Americans are an exuberant bunch. We fell head over heels for all things Internet a decade ago. And rather than learning our lesson when the bubble burst, we flocked to housing, only to see it suffer the same fate.
Is alternative energy the next big flop? That’s a timely question in the wake of the spectacular collapse of solar cell manufacturer Solyndra, which received $528 million in federal loans and then went bankrupt.
The same market forces that doomed that California company have cast uncertainty over Abound Solar, which received a $400 million federal loan guarantee last year. It planned to use some of the money to expand its solar-panel-making operation to the massive, unused Getrag transmission plant in Tipton, where it hoped to employ as many as 1,200.
We hope that works out, but there is cause for worry. While Abound uses a different technology from Solyndra, both firms are suffering from a plunge in prices caused by increased supply and lackluster demand.
Another “green” energy firm stoked with federal money—New York-based Ener1—also is ailing. The firm, which makes lithium-ion batteries for electric and hybrid vehicles, could lose its NASDAQ listing if its shares continue trading below $1.
The company received a $118 million federal energy grant, and said it hoped to boost central Indiana employment to 1,400. But that’s increasingly looking like wishful thinking.
The company’s plans to collect even more federal money also are looking dicey. In a regulatory filing, Ener1 said it had applied for $290 million in low-interest loans from the U.S. Department of Energy.
As Wunderlich Securities said in a report last month, “We all have to rethink what is possible now that the auto market is not widely embracing lithium-ion drivetrains. We expect [Ener1] will carefully resize the business model to match existing opportunity.”
The lesson here isn’t for everyone to steer clear of alternative energy. Eventually, there are sure to be many big winners in the sector. But financial backers need a greater appreciation for the inherent risks in emerging industries. That’s especially true of the cash-strapped federal government, which can ill-afford to have billions in loan guarantees and grants go for naught.
Fortunately, not all units of government got caught up in green euphoria. Indiana’s incentive packages were modest compared with those doled out by other states, especially Michigan. And the bulk were performance-based—meaning recipients cashed in only if the promised jobs materialized.
In an interview with IBJ in June 2009, at the height of green mania, Mitch Roob, then Indiana’s commerce chief, urged caution about the fledgling lithium-ion battery industry—a view that now seems prescient.
“I think the industry, relatively speaking, is in an immature state,” he said. “Throwing enormous amounts of money at fledgling organizations probably isn’t the greatest idea.”•
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