Learning from the Solyndra debacle

James Nelson CEO, Solar3D
Font Size:

The government’s green energy policy includes two parts: (1) supporting basic research, with the aim of developing new green energy technologies; and (2) making loan guarantees that promote the adoption of green energy technologies. Supporting basic research is an important role of government, but the loan guarantee program is a wasteful mistake because it doesn’t work.

Having spent most of my career developing strategy for companies large and small, I have learned one very important thing: economics drives behavior. It is economics, not government policy, which will drive enthusiastic adoption of green energy.

My company, Solar3D, Inc., is a technology development company in Santa Barbara, California. We are developing an advanced technology — a new three-dimensional solar cell (“3D Cell”) that could reduce the cost of solar energy by as much as 50%. Our objective is similar to that of ill-fated Solyndra — to develop a new solar technology that can change the economics of the industry. However, our manner of execution is very different.

We have been supported by private investment in our company since its establishment in August of 2010. We are not depending or dependent on government funding. We certainly do not expect that such support will be necessary to facilitate the commercialization of our new technology.

Our go-to-market strategy will be to partner with a company that has the know-how to manufacture products similar to ours. While the 3D Cell is a unique concept, our engineering approach has been to design the product with existing equipment, methods and facilities in mind. We lease our facilities, and we are able to pay the University of California at Santa Barbara for the use of its higher-level clean rooms and labs for our initial work in developing our designs and prototypes. These measures keep our capital costs low.

We keep our staff lean, hiring key personnel to do the full-time work and paying experts as consultants to help us with specialized aspects of our development. This keeps our operating costs low, and allows us to use a variety of experts that shed the light of broad experience at a fraction of the cost of hiring them full-time.

By contrast, Solyndra’s unique technology attracted a $535 million loan guarantee from the government to take it commercial. Mistakes in the process were legion:

1.) Solyndra’s manufacturing strategy required all new machines that had never existed before — making it vastly more expensive to tool up than if the equipment had been proven.

2.) A brand new 300,000 square-foot state-of-the-art tech building, complete with whistling robots, was constructed in Silicon Valley, an area with some of the most expensive industrial real estate in the world.

3.) During the process of awarding the guarantee, it became clear that things were not going that well at Solyndra — the product was not economically competitive and could not be priced above cost. But the loan was made anyway, on the hope of generating 1,100 jobs.

4.) Bonuses were paid to executives despite the dismal outcome of the project.

The Department of Energy’s loan guarantee to Solyndra was an embarrassing example of the malfunction of the current system. The investment was undoubtedly scrutinized and rejected by the Silicon Valley-based venture capital firms — organizations abundantly more qualified to identify good investments than government committees. There was no urgent strategic need for the U.S. to have Solyndra rush its product to market. The decision to fund Solyndra’s attempt to commercialize does not stand up to reason.

However, politics ultimately trumped reason. The bureaucrats awarding the financial aid were beholden to political masters, who had promised Americans that they were going to fix the U.S. economy by creating green jobs — something that could not possibly happen in any timeframe worthy of consideration. The price of the Solyndra failure was borne by the American people.

At Solar3D’s current level of development, our company has a much better chance than Solyndra ever did of creating a game-changing technology. We have reached this point based on the free enterprise principles of risk and reward, without the use of government aid. In the end, we will become commercial for less than $10 million and change the landscape of solar energy. It will be an example of the amazing American economic system at work.

Government has a legitimate role in supporting basic research. ARPA-e, the program which awards small tranches of money for basic research and development in alternative energy, will receive $250 million in federal funding in 2012 (half the amount lost at Solyndra alone). This program can and should be expanded. Its objective is to fund innovative technologies that will improve the economics of alternative energy — which is ultimately the only path to widespread adoption of renewable power.

The loan guarantee program should be retired permanently. The path to commercialization requires brains, discipline and grit. It is rarely aided, and often impeded, by government involvement. Our government should trust the free market forces that have made America great.

James Nelson is the CEO of Solar3D, the developer of breakthrough 3-dimensional solar technology. Prior to starting Solar3D, Jim served as a Bain and Company consultant, and as a long-term private equity partner.