You may know that I am always on the
search for excellent content on
Alternative Energy Sources. This morning, I
come across a really
nice information that talks
about Eco Energy Sources from a different
perspective. Today’s find is titled Alternative Energy: A False Market .
Article by Seth Setterberg
Solyndra, one of the largest solar panel manufacturers, is going to have many Americans scratching their heads. Solyndra, which was established in 2008, is now facing chapter 11 bankruptcy after receiving a 5 million loan guarantee in 2009 from the Department of Energy. The president, in attempt to “go green”, is stressing the importance of getting away from the traditional fossil fuels and is pushing Americans to invest in alternative energy sources such as solar power, fuel cells, biofuels, hydroelectric, and wind power. The government, through the award of contracts, loan guarantees, grants, tax credits, and rebates has created a false market for companies seeking entry and sustainability in the alternative energy market.
With Solyndra going bankrupt, two concerns arise. First, why is the President signing off on a 5 million dollar loan for a company that was 7 million in debt from 2006 to 2009? The magnitude of losses suffered by Solyndra should have caught someone in the Treasury Department’s attention. With a loan guarantee in the sum of 5 million, this is a prime example of the Government creating a false market. The actual market for solar power is small right now, partly due to the recession; and even though the cost for solar power may be decreasing the market has yet to grow. Revenue for Solyndra increased from million in fiscal year 2007 to 0 million in fiscal year 2008. That is a revenue increase of 1600%! A drastic increase like this could mean two things; the market for solar energy is expanding very rapidly, or there is some foul play with the books displaying such a huge increase in revenue. Either way, it creates a higher probability of receiving a loan guarantee. Soly ndra did make a hefty contribution to the Obama Presidential Campaign in 2008 in a sum of thousand, but that is just politics. The perception in the eyes of the taxpayer is a mismanagement of tax dollars.
Another key concern is the public’s willingness to buy into alternative energy. We all can agree that alternative energy is renowned and will eventually become more dependent upon, but today’s market is not mature enough for a consumer to fully buy into. The economy, being in a recession, has significant impact on the alternative energy market. Consumers buy the necessary commodities when times are tight; luxury items stay on the shelf.
If simple economic factors are observed for alternative energy, the market begins to make sense. The model used to determine a market price is a supply and demand curve. When demand is high or the supply is low the model suggests that the price will be high. Alternative energy is expensive, but in reality the demand is low and the supply is high, resulting in the alternative energy being out of economic equilibrium. The alternative energy market is saturated with companies. The Federal Government is creating a false market by providing tax breaks, loans, and grants to work in the alternative energy market. Even with the positive impact for the environment and the potential future cost savings, the public is not ready to pay more for an equivalent product or service. With the sluggish current economic trend, the market for these more costly alternative forms of energy is not feasible.
The President has set some lofty goals for alternative energy consumption, but the consensus of the public is that alternative energy is too expensive. It is not only expensive for individuals, but it is also expensive for the Government. According to the Department of Energy’s website the federal government has awarded billion in loan guarantees. This would be good news for small business start-ups seeking funds but bad news for established businesses trying to earn profits in the energy sector. With the government fiscal year coming to a close on the 30th of September, it will be interesting to see what kind of budget congress agrees on for the next year, and if entrepreneurs will continue to seek the alternative energy market share.
Seth Setterberg is a 1st Lieutenant in the United States Air Force and a Contracting Officer. Seth is also currently enrolled in the Master’s Degree in Entrepreneurship Program at Western Carolina University. Webmasters and other article publishers are hereby granted article reproduction permission as long as this article in its entirety, author’s information, and any links remain intact. Copyright 2011 by Seth Setterberg.
Alternative Energy: A False Market
Best regards,
JamesGallo
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