The collapse of Solyndra, the Silicon Valley startup that received a $535 million federal loan guarantee, has become a cause célèbre for Republican lawmakers who contend that President Obama’s clean energy programs are a drain on the American economy.

But while the company’s crash and burn continues to cause a sensation in Washington, some economists and advocates of solar energy say that behind the scandal is a common story of any industry—that of a business that got squeezed out by rivals with a cheaper technology.

And that may be a good sign.

Similar to other industries, the shakeout of the less-competitive Solyndra signals success in a maturing global solar market, they argue. Some suggest that solar sector investments are now a safer bet for the U.S. government than ever before.

“Solar is a large and robust industry, and it is delivering on its promise,” said Adam Brown of the San Francisco advocacy group Vote Solar. “Costs have come down far faster than the investors in Solyndra had any reason to anticipate. The irony about Solyndra is that it is a victim of a great success.”

Two years ago the Department of Energy awarded Solyndra a $535 million loan guarantee to develop a new type of cylindrical thin-film solar photovoltaic panels. (It eventually received $528 million.) On Aug. 31, after DOE refused to restructure its loan for a second time, the company shuttered its Fremont, Calif., factory and filed for bankruptcy.

Emails released by the House Energy and Commerce Committee as part of its investigation show that the firm faced financial distress long before its loan was approved—but DOE plowed ahead anyway. That revelation has made the loan guarantee program a target for GOP lawmakers.

But Solyndra executives and many industry analysts attribute a large part of the firm’s failure to an unforeseen plummet in prices of polysilicion, a solar panel feedstock that was prohibitively expensive when Solyndra came onto the solar scene in 2005. The startup uses a silicon alternative known as CIGS, made of copper, indium, gallium and selenium elements.

When the prices of crystalline silicon modules dropped about 40 percent between 2010 and 2011—due mainly to reduced demand in Europe and generous government incentives offered in China, Malaysia and South Korea—Solyndra’s cost advantage vanished and it couldn’t compete.

Despite Solyndra’s flameout, the solar price drop “is fundamentally a good thing,” said Shayle Kann, managing director of the solar practice at GTM Research, a green technology research firm with offices in the United States and Germany. “It means that we can open up new demand. And it means that we are getting to a point where solar is competitive with retail grid prices.”

Brown said that Solyndra getting priced out the market is an example of “what competitive enterprise is supposed to be all about”—where “the strong survive.”

James Barrett, chief economist at the nonprofit Clean Economy Development Center in Washington, D.C., explained that companies in the government-supported Internet technology sector have frequently lost out to rivals with more innovative and cheaper solutions. “As markets mature, destruction occurs,” he told InsideClimate News. “The notion that the subsidies we’re giving to renewables firms is a distortion of the free market, is not true on its face.”

But Christopher Horner, a senior fellow at the Competitive Enterprise Institute, a free market advocacy group, said Solyndra’s collapse underscores the need for private investors, not government, to pick energy technology winners.

Private investors “are investing their own money and therefore engaging in proper due diligence and risk assessment,” he said.

Industry Makes Plea to Preserve Loan Program

The DOE loan guarantee program was enacted under President Bush in 2005 with bipartisan support. Supporters told InsideClimate News that while its design may not be perfect, rejecting the program due to Solyndra would be a worse alternative for the country’s energy future.

“It is critical that we don’t overreact as a country,” Rhone Resch, president and CEO of the Solar Energy Industries Association, told reporters on a conference call Tuesday.

Solyndra’s loan comprises 1.3 percent of the program’s portfolio of 40-plus projects, and it is the only one that is known to be troubled. To date, DOE has closed or issued conditional commitments of $37.8 billion to nuclear, wind and solar power generation projects, plus green manufacturing, electric-vehicle production and energy efficiency. Solar manufacturing projects, including Solyndra and three other firms, account for 3 percent of all the grantees.

The DOE has confirmed that it will proceed with issuing $10 billion worth of new loans for 15 new renewable energy projects by Sept. 30. Nine are for solar projects.

That decision is likely to be hotly contested by Congressional Republicans that oppose the program, especially if the House committee’s investigation continues to turn up concerns about the procedures and transparency of the DOE financing operation.

Some proponents say they support an airing of grievances, if it leads to improvements and not the program’s end.

Nicolas Gourvitch, a director at Green Giraffe Energy Bankers in Paris, a financial advisory firm, said that a more effective approach for the loan program might be to channel funds further down the value chain. Rather than targeting manufacturers of still-unproven technologies, he said, loans could support more project installations.

