high-cost players like Solyndra,, and in the face of falling prices--a necessary step toward achieving grid parity--doesn't mean that the industry will turn its back on U.S. demand. In addition to Stion, Calisolar, and Solopower, downstream participants like SolarCity, SunRun, and Verengo are expanding operations in the U.S. Installers, developers, and integrators are poised to capitalize on U.S. market growth, and in doing so, will succeed where Solyndra failed.
Separate from each argument about Solyndra's product or the implications for the industry after the company's fall, there is the political matter at hand--with regard to the due diligence performed prior to the granting of the loan guarantee in 2009. While this debate is sure to continue well into the 2012 presidential election cycle, keep in mind that Solyndra was a unique, highly publicized case that suffered from the same market conditions as its peers. But its own inability to compete should not discount the prospects of other U.S. solar players, nor should it be seen as an indicator of the broader demand market in the U.S.