Answer: Solyndra.
As you know, Solyndra, a California-based solar panel manufacturer, filed for bankruptcy on Aug 31, and the company is currently under FBI investigation. At last count, US taxpayers lost half a billion dollars on that deal.
Goodbye Greenbacks, Hello Green Energy highlighted a few basic stats. The news is worse than that superficial examination indicated.
Why? Photovoltaic solar panels are, it turns out, a commodity product.
What do we know about the relationship between commodity products and pricing?
Correct. Prices fall and profit margins shrink as products mature into commodities. The more commoditized the product, the more acute the price pressure becomes.
In 2009, general solar panel prices were roughly $1.95 per watt of energy produced. (Solar panels are priced based on energy output.) In August 2011, some retail prices fell as low as $1.27 per watt. Check my math, but that looks like a 35% price plunge in a two-year period.
Even before the latest price drop, Solyndra was reputedly selling its products below cost. One source, for example, cites 2009-10 figures that placed Solyndra's cost of goods sold at $108 million and revenue at $58.8 million.
What about market forces?
Not to put too fine a point on it, but the solar panel market is dicey and demand is unpredictable. Solyndra, nonetheless, is reported to have classified every commercial roof in the world as a potential customer. Really? Every single commercial roof, regardless of latitude, longitude, war, peace, interest in solar energy or ability to pay? To cast this approach in the most positive light possible, it's dangerously delusional.
Competition in the global solar panel industry is fierce, and worldwide, it's experiencing a series of consolidations, restructures and closures. It seems the only way to survive is to match economies of scale with extreme production efficiency, superior management, and steady, sustained demand. Solyndra fell short on all four fronts.
What’s the key point?
A range of issues helped sink Solyndra, but a volatile market and severe price pressures contributed to its demise. We can learn from this example.
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Related
Price Pressure | Self-Inflicted Wounds
Price Pressure | Product Life Cycles
Price Pressure series
References
The Atlantic: How Did Solyndra Spend All That Money?
The Atlantic: Solyndra Was a Bad Bet from the Beginning