That “would allow the market to choose the best technologies” instead of the government, he said, addressing a major gripe opponents have with the program.

Kann of GTM Research said the DOE should spread investments more thinly across the renewable energy industry. It “should take a broad portfolio approach and recognize that not every one of these companies is going to succeed.”

He added that early-stage solar companies should stay in the mix. The loan program still remains a crucial part of helping new technologies bridge the so-called “valley of death” between early development of its product and commercialization, Kann said.  

Resch said early-stage loans give confidence to private companies to invest. “The program isn’t intended to give out money. It is intended to give support and credibility so that these companies can go out and borrow money from the private sector.”

The industry claims the DOE initiative has played its biggest role in getting large-scale solar projects built. So far, 15 projects have received a total of $15.8 billion in loan guarantees or conditional commitments—more than 40 percent of all awards—to install a collective 4,400 megawatts of solar power, enough to light up more than 850,000 households.

“Those projects are still moving forward and … would have been very difficult to finance privately,” Kann told InsideClimate News. “They are going to make a huge difference in terms of deployments in the U.S.”

Solar Installations Soar, Manufacturing Weak

With the solar industry under fire, advocates, including SEIA and GTM Research, have been aggressively touting the nation’s recent surge in solar installations.

According to a Sept. 20 report by the two groups, grid-connected PV installations grew by nearly 70 percent in the second quarter compared to the same period last year. The industry expects that developers will install twice as much solar capacity in 2011 than last year, just as 2010 deployments doubled from those in 2009.

They attribute the boom to a mix of both market and government factors. These include dropping solar panel costs, DOE loans and federal investment tax credits, as well as state policies that allow companies to cut through bureaucratic red tape and third-party financing tools like the solar lease.

Solar leasing enables homeowners to install solar arrays on their rooftops and purchase clean electricity without having to shell out $30,000-plus for a system. In California and Colorado, leasers accounted for more than a third of the residential solar market in the first quarter of 2011, according to SEIA.

Also helping the industry grow are policies that helped to cut permitting, installing, maintaining and operating costs by nearly 20 percent from 2009 to 2010, according to a Sept. 15 report from the Lawrence Berkeley National Laboratory.

The increase in solar capacity, however, has raised the concern from both sides of the debate that America’s solar installations are increasingly foreign made.

American companies continue to prosper in earlier and more technologically advanced parts of the solar supply chain—namely, producing polysilicon feedstock for crystalline silicon modules and equipment needed to make solar panel parts. But most U.S. manufacturers of solar cells, wafers and modules are expected to struggle on, as Chinese firms continue to receive cheap long-term loans from their government.

Congress is unlikely to come close to matching the bevy of incentives offered abroad. Barrett, the economist from the Clean Economy Development Center, said that unless this changes, developing at home will be a challenge for most solar manufacturers, especially if the government continues to back traditional fossil fuels.

“Traditional energy sources … still get federal support on a scale that dwarfs anything that we give to the renewable energy industry,” he said, adding that a level playing field is needed.

A 2009 study from the Environmental Law Institute found that federal subsidies for oil, gas and coal totaled more than $70 billion from 2002 to 2008, while subsidies for traditional renewables like wind and solar energy received just over $12 billion.

The issue of energy subsidies has long been a partisan one.

Last summer, at the request of Congress, the U.S. Energy Information Administration evaluated the amount of subsidies that the federal government provided energy producers from 2007 to 2010. It found that renewable energy subsidies shot up by 186 percent from $5.1 billion to $14.7 billion. (Solar got just over $1 billion, and a large chunk went to biofuels/biomass and wind. Coal jumped by 44 percent to $1.4 billion; oil and natural gas increased by 40 percent to $2.8 billion.)

For Horner of CEI, it’s a case of apples and oranges. He said that subsidies for conventional energy sources encourage more domestic production of an existing industry, while renewable energy support props up sectors that otherwise might not exist without a handout.

Nick Loris, an energy policy analyst at the Washington, D.C.-based Heritage Foundation, a conservative research group, favors removing all energy subsidies and letting electricity consumers drive demand for the lowest-cost technology.

“If the solar industry can mature and certain technologies can succeed in the marketplace, then that is a good thing for energy consumers—so long as it can be done without subsidies and special tax credits,” he said. “That is when I’ll believe that solar technologies are mature enough to compete.”