Archive for the ‘economics’ Tag

Two Stories, One Basic Lesson.   Leave a comment

Competition is good for everyone, even when the government bets wrong

There are two interesting and counter point stories out today on the economics of renewable energy.  First, we have Foster Wheeler, a large Swiss manufacture of fossil fuel systems, reporting lower earnings.  Their story is that global policies in favor of renewable energy sources are causing weakened demand for their product.   Sounds good for the renewable energy team, right?

Well, not so fast.  We also hear today that Solyndra, a pioneer in cylindrical solar technology, is scaling back its operations ,reducing its production capacity, and eliminating over 150 jobs.  Solyndra received a loan of over $500 Million from the US Federal Government to build their Fab 2 plant and expand production.  However, they are closing their original Fab 1 plant, and concentrating all their production in the tax payer funded facility, while at the same time reducing operations and jobs.

Solyndra cites increased competitiveness in the solar market for their lack of ability to expand operations.  I am sure there is some truth to that.  But I also am left wondering if a venture capitalist or other private sector financier would have foreseen the same competitiveness, and been less likely to fork over $500 Million to fund an ill timed expansion than the federal government.

Solyndra’s technology seems like a major step forward in the solar energy field.  However, having the technology, and being able to economically produce and profitably sell the technology are a different kettle of fish.  The private sector will always be better than the government at identifying likely winners in the economics of energy – renewable or otherwise.

Even if the government bet wrong on Solyndra, I guess the folks at Foster Wheeler aren’t entirely wrong in their assessment that government policies make it tougher for them to compete.   But I think it just means that they don’t like sharing their slice of government pie.  While the fossil fuel industry has enjoyed years of various taxpayer subsidies around the globe, increasing the competition isn’t bad for anyone.  That Foster Wheeler and others now have to compete for government money as well as private financing and consumer dollars is in the long run a good thing for everyone.  The Foster Wheelers of the world will learn to add real renewable energy programs to their companies if they intend to have long and profitable futures.  The renewable energy companies will learn that government subsidies alone do not make a successful company.  Ultimately – all companies need to be able to respond to consumer demands, and do so in an economic and profitable fashion – or perish.

Today was a good day for the renewable energy guys, even if it was a bad day for Solyndra.



Posted November 5, 2010 by bluestew in General

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