Part I yesterday described Evergreen Solar Inc.’s recent bankruptcy protection filing, which has left Massachusetts holding the bag for tens of millions of dollars in tax benefits and subsidies for a Devens, MA solar panel factory. Massachusetts wanted to be a true believer, and the promise of 800 jobs in a recession was too good to pass up even if the risks were high.
For politicians looking for good press this was a great opportunity—until reality hit the fan. So what lessons does this failed ‘green’ energy experiment impart for other political jurisdictions eager to create jobs? I offer five.
1. Being green does not mean being sustainable.
Evergreen Solar expanded just as the solar market was reeling from feed-in-tariff (FiT) subsidy cuts in Spain and later Germany, the then hottest markets in the world. Those FiT cuts were caused by rising and unsustainable costs to the Spanish and German governments seeking, just as Massachusetts had done, to prop up local business and create jobs when they were needed most.
2. Solar energy is governed by global markets for commodity prices—and few play that game better than China. So when China saw the luscious FiT subsidy fruit being dangled in Europe, it undercut the prices of local manufacturers for photovoltaic panels and took both market share and FiT subsidy Euros and sent them back to China. The European solar manufacturers were—pardon the pun FiT to be tied—but they were also still screwed because they could not meet or beat the low Chinese prices and saw their business fade away as unsustainable in a market that had become dependent upon unsustainable government subsidies.
These EU PV makers then dumped PV panels on the global commodity market at fire sale prices thus causing a worldwide problem of falling prices that swamped many solar players including Evergreen.
3. Feed-in-Tariffs are Risky Business. The EU story of industrial-policy good intentions gone unfulfilled is also a lesson unfortunately re-learned many times as disappointed results, this time in Massachusetts, remind us that when we seek to build entire new industries on a bed of sand. Our business future (sales, revenue growth, and supply chain channels) can be toppled by tremors in the markets half a world away.
4. Economic Development must be Economic. State governments are running out of our money for tax breaks designed to steal business from other states. A zero sum game, subsidy chasing is never good business.
If a business prospect is not sustainable (read: competitive) without subsidies and tax credits it is unlikely to be sustainable (read: profitable, tax-paying and job creating over time), and no shower of cash from politicians seeking good press will make it so.
5. America’s Sustainable Energy Policy is Reliable. However worthy transforming America’s energy policy by promoting clean renewable energy is, we better not kill off the traditional, conventional, reliable sources of energy until we are certain that the new supplies from these clean renewable sources are sustainably sustainable.
A sobering statistic: the sum of all global solar energy capacity installed to date (8 GW) is slightly more than the amount of coal-fired power generation (5 GW) that the proposed U.S. EPA emissions rules would force into retirement in the Midwest ISO market alone.
The bottom line is our economy needs to create jobs—a lot of jobs to put Americans back to work and grow tax revenues to reduce our deficit. But the only sustainable way of achieving that goal is to create a globally competitive market environment that will unlock the hoarding of cash so investors are confident, willing, and able to take reasonable risks. States will never be able to spend enough taxpayers money to compete with China or overcome uncompetitive market conditions. Ask Spain, Germany and other EU countries how their feed-in-tariff experience worked out for them.
Industrial policy and economic development incentives by governments almost never works when the focus is picking winners and losers. But it is always easier for politicians than the harder work of assuring reasonable, predictable rules and competitive tax levels so that entrepreneurs can be sustainable in global markets.