Failed Energy Endeavors and their Government Backers

Pet Projects will Get Funded

Ken Silverstein | Sep 26, 2011

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Republicans are outraged by the loan guarantee given to the failed solar cell maker Solyndra, calling it symptomatic of government largess and favoritism. Careful, now. The same lessons also apply to the nuclear and coal companies that are seeking to get a leg up.

No energy form is puritanical. And all the hand-wrenching should be viewed for what it is -- part of an enduring effort to bring down President Obama. But that does not mean that the points raised are not valid, even though their motives are dressed up. Indeed, anytime taxpayers are put on the hook for businesses that can’t repay their loans, questions need to be asked -- questions that executives of Solyndra have refused to answer before a congressional panel.

In the case of Solyndra, cynics are inquiring whether the $528 million loan, originally applied for in 2005 and which was received in 2009, was rushed to a firm that was doomed from the outset.

Was it cronyism or was it the concern for a truly sick economy? Obama was elected on the promise of creating 5 million new jobs in the green sector -- the vehicle that would lift the nation out of despair and into prosperity. The General Accountability Office has said that the administration skipped steps, however, the White House says that it had to cut red tape in a hurry.

"Taking office amidst the worst recession since the Great Depression, President Obama confronted an unemployment crisis by focusing on the promotion of 'green jobs,' says a House Oversight Committee report on job creation. "Nearly three years and billions of taxpayer dollars later, Americans have received scant return from President Obama's investment."

But that conclusion has been met with equal vigor by those who support such green endeavors. Solaria Corp. teleconferenced with reporters to point out that the solar industry now employees 100,000, which is more than any single traditional energy form. Solyndra, they note, fell victim to cheap overseas labor and was unable to recover its production costs.

Exposing Hypocrisy

To be clear, a loan guarantee is not an outright subsidy. Rather, it is a form of insurance that is needed to get projects going and to entice Wall Street to also invest. Altogether, the U.S. Department of Energy is at some stage of awarding $30 billion in loans to 42 alternative energy projects, which according to the administration have saved or created 66,000 jobs.

Some of those deals may get cut off in the latest budget battle. But if lawmakers reason that loan guarantees are “wasteful spending,” then they would also have to apply the same logic to other energy programs: coal gasification with carbon capture and sequestration as well as nuclear.

Consider nuclear energy: Under the 2005 Energy Act, Congress authorized loan guarantees and then instructed the Energy Department to devise the program. At the time, $18.5 billion had been allocated for such purposes. Now, the Obama administration is proposing to increase that level to $54.5 billion -- with the first two totaling $8.3 billion for reactors to be built in Georgia.

Opponents of those guarantees, conversely, say that nuclear plants are expensive and uncompetitive and have a proven track record of cost overruns. If they are unable to receive private financing then taxpayers should not become a backstop.

“With hundreds of billions in bailouts already on the shoulders of U.S. taxpayers, the country cannot afford to move forward with a program that could easily become the black hole for hundreds of billions more,” writes the National Taxpayers Union and other conservative groups to the president.

The bottom line is that those who argue that loan guarantees are risky and wasteful must not be hypocrites. Key differences exist, of course: While traditional energy has proved more reliable, the associated financial and safety risks have been much greater.

Consistency aside, the federal pie is only so big, notes the Union of Concerned Scientists. Lawmakers must therefore decide how to allocate available funds. The scientists are advocating for green energy, pointing out that taxpayers and ratepayers have already shelled out billions for abandoned nuclear projects as well as $200 billion to compensate for the industry’s cost overruns. 

Taxpayers lost $528 million on Solyndra. But that pales in comparison to what other energy businesses have cost taxpayers, solar supporters say.

Still, the fundamental question is whether government should assist any energy project or technology beyond the research and developmental phase. Without such help, advocates say that many qualified projects could not get out of the lab and into the market. Others, though, contend that anything further is tantamount to Uncle Sam picking winners and losers.

Look for politics to trump economics concerns, however, allowing pet energy projects from both parties to get their federal funding.

EnergyBiz Insider has been been nominated in 2010 and 2011 for Best Online Column by Media Industry News, MIN. Ken Silverstein has also been named one of the Top Economics Journalists by Wall Street Economists.

Follow Ken on www.twitter.com/ken_silverstein

energybizinsider@energycentral.com



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Comments

Let's make sure we use real meanings of words

I get sick of hearing the terms "federal subsidies" or "federal funds".  First, there are no such things as federal funds--it is money taken from taxpayers that they earned either working for a living or by putting their money at risk to finance businesses.  That means it is money the taxpayers cannot spend for the things they want and need--money that would generate new businesses because of demand.  Think about it, when the federal government "creates" a government job, it probably takes 7 to 8 taxpayers with the same income just to pay the wages for the job.  Throw in the benefits and burdens, office space and furnishings, etc and it's probably closer to 13 to 15 people of the same income to pay for that federal employee.  If the federal government subsidizes--and by that I mean production tax credits, cash-in-lieu or other grants etc, not deductions on income for tax calculations--an uneconomical form of energy, each job then takes about 4 to 4.5 taxpayers with the same gross income to pay for.

