GLOBAL

How Big Corporate Finance Set American Solar Power Back Decades

Investment in the U.S. just isn't designed to support technologies that need years of development

GLOBAL
Photo Illustration: Diana Quach
Mar 31, 2017 at 9:27 AM ET

Solar energy could have been an all-American industry, but its early potential was squandered by investors, leaving other nations to take the lead, according to a new study.

What matters here isn’t the question of economic nationalism — it’s not that solar power should be American-made just because. But understanding why solar power suffered decades of setbacks in the United States is more important than ever in the face of global warming, as the need for clean alternative energy has never been greater.

Many NASA satellites in the 1960s and 1970s used solar cells, and the attempt to commercialize this alternative energy began in the United States. But, as a new paper in Science Advances explains, the task of developing solar power proved a disastrously poor fit for financial investors. The result? The U.S. went from being home to 95 percent of the solar industry in 1978 to just nine percent in 2005.

Early space programs liked solar power cells because they were so lightweight, even though they were expensive. As economic researcher Max Jerneck explains, making solar power cells affordable down on Earth would take many years, far longer than investors are prepared to wait to see a return.

Many early solar pioneers wanted to start small, focusing on getting solar panels to remote locations off the existing power grid, like isolated villages in Africa. But nobody wanted to invest — venture capitalists are often wary of investing in a risky, unproven technology unless they see their peers doing so as well. This herd mentality left small solar companies out in the cold.

Struggling startups ended up selling to larger corporations, especially big oil companies like Exxon, Shell, and Mobil. To the extent these companies wanted to do anything at all with solar, they didn’t want to pursue small-scale projects, instead looking to develop solar as a competitor in the electricity market with traditional power plants. That ambitious plan could have maybe worked with enough time and money, but these companies’ solar power subsidiaries found themselves chronically underfunded and misunderstood, with their parent conglomerates prioritizing profits for themselves and their shareholders over developing the technology.

The death knell for American solar power came in the 1980s, as increased international competition led corporations to sell off all but their most profitable sectors, and that was never going to be solar. Many sold off their solar technologies to Japanese companies, which had already seen great success with small-scale efforts like putting solar cells into watches and calculators — just the kind of things American solar proponents had favored in the first place. Japan would eventually control about 50 percent of solar power’s global market share, though China and Taiwan have since surpassed it.

The United States is still sluggish when it comes to investing in solar energy, and it may not be wise to expect the business sector to stay committed to investing in solar if near-term profits aren’t guaranteed. As Jerneck argues, solar energy and other young, uncertain technologies need governments to put financial policies and incentives in place that can get investors to show some patience.