Solyndra collapse offers argument for deregulation

A recent controversy in the solar industry has served for some as an argument against investments in alternative energy, but the incident could also be a call for change in the electricity industry.

California-based solar manufacturer Solyndra declared bankruptcy this summer, citing higher competition from China and lower-than-expected prices for silicon. The collapse would have been uneventful except that the U.S. had offered Solyndra a loan guarantee, putting the federal government on the hook for $535 million.

Sunil Sharan of Sierra Consulting writes for The Washington Post that the response to this failure has been understandably negative, but often still off the mark. Sharan suggests that the real lesson to be learned from the incident is that electricity companies and related industries are too heavily supported by direct government subsidies without effective use of market forces.

Sharan notes that a report from the U.S. Energy Information Administration that shows the electricity industry produces the largest proportion of carbon dioxide emissions – 40 percent in all – of any sector of the economy. Despite the ongoing push to reduce emissions, however, those electricity companies that hold a state-approved monopoly in their areas have been slow to invest in new technologies.

Meanwhile, Texas has implemented a policy of electricity deregulation that, despite an initial surge, has eventually led to lower electricity rates, bringing the state below the national average. With the state's renewable portfolio standards, Texas utilities have also invested more than $1 billion in wind alone, with some electricity providers emerging that specialize in renewable electricity.

Europe has also deregulated its electricity market, forcing substantial competition between electricity suppliers from nation to nation. So far the policy has been credited with the implementation of the largest smart grid in the world in Italy, which utility company Enel suggests saves around €1 billion annually. In this time, Germany has also become the world's leader in solar power, followed closely by Italy.

Electricity deregulation has not been without criticism. The Houston Chronicle cited a particular policy that has recently resulted in a price hike for all Texas electricity customers. However, the policy actually represents a carryover from the old monopolies, paying for utility companies' investments in new generation capacity.

Sharan notes that deregulation is unlikely to prove successful without effective oversight, but the costs associated with the current system are often more substantial and far less productive.