Max Chau

Professor Doherty
PPD 225
3 March 2016
Case Study #4: Shaping the Future of Solar Power
Summary:
In the past few decades, CO2 emissions have drastically
increased causing the increase in global temperatures. Consequently,
the Obama administration heavily supported renewable energy
programs, as these programs presented a solution to dependence on
foreign oil and coal consumption. However, prior to 2005, not many
countries believed in climate change, and solar panels had not yet
become efficient of affordable. So policies had not yet been
implemented to incentivize renewable energy programs. George W.
Bush passed the Clean Energy Policy Act in an attempt to instigate
clean energy reform, but Obama took the act further by giving the DOE
more power to authorize loan guarantees. After Obamas cap and
trade system was rejected, solar energy reform would have to take
place via industrial policy. Essentially, Obama would have to
incentivize the solar makers to ramp up production; by using the
stimulus bill, Obama created a rush for subsidies and tax breaks.
However, one of Obamas symbols for solar reform, Solyndra, was
tanking due to recurring losses and negative cash flow. Furthermore,
many other American solar reform programs were going bankrupt as
Chinas solar panel makers began to dominate the market.
Consequently, the U.S. began to complain about Chinas increasing
solar panel manufacturing capacity due to their illegal subsidies, cheap
labor, and drastically lowered prices. As Chinas solar panel supply
began to grow though, they began to reach the point of over capacity,
and due to the global recession, demand for solar panels decreased.
Along with the Chinese government forcing the prices lower than the
production cost, the Chinese solar makers also began to struggle as
many programs began to go bankrupt.

Information
o Biggest Arctic ice melt ever in 2012
o Obama planned to make critical investments in renewable
energy industry

o Bush signed Clean Energy Policy Act, but Obama expanded its
power
o Solyndra first program to receive a loan guarantee under
the new act
o Obamas cap & trade system rejected by Senate
o Republicans and Democrats debating about the amount of
government involvement in solar maker industry
o Obamas stimulus bill gives generous tax breaks to
manufacturers and business/home owners for using renewable
energy systems
o Solyndra collapsed due to overlooked structural flaws
o Negative cash flow
o Recurring losses
o Preemptive expansion before reaching full capacity in first
factory
o China is the world leader in renewable energy investment
o Manufactures 3/5 of worlds solar panels
o $475 billion investment plan for solar energy
o Under scrutiny for not adhering to WTO rules that influence
fair trade among all nations
o China would sell cheap products in international markets,
lowering currency to increase exports, and forcing manufacturers
to sell solar panels below production costs
Issues
o Solyndra given massive government subsidies despite flaws
o Rising CO2 emissions cause increasing global temperatures
o Reduce foreign oil and coal dependency
o Efficiency of loan guarantees
o Solar panel programs take advantage of government
subsidies when they dont require funding
o Obama wants to incentivize private sector development of
renewable energy
o Concerns about if loan guarantee program is best way to
achieve renewable energy reform.
o Questions if incentivizing renewable energy reform is
appropriate
o Government shouldnt be choosing winners and loser of solar
industrial policy reform
o Limit amount of total government involvement
(Republican)
o Government involvement is required for solar industry to
reach full potential (Democrat)

o China using illegal trade activities to boost exports and

manufacturing
o Symbolic American solar makers failing to succeed (i.e. Solyndra)
while China controls majority of solar market
o Free Trade vs Fair Tariffs
o Free trade creates competition and lowers prices to
increase demand of solar panels
o Tariffs would penalize China for breaking WTO rules
o Over capacity, decrease demand, and extremely low prices
cause Chinese solar makers to struggle

Interests
Obamas Interests
o Renewable Energy Reform
o Development of solar energy programs and industry
o Increasing global climate temperatures
o Consumption of coal & dependence on foreign fossil fuels
o Kyoto Protocol
o Clean Energy Policy Act
o Competing with China in solar panel manufacturing
o Success of Solyndra
o Incentivizing solar maker industry through subsidies and tax
breaks
Interested Parties
o
o
o
o
o
o
o

Obama Administration (Pro loan program)

