CleanTech Perils When Relying on Government Subsidies

WSJ ran a story today of how the one-time darling of solar energy, First Solar, is hurting as solar subsidies subside. Key point:

Solar power relies almost completely on subsidies, and those are being slashed in Germany, where First Solar made 65% of its sales last year

The stock is down 40% and is likely to continue dropping. Its core business is suffering due to cheap solar panels coming in from China and the difficulties of transitioning to a systems provider for solar farms. The WSJ thinks it could drop another third.

Comments

[Chabazite]

I think this points to a wider problem. I am not clear as to how wide the perception is that the US can compete with China in manufacturing, but the US simply CANNOT out-manufacture the Chinese. I read somewhere a few days ago that President Obama has great confidence in the ability of the US to manufacture its way out of the recession, but I honestly don't think its going to happen that way. The US needs to develop skills and capabilities that no one else can, and that means clever brain work more akin to intangibles, and specialised services not more production line stuff; or at the very least completely new production line stuff that no one has thought of before. Tires and machine parts simply won't hack it. The following article shows that the Chinese are sending a clear message - the US needs China more than China needs the US. http://news.bbc.co.uk/1/hi/business/8579528.stm I really think the US might just about be waking up to a changed world here.

[DG]

Chabazite,

I agree with your premise. US labor is too costly to be engaged in commodity manufacturing, with the exception of items which require "just in time" restocking, whether they are commodities or not. Even there, a flight can leave China with a crucial repair part and be in the US within half a day, so it needs to be really "just in time". I'd also argue that this was why, back in the 1980's, the US had to "financialize" its economy, since that was one of the few areas where we had a competitive advantage. Of course, the problem is that there's no way for a country of 300 million people to all be hedge fund managers. Yet, that was the most realistic option at the time, since manufacturing knowledge was diffusing at a rapid rate around the world.

The main problem is that our educational system has woefully underprepared people to compete on a global level. Thanks, teachers' unions!!! Of course, all these changes hit those least capable of adapting to the global economy in the inner cities the worst.

According to an article on Zero Hedge today, China is about to report a trade deficit for the first time in a long time, which may mean that they are diverting their stimulus funds to the people in order to help increase domestic consumption. In the long-run, this would be good for the US, but in the short-run, it's going to benefit China much more, since I'd be surprised if Chinese consumers getting those stimulus funds are going to run out and buy American products with it.

The US is run by a bunch of idiots who think it's perpetually 1946 and we're the only country in the world which has any sort of specialized skill set. The "patrimony" which the past two generations of Americans have wasted makes me want to scream.

[yelnick]

DG, you commented a while ago on how can the US keeps its position in the wold as manufacturing goes away. You were specifically commenting on he mobile Internet. Chab is on the right track. I will post on this tomorrow. China is not to be feared - our own misguided and feckless leadership is the bigger threat

[DG]

Yelnick,

I am skeptical mobile internet is big enough. I think energy production is bigger, but we need to get over the objections of greens and the half-baked "logic" that says it's better to use others' energy resources before developing our own.

Why is that half-baked? Because by the time others run out of energy resources, there could be alternatives available which will make our own carbon resources worthless. Better to exploit them now and divert some of the cash flows into R&D on replacements for carbon-based energy.

[yelnick]

DG, mobile Internet is a driver of new stuff, but certainly not the whole of it. Energy is a mixed bag, since oil is such a magic elixir - it is hard to see us finding a new source that is as energy powerful for the cost. Hence likely a new energy source is more expensive, so a necessity but not a driver of prosperity. I comment much more on this in the Theme post called Investing in Cleantech

[DG]

Yelnick,

Yes, per unit of energy, oil is the best for now and probably the next 50-100 years. I'm thinking longer-term, though. Inevitably, as oil runs down, its price will rise to meet the prices of the alternatives, since at that point there will be less of it and the alternatives will be going "down the learning curve" cost-wise. That's why you need to do the investment now to be first to market with the alternatives in the future. Watch, we'll end up sitting on huge reserves of oil that did us no good while someone else creates the next big thing in energy, all because some BS environmentalist ideology.

[Chabazite]

If you are talking energy, France appears to be the one country in Europe absolutely committed to Nuclear research and development. Their state-owned company EDF purchased a stake in our own nuclear industry which conveniently removed a hot political potato from our Labour (socialist) government. I feel sad about this. Britain once had a Nuclear Energy industry, but alas like so many other things ... I think the French have a mission to dominate this area second half of the 21st Century. For your interest, here is a summary of the French status quo.

Working nuclear reactors 59

Reactors decommissioned/out of use 11

New reactors planned/under construction 1

Electricity generated (net billion kiloWatt hours (kWh)) 419

Proportion of electricity from nuclear power 77%

France has been Europe's most enthusiastic devotee of nuclear power, constructing dozens of reactors since the 1970s oil crises spurred on its desire for energy independence. It has become the world's biggest net exporter of electricity, and is also a major exporter of nuclear technology.

France began a public debate in 2003 on future energy policy, in response to a "strong demand from the French people". Two years later, the state power company EDF approved plans for the construction of a new European Pressurised Reactor (EPR), or improved third-generation plant, at Flamanville in Normandy. The project, which is intended as a prototype for up to 40 others of similar design, is expected to be completed in late 2012.

In 2006, the government also announced the start of the design process for a prototype fourth-generation, sodium-cooled fast reactor, with the aim of having the technology ready for industrial deployment and export after 2035-40.

[yelnick]

Chab, DG - Chris Martenson has done a great job of discussing energy - worth going thru his long Crash Course (its free). 

http://www.chrismartenson.com/crashcourse

Nukes are theoretically a next gen source, despite the environmental brouhaha. Thorium would be a better fuel than Uranium since it burns down to minimal waste and cannot become a weapon. Smaller, factory-built reactors would also be better than custom built, and reprocessing can make reduce waste by over 90%. In other words, all solvable problems despite the continued waves of noise directed at nukes.

Nat gas is a great transitional fuel, and better used for transport than base electric production. Use nukes for base, use gas for transport. By the end of this decade I expect a gas-to-H2 converter which would then fill fuel cells, which would extend the distance of electric vehicles. No need to create an hydrogen distribution system, just use H4C. Gas is also better for trucks, since the weight-to-power ratio makes electric impractical.

Unclear if renewables get us there. Sun doesn't always shine, wind doesn't always blow. Geothermal has huge potential. Smart move now is not to force renewables prematurely but continue development and instead transition to the nat gas platform.

[bob m]

Strong day for stock; but gold seems to have failed. Is that a harbinger of trouble in stocks shortly? Or is gold going to catch up?