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Solyndra deserves more credit than the media is giving it. But not much.

Any discussion of the Obama administration’s ill-fated decision to loan more than half a billion dollars to Solyndra, the now-bankrupt solar cell manufacturer, needs to begin with the obvious: the prospects for solar power competing economically as a source of grid power are virtually nil.

The cost of a solar panel system is usually quoted in dollars per watt-peak (peak watts being the output of the system under optimum natural lighting). After compensating for a few factors, primarily the difference between peak wattage and average wattage (the sun does not shine 24 hours per day), a $1/Wp photovoltaic system is roughly cost competitive with a $4000 per kilowatt-capacity nuclear plant (a plausible nuclear price tag which is, under some analyses, almost cost competitive with natural gas or coal).

To put that in perspective: the cheapest photovoltaics we have today cost $4–$6/Wp. Even the best of the world’s solar panel makers (which in my humble opinion, is the U.S’s own First Solar), will be very lucky to reach $1/Wp for just their cells in the next two decades. And should they even reach this goal, they have little hope to reduce the balance of system costs associated with solar. Between the inverter, the labor to install the panels, and all the other ancillary costs, the price one pays on top of the cells themselves for a working photovoltaic collector come to $1.50-$2/Wp. In the final tally, even if you give away all of the components of a solar system for free, just the labor to mount the panels and wire them together is often enough to make solar more costly than natural gas.

And so, even if there were magical leaps and bounds in the technology of solar panel manufacturers, some cost components of solar power are going to remain and likely ruin whatever hopeful notions of cost parity that the industry might entertain.

In a paradoxical way, these reasons for why solar power is a pipe dream are also the same reasons why Solyndra deserves more credit than it has gotten. No evolutionary process is going to push solar past the threshold of grid parity — to make solar power work, we need a crazy, long-shot gamble, and Solyndra was just that sort of insane moon shot. Here are the things Solyndra got right:

Firstly, Solyndra avoided the use of silicon in its cells. Polysilicon production uses mature, energy-intensive technologies that are unlikely to make any significant improvements over the next half-century. Even with sizable gains in wafer cutting technology (thinner silicon wafers mean less material per cell), polysilicon is like the labor to mount panels — a large enough and intractable enough cost to sink solar’s long-term prospects. By using thin-film technologies rather than silicon, Solyndra dodged one of the least manageable cost hurdles in the PV industry.

Secondly, Solyndra aimed for high efficiency cells. All else being equal, a panel which captures 24 percent of incident light is going to cost half as much to install, per watt-peak, as a panel which is only 12 percent efficient. This is one of the few ways in which that obstinate dollar of installation labor can be reduced.

And finally, Solyndra hoped to manufacture solar cells in a different form-factor — a cylinder instead of the typical flat panels. This strikes me as lunacy, but at least it indicates Solyndra understood the significance of the challenge facing PV. The cylindrical design, they hoped, would mean less wind shear on the solar collectors and thus reduced mounting needs and lower balance of system costs.

Therefore, as pessimistic as I am about the prospects of photovoltaics, I don’t see the main lesson to be gleaned here as government making bad technology bets. Yes, the technology didn’t pan out (Solyndra’s solar cells cost about $3 more than their competition), but that’s the nature of taking risk; as far as solar technology gambles go, Solyndra was probably the brightest one the government could have made.

And still, the story of Solyndra confirms the view of Larry Summers, that “gov is a crappy VC.” It might be splitting hairs to make this distinction, but while Solyndra might have been the best technology bet in the solar industry, it was one of the worst business bets to be had.

Solyndra’s business management was abysmal — at every level of the company, workers were complaining about huge money wasting. And the timing of the company was terrible. A glut of polysilicon production, the global recession, and the end of hugely generous solar subsidies in Spain meant that Solyndra’s venture was doomed even if the technological gambles paid off.

These are not, as the White House claims, unknowable downsides. These were factors that the federal government had ample time to consider as it made its loan decision. The decision to make the loan to Solyndra came after the Spanish decision to slash their subsidies — and well after the global recession had hit. And the glut in polysilicon was obvious to anyone with even a passing interest in the industry. In 2009, I estimated that just four incumbent firms — firms whose capitalized plants could manufacture polysilicon at $20-30 per kg — could supply the world’s entire foreseeable demand. Today, the price for polysilicon is at roughly $44/kg — as old contracts expire and are re-negotiated, that price should plummet even further.

I was not alone in my assessment — it’s hard to find any market analysts from 2008 onwards who had anything upbeat to say about polysilicon prices. In fact, the market’s outlook on the entire solar manufacturing chain was dismal — the value of solar companies was almost wholly determined by their amount of cash on hand. Their capital, their inventory, their technology and expertise were all worthless; and why not? They were worthless before the crash too, it’s just that governments were more willing to throw away taxpayer monies on worthless products before the recession hit.

That the government could step into this grim scene and so confidently misread it, going so far as to have President Obama make Solyndra the poster child for loan guarantees, demonstrates how truly terrible the government is at picking winners. Even absent any cronyism or corruption (which may still yet surface in the Solyndra case), the government is simply bad at investing taxpayer money in business ventures.

As Obama makes the media rounds, he is claiming that he has no regrets about his decision to dump $535 million into a failing enterprise. But he should — both the loan guarantee program, as well as the specific decision to loan money to Solyndra, are mistakes.