So all these programs are making America less competitive in the world marketplace because it raises the cost of manufacturing goods or supplying services while simultaneously depriving the taxpayers of money they could be using for meeting their needs and wants.  It does not matter whether it is done through taxes, feed-in-tariffs, cap-and-trade--if the competition does not live by the same rules, you lose.

The federal government should be funding the basic research and development.  Whatever R&D is funded with taxpayer dollars and proves out should then be put up for bid to private American industry for commercialization or else given freely to American businesses and let them compete among themselves in the marketplace.

As for the political statement in the article, I feel it is out of place.  Both parties should be ashamed of the misspending of taxpayer funds by all elected or appointed employees of the people of the United States.  Republicans and Democrats alike, in all branches of government have squandered taxpayer money on wasteful spending that does nothing to advance the nation.  Unfortunately, Ken, the present administration has taken that to new levels.  When one compares Solyndra to a nuclear facility, there is a big difference.  Solar PV is darn near as expensive to build on a nameplate MW basis as nuclear but has a capacity factor of less than 20% while nuclear has a capacity over 90%.  The other thing is that the present administration allowed the order of reimbursement from bankruptcy proceedings to be flipped--and the buck stops with the President.

Framing the Issue of Government Backing

This is an interesting article. However, I would suggest that you might want to consider the question, "To what exrtent should the United States support its industries?" I offer the following answer based on the course taken by some other governments.

Unlike our consumption driven economy, there are several countries with export driven economies. These countries include China, Japan and Germany, among others. Their governments work closely with industry, universities and banks to identify key industries (e.g., machine tools, electronics, autos, nano materials, etc.). These governments then support and protect these industries with R&D funding, import restrictions, tax breaks, standards, and, in the case of China, with currency manipulations to achieve overseas price advantage. Our government does little of this to help indigenous industries. Consequently, the U.S. trade balance is abysmal, compared to these other countries. Much of blame for this poor U.S. showing is attributable to President Reagan, who declared that government is the problem. In point of fact, Reagan was and continues to be the problem.

Dr. Jeffrey Everson

www.jheversonconsulting.com

Politics

I am going to defend Ken here, he's only calling it like it is. It is ridiculous how much attention this Solyndra thing is getting. 

That said, I completely agree that the government should not be in the business of these loan guarantees or other direct subsidies. I do however think many conventional energy sources are propped up by the government and could use some taxing to level the playing field for renewable energy. Also, anyone making the argument that since there isn't proof of anthropogenic climate change we should just push down on the throttle is just brainwashed or otherwise politically motivated. Changing the chemistry of our atmosphere and oceans can't be the right thing to do just because it is easy and cheap.

Two Comments

 

 I want to make two comments.

 1.  Yes the current political debate is particularly vigorous, but there are very big issues at stake.  Dems see 80 years of New Deal policies under attach, and Reps are saying 'we can't afford 80 years of New Deal deals'.  This is about adjusting paradynes, and (duh) doesn't happen easily.

2.  Ken kept his article to loan guarantees, and talked to the question of parity between traditional energy forms and newer, 'green' alternatives.  In the comments some expanded the subject to parity of 'subsidies' and 'government support'.  I recently spent an afternoon reading-up on this topic.  My conclusion is there is a real apples-and-oranges problem here.  Much of the 'Green' support is direct payments to offset costs, e.g. a check, tax credit or lower electric rate.  Much of the 'traditional' support is more indirect, e.g. a tax deduction or the cost of running the DOE National Laboratories (which I would favor reducing by half).  My conclusion, parity of dollars doesn't equal parity of support.  In 2011 and probably 2012, the new technologies get more direct help than the traditional.  I am sympathetic to the argument that says that is appropriate.  My point is let's have that debate without the half-truth that all energy forms are supported equally.

Great topic/article undermined by political comment

Ken,

The topic you describe is absolutely worthy of serious poltical debate. Unfortunately however, your solicitous comment "part of an enduring effort to bring down President Obama" is biased, non-sensical, and not up to even minimal journalistic standards.....much less your usual level-headedness and non-partisanship.

No place for partisanship

While some say, even in these pages, that the uproar over the Solyndra disater is purely an effort to see Obama retired from office, it is interesting to note that Obama's own Office of Management and Budget told the world, and DOE, that the Solyndra loan guarantee was a bad deal. They did so nearly two years ago. For those who actually know anything about Solyndra's investors it is very clear that Obama caved in to partisan pressure against the advice of his own advisors. Solyndra failed because it was destined to fail. It was a poorly crafted business plan with no basis in reality.

