In September, headlines erupted when the solar company, Solyndra, announced that it would be filing for bankruptcy just 2 years after the company received $535 million in federal loan guarantees under the Recovery Act. The situation quickly led to questions about why this company failed. And, according to recent discussions and yesterday's testimony by energy Secretary Chu, the root cause might be found in an overlay of softening solar demand in Europe and more than $34 billion in Chinese subsidies. This combination might have led to a market state where Solyndra simply could not economically compete.

Over the past 18 months, it appears that the Chinese Development Bank has extended more than $34 billion in credit lines to Chinese solar companies. This subsidy program, combined with a softening in European demand, contributed to a 27% drop in the price per kilowatt for solar panels. As a result, Solyndras CIGS technology was unable to complete with Chinas traditional crystalline silicon photovoltaic (PV) cells.

Last week, the U.S. Department of Commerce announced that they will be opening an investigation into Chinese solar manufacturing trade practices. Specifically, Commerces International Trade Administration (ITA) will be looking to see if Chinese solar manufacturers have been dumping illegally subsidized PV panels into U.S. markets. This investigation is the result of a series of petitions submitted by SolarWorld and their six (unnamed) partners, which claims that the Chinese subsidy of their companys solar companies might have allowed them to dominate U.S. solar markets enabling a flood of cheap imported panels. The results of this investigation will include a determination as to whether or not these subsidies violated international trade laws. Preliminary findings and decisions are expected to be released in mid-January.

If Chinass solar subsidies are found to violate international trade laws, the fall of Solyndra could be re-classified as a casualty of unethical practices by a foreign entity. This could cast a new light on the companys bankruptcy. And, help to explain why this company went under despite sound technology and financial backing.

There are arguments both for and against condemning Chinas heavy subsidy of its solar companies. On the one hand, these subsidies have allowed for huge growth in the Chinese solar industry, which now accounts for three-fifths of the worlds solar panel production. This growth has allowed Chinese manufacturers to achieve enormous economies of scale that has led to an almost 2/3 drop in the price per kilowatt for solar panels since 2008 (with a 27% drop in just the last 18 months alone, according to Secretary Chu). These low prices have helped enable the United States to install more solar capacity, and to reap the associated economic and environmental benefits.

But, those against the dumping of heavily subsidized products into the market argue that this practice is unsustainable and will hurt U.S. markets in the long term. By artificially forcing the price of solar to go below what U.S. solar manufacturers can achieve (in the absence of their own set of government subsidies), China can effectively demolish the U.S. manufacturing capacity by gutting their customer base. While this might spell positive things for U.S. solar capacity growth, it could lead to a Chinese monopoly in the industry. This lack of competition could then allow China to control the worlds solar market.

Photo Credit:

1. Photo of solar panel by Andreas Demmelbauer and used under this Creative Commons License.


Previous Scientific American coverage of the Solyndra bankruptcy by David Biello (here) and Melissa C. Lott (here)