Renewable Energy Reform programs (Pro)
Chinese Solar Makers (neutral)
Republicans (Anti-loan program)
Democrats (Pro)
George W. Bush (slightly anti)
Environmentalists (Pro)

Institutions
o Republican party
o Democrat party
o Republican House of Representatives

o
o
o
o

o Imposed bill No more Solyndras

Obama administration
American Solar Panel maker industry
o Solyndra
Chinese government and solar maker industry
Bush Administration

Goals, Powers, and Constraints

The main goal of the Obama administration was to implement
policies that incentivize renewable energy reform because Obama felt
climate change was a serious threat to the earth as a whole.
Ultimately, Obama viewed the DOE 1705 loan guarantee program as
the best way of incentivizing the private sector to develop new solar
panel technology. In terms of power to sustain the loan guarantee
program, the Obama administration had the ability to indirectly affect
the solar industry via incentives (i.e. government subsidies, tax breaks)
directed towards solar panel makers. The indirect incentives would
spur the private sector to develop and innovate on their own since the
tax incentives would cause the solar maker programs to try and utilize
the very beneficial tax breaks. Specifically, renewable energy
manufacturers receive a 30% tax break for expanding operations,
home and business owners who own solar projects receive a 30% tax
break, and solar panel system owners receive cash grants that cover
30% of costs. Obama could also propose and hope to pass a cap and
trade system in order to limit the greenhouse gas emissions, or he
could try to utilize the stimulus bill to pump $90 billion into renewable
energy programs (i.e. Solyndra).
In terms of constraints, the Senate and House of Representatives
were massive roadblocks that prevented Obama from unilaterally
implementing his cap and trade system. Specifically, the Republican
Party opposed the governments involvement via loan guarantees for
solar makers; if they had sufficient support, the Republicans could vote
down or overturn the stimulus bill and Clean Energy Policy Act, which
were the two main legislations helping to fund the solar industry via
government involvement. Being that the stimulus bill is legislation, this
option would also be under the jurisdiction of Congress to vote down if
either chamber was not in support of such huge funding for renewable
energy programs. Preexisting notions that climate change didnt exist
also hindered Obamas ability to sway Congress since members had
differing opinions that may have not been in line with Obama. The OMB
presents itself as a constraint in that they need to ensure that the loan
guarantee program is efficient since the program never showed explicit
ways to evaluate success or countermeasures to solar makers taking

advantage of government funds. Though not as involved as China, the

WTOs rules play a part in regulating the manner in which solar panel
production is handled in the U.S..

Decision
Being a Democrat who believes the climate change is a severe
threat to the earths environment, Obama sees the loan guarantee
program as the most efficient way of instigating solar industry reform.
In my opinion though, government involvement via the loan guarantee
program is not the answer to maximizing solar industry reform because
this system relies on the government to choose whos the best
company. If the government is choosing the winners and losers of the
solar industry, then political influences may cause the government to
overlook any structural flaws in the program. In a system without
government meddling, the strongest competitor will be revealed after
regular market competition. However, some analysts say that
government involvement is required for the private sector to reach its
full potential because market competition alone wont be enough to
cause substantial solar industry innovation. Despite this concern, a
market competition system would prevent any wasted funding going
towards flawed companies because the politically driven government
made an error. Furthermore, ridding of the loan guarantee program
eliminates the possibility of the loan defaulting and significantly
hurting the economy, as the major funds used would then be wasted.

Cost and Benefits:

Unfortunately, the concern that the solar industry cannot reach
its potential based on their own actions has merit; consequently, the
cost of no government involvement would be that the private sector
simply doesnt have the resources to develop fully on its own.
Additionally, the incentives provided by the loan guarantee program
are massive instigators to solar industry reform, and it is unsure as to
whether or not the private sector inherently had the motivation to
begin renewable energy reform on its own. However, the benefits of
getting rid of the loan guarantee program provide that mistakes will
not be made in terms of wasting subsidies and loans that may default
on flawed companies. Also, China already has a tight grasp of the
solar maker market, so trying to emulate their reform tactics wouldnt
be as effective since their government has so much more control over
their programs and economy. In essence, trying to compete with China
wont succeed unless a different strategy (non-government

involvement) is used to counteract the juggernaut that is the export

heavy economy of China.