Period!

Pet Projects

 

 

Yes "Pet Projects will get funded".  That's the problem.  Government shouldn't be in the business of using taxpayer moneys to favor different technologies and industries.  Let free enterprise pick the winners and losers.  I haven't researched it to be positive, but as best memory serves, Thomas Edison didn't get federal funding for his lengthy (finding 1,000 ways that didn't work before one that did) research and development of the light bulb.  I believe private enterprise funded those efforts.  That, indeed, may have been the culminating point of private development.  Since Roosevelt (Teddy, the first one, who was a so-called "progressive" Republican) the government has been getting into more and more areas where it really has no business.

 

Government's job (in our original system) was to protect the nation and provide a level playing field for free enterprise.  When it gets to picking winners and losers by putting it's ham-fisted thumb on the scales using our money, we all lose.  "Green" energy will never survive in a free-enterprise system because it seeks to mitigate a danger that isn't proven and can't be proven with existing science.  It is far too expensive and intermittent ever to be viable.  Pushing it is a political decision that has very little to do with reality.  Yes, I realize the utility industry isn't "free enterprise" and hasn't been since the 1930s, but it should be.

 

Continued skewing of the free enterprise system by either side will just generate more economic chaos.  I have less of a problem with a bit of government R&D work. 

 

 

 

 

 

To:Pet Projects - Sep 27, 2011 - 7:50 AM

You present a sensible and balanced comment.  What you don't acknowledge is that the free enterprize system does not readily address social costs or quantify externalities in a timely fashion.   It is political philosophy to say if this is this where government should or should not be involved to level the playing field.

More importantly, I question your relating green energy solely to climate change.

 First, to say "to mitigate a danger that isn't proven and can't be proven with existing science" is a rather specious comment.  Using true scientific method (which unfortunately is being debased in the climate change saga), scientific climate theory will eventually be distilled into scientific climate law.  It is ludicrous to say "can't be proven with existing science" about any subject.

Second, there are other reasons to pursue "green energy" (and may I take the time to reiterate the point that Energy Efficiency should be our number one green energy pursuit).  Without elaborating, here are a couple: national security and environmental benefits.

I'll end with a question - is there politcal movement that truely see government providing a level playing field vs providing for the monied special interests?

True Motives

I for one think the true motives of the Republicans are to take down the current administration. It's a well worn tradition ... The Dems do the same thing. True, they mask their real motive with a lot of beautiful language and kudos to those who are truly philosophically driven. These are professional, lifelong politicians. Their motives are political. Can you guess why they are held in disregard with the American people? 

Level Playing Field

Dear Ken,

 

In your recent essay "Failed Energy Endeavors and their Government Backers" you have posed the question "whether government should assist any energy project or technology beyond the research and developmental phase".

 

When I was involved with the reconstruction of the energy industry in eastern Germany in the early 1990s, I answered similar inquiries in the affirmative whenever it appeared necessary to create the past artificially that didn't actually exist. In the current context, the US Government should provide enough money to provide renewables with a level playing field.

 

This is all the more necessary in view of a much-repeated reference to the alleged "war on coal" that I heard last week at the Platts conference "Coal Marketing Days" in Pittsburgh. The apparent government policy to restrict growth of this industry prevails in visible contrast to increasing coal usage throughout most of the world. One speaker predicted that the global ocean-going coal trade would more than double to 2.1 billion tons annually by 2030. Is is really the intention of the United States to withdraw from this market despite the country's foreign trade deficit? Perhaps you can get some answers in Washington.

 

On this coming Thursday, I will be holding a seminar on CCS at Texas A&M University. Since my audience will include researchers in the fields of oil geology on the one hand and climate science on the other, the ensuing discussion should be very stimulating.

 

CCS in Europe is probably on a track leading nowhere, now that Germany's upper house turned down a national CO2 storage law last week. Enhanced Oil Recovery is the only economically viable reason to capture carbon dioxide, but Europe has too few EOR opportunities to justify any strategy encompassing the entire EU. 

 

 

Jeffrey H. Michel MSc. 

Energy Consultant

Hamburg, Germany

Everything is Just Politics

"And all the hand-wrenching should be viewed for what it is -- part of an enduring effort to bring down President Obama."

As unsupported assertions go, that one is pretty broad. Do we now have "Obama Derangement Syndrome"? Or, is it just possible that there are now, as there have been since the Founders, people who object to the enormous expansion of federal activities beyond the powers enumerated in the United States Constitution; and, that those people are now able to use the Internet and the new media to bypass the sycophantic filters of the major media? "

Enquiring minds want to know."