There are distinct phases in the development of a new technology.
The first phase is the era of the start-ups. The second is the era of big capital. America is now into that second phase.
Spurred by fears that we're losing “the green energy race” big players like Warren Buffett and General Electric (NYSE:GE) are replacing older, entrepreneurial companies as leaders of America's solar industry.
The fear is that even American production of solar panels may be dominated by foreign companies like Sharp, which is adding workers at its Memphis solar panel factory. The companies are willing to take a short-term hit on earnings in order to make sure America has a shot at the “next big thing.”
Yes, Virginia. This is industrial policy. But so was Apollo, so was the Internet, and so was the transcontinental railroad.
GE is trying to balance its support for clean fuels with its existing support for dirty fuels. It's offering more efficient plants burning those dirty fuels along with natural gas while at the same time giving the Administration cover with its support of new solar production. The idea is that it will act as a private “bridge” between today's energy and tomorrow's, and eventually bring the oil industry in with it.
This is one of the benefits of scale. You can take short-term losses. You can take a long-term view, even when government can't.
But the bigger question is whether this makes business sense. Is GE doing what Japan did 40 years ago, rushing into the mainframe business at the expense of new and different technology?
Critics are right about this much. Solar has yet to achieve crossover. If you buy and install a solar panel today, amortize that panel over 25 years, count the megawatts generated over that span and compare them with what the same money could have bought in pure grid energy (at current prices) you're operating at a loss. Yes, the grid's pollution costs aren't being accounted for. But the bottom line remains the bottom line.
The problem is that the technology that achieves crossover may look quite different from what is being produced today. Organic solar cells, for instance, will require entirely different manufacturing techniques than thin-film CIGS or polysilicon panels.
The actual “PC” of this technology revolution is not yet available, in other words. We're not certain that we have the final form of the solar “microprocessor” that runs cheaper than coal. The action remains in the lab, and with the venture capitalists, in demonstrations and in short production runs.
Is investing in today's solar technology the only way GE guarantees itself a seat at the table for tomorrow's? History says no. GE itself got out of computers in 1970, because it lost money for years, and was thus disinterested when the real revolution arrived.
Is history about to repeat itself?
Oh, and what should GE do? Instead of building a bigger plant in Colorado, how about building a bigger lab near its GE Energy headquarters in Atlanta? How about hiring a technology evangelist who may do for you what Rackspace's Robert Scoble does in social media? Call me.
Disclosure: I am long GE.