New Ideas and New Products

A fairly significant amount of money from the recent Stimulus bill has been earmarked to develop the alternative energy industry in the US. The net effect of the legislation could translate to around $150 billion of investment. There are numerous programmes in place from direct federal investment in R&D, putting solar panels on government buildings and making them more efficient, upgrading the electricity grid, support for electric vehicles manufacturers, etc.

The most important in my mind though is the $6 billion of federal loan guarantees for new alternative energy projects such as solar and wind installations. This $6 billion investment will support $60 billion of government guaranteed debt financing which is sorely needed after many financial institutions have simply stopped providing to financing to capital intensive infrastructure projects.

When I first read about this part of the bill I thought to myself, this is really good news for the alternative energy industry, but, it’s going to take them a long time to get this money to the people who need it. The applications for this kind of financing through the Department of Energy have historically taken months or even years. Energy Secretary Steven Chu has been revamping the process to apply for DoE grants and he had said he expected to see projects being approved by May which I thought sounded ambitious. Therefore it was great yesterday to see the first company benefit from this programme.

The company Solyndra is a manufacturer of Solar Photovoltaic panels and they have received loan guarantees of $535 million to allow them to build out a new commercial sized production plant.

Although it was positive to see that money was starting to be allocated at this early stage I was somewhat surprised to see this programme being used to support a manufacturer with a relatively unproven early stage technology (they use a relatively inefficient thin-film technique using CIGS instead of the established crystalline silicon technology). It seems to me the DoE should be targeting this money at new alternative energy installations such as large scale solar and wind farm projects. There is currently an excess supply of solar panels in the market and adding to that supply in the near future is not going to help the industry as a whole or the economic viability of a company based around young technology. Don’t get me wrong I’m all for investing in new technology and R&D but I don’t think this is the programme that should be used.

There is an opportunity to take advantage of the worldwide excess supply of solar panels by helping to fund large utility scale installations who can take advantage of depressed solar panel prices based on proven technology. These large projects are far lower risk than providing debt to an early stage company like Solyndra. Solar farm projects have very predictable cash flows, low ongoing costs, and can be installed quickly once approval has been given.

I will keep my eyes peeled for further news of where this money is going and keep you updated.

Another good way to keep up with what’s happening in our current credit crunch is the Planet Money podcast and blog. The guys who write this are the team that did the episodes of This American Life that focused on the credit crunch. I like to listen to their podcast every now and then to hear their views.

What you hear in the news about the credit crunch and ensuing financial crisis and the mess the world appears to be in right now is often almost impossible for your average man or woman to really understand. However, I also find it totally fascinating. How on earth did we get ourselves into this mess? I’m not so interested in it from a “Who do we blame?” perspective. I’m more interested in the mechanics, the systemic breakdowns, the personal side of it, comparisons to previous recessions, etc.

One great place to start to try to understand this is to listen to three episodes of NPR’s “This American Life” radio show or podcast. The three you want to listen to are 1. Giant pool of money, 2. Another scary show about the economy, 3. Bad bank. The first one talks about how it all started through the issuance of large numbers of mortgages to people who were never going to be able to repay them. The second one talks about some of the knock on effects such as the collapse of Lehman Brothers and subsequent chaos. The third talks about what the government is doing to get us out of this mess. Each episode is superb and well worth the $0.95. Try the first one and see what you think. After listening to these you will be able to make an informed opinion about what the future holds for us as individuals and as a whole. I think that’s kind of important!

Go to the This American Life website to download the episodes.