The cheapest mousetrap usually wins. A better and/or less expensive one in the long-term all too often disappears too soon to demonstrate its superiority. The long tomorrow and capitalism aren't compatible. What Danny Hillis has defined as The Long Now. A short bit from in his 1995 essay, The Millennium Clock illustrates that tension.
I think of the oak beams in the ceiling of College Hall at New College, Oxford. Last century, when the beams needed replacing, carpenters used oak trees that had been planted in 1386 when the dining hall was first built. The 14th-century builder had planted the trees in anticipation of the time, hundreds of years in the future, when the beams would need replacing. Did the carpenters plant new trees to replace the beams again a few hundred years from now?
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The suntrap built by Solyndra is different from the silicon based photovoltaics manufactured in China and what First Solar makes. It seems to have one advantage, lower installation costs and possibly a second if lower weight is a consideration. Whether or not that outweighs other real or projected disadvantages, who knows? If there were any glaring and obvious disadvantages, expect we'll be hearing from previously silenced voices or the Monday morning quarterbacks soon enough.
That, however, may be the least important or interesting aspect of the decision to extend government backed loans to Solyndra. When Solyndra applied for assistance, it's FAB1 facility was operational and employing about a thousand workers. That plant opened Februrary 1, 2007. More than a proof of concept facility, but obsolete in less than four years?
Reliable Plant reportedthat Goldman Sachs “acted as exclusive financial advisor to Solyndra in connection with the DOE loan guarantee. “ That should set off a few alarm bells for those who have been paying attention for the past few years. And that leads us to the amended S-1Registration Statement, filed 3/16/10. Sales through January 3, 2009 were a total of $6 million (product shipment began July 2008). As of that same date, and approximately when the DOE was entertaining the loan guarantee, operating losses totaled $368 million and property plant and equipment was valued at $204 million. R&D expenses for 2007 and 2008 totaled $210 million. That suggests that the company wasn't exactly past the proof of concept phase. A conclusion that the company confirmed:
Research and development expense
Our research and development expense consists primarily of salaries and personnel-related costs and the cost of products, materials and outside services used in our process and product development activities. Our research and development expense also includes the cost of operating production equipment before it has been qualified for commercial production, including the cost of raw materials for solar modules run through the production line during this qualification phase. We expect our research and development expense to increase in absolute dollars for the foreseeable future as we continue to make improvements in our product performance and manufacturing processes. In the long term, we expect our research and development expense to decline in both absolute dollars and as a percentage of our revenue as we realize economies of scale.
At that point, Solyndra had a big problem: sales. Or more precisely the lack of sales. And that purportedly was because their product wasn't price competitive. The investors had dumped almost a billion dollars into the effort and no payday was in sight. Whatever those investors were thinking by then, it doesn't appear that they were confident enough in the product to double down on their investment.
One, among many reasons, why venture capitalists are rich and I'm not is that I don't much like start-ups, and particularly dislike those that want to go big and fast without clear and definable reasons why the world needs them. Solyndra would have fallen into that category for me. That said, the DOE loan guarantee did create jobs. A $270 million construction contract for Rudolph & Sletten Construction. A project they they delivered on-time and within budget. (And was a much needed revenue contribution to Tutor-Perini (R&S's parent) that saw < a href="http://finance.yahoo.com/q/is?s=TPC+Income+Statement&annual">its revenue drop by $2 billion in 2010.)
What should stand out to anyone that looks at this is Solyndra's discussion of FAB 2 in its S-1 filing. I quote, "The estimated aggregate project costs of Phase I are approximately $733 million, which includes a contingency reserve of approximately $65 million." A condition of the DOE loan guarantee was an injection of more capital:
We were required to pre-fund our equity contribution obligation as a condition to the issuance of the guarantee in an amount equal to $198 million, and we have satisfied this obligation through contributions of land, improvements and other capitalized development costs and the deposit of funds in a cash reserve account set aside to be utilized as project costs are incurred.(emphasis added)
Another fine example of the "job creator" entreprenuerial class. Can only wonder how much Goldman Sachs made on this deal.
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Update: If not clear from the forgoing, I view this more as a oops than a scandal. And compared to the Bush/Cheney oops, it's not even a big one. But I'm not naive enough not to recognize that there's just enough there there for Fox, etc. to run with, but not enough to hold the public's attention.
Jon Stewart does a "fair and balanced" presentation:
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*Once shared that story with the CFO of a mid-sized commercial builder. His response was, “We like to build for twenty years and then tear it down and build another one. That's how we make our money.”