Will Clean Energy Stain Fossil Fuels?
Devisive loans, breaks at issue here
Despite the pummeling that President Obama has taken over the federal loan guarantee program, he will be hitting back on the campaign trial. For all the clamor over the collapse over solar firm Solyndra, his political opponents are still stained from high oil prices and the BP oil spill.
The Obama administration is now emboldened: An independent review team headed by a former official in the Bush 11 White House said that U.S. Department of Energy’s loan guarantee program is effectively leveraging the loans to create jobs while much less money needs to be reserved to cover potential losses. Still, the analysis said that the loans must be closely watched after they are awarded.
The president is expected to keep pushing for monies for clean energy deals while Republican lawmakers want to reduce such funding. It’s an honest debate but one in which the president does not intend to back down, given the determination he displayed during his annual address to the nation in January.
“Some technologies don’t pan out; some companies fail,” President Obama said. “But I will not walk away from from the promise of clean energy.” He went on to take a shot at the oil industry, which is enjoying record revenues and which -- the president and his supporters claim -- are resting on the public dole.
The report, authored by Herb Allison who oversaw the program to bail out the nation’s big banks, says that loan guarantees have successfully leveraged $35 billion into the U.S. economy. It also says that the fund must keep $3 billion in reserves to cover potential losses -- a third of what lawmakers had thought. At the same time, eligible businesses have only accessed a portion of their loans.
The review goes on to say the loans are generally secured. That’s because the operations getting the money are doing business with utilities that have stable cash flows. And even those businesses that are posing risks still have value even if they belly up. Consider Beacon Power that makes energy storage products: The failed company snagged a $43 million loan guarantee, although Rockland Capital bought the remains for $30.5 million and thereby diminished the losses.
Energy Secretary Steven Chu responded, saying that other endeavors may fail but that the vast majority will succeed and repay their loans on time and with interest.
Allison’s findings, which didn’t specifically look at Solyndra and Beacon, correspond with two earlier studies: The Congressional Research Service and Bloomberg Finance. The former concludes that the ultimate success or failure of the projects will depend on management and its ability to mitigate risks. Meanwhile, Bloomberg’s analysis says that 87 percent of the loans are low-risk and that Solydra’s $535 million loss is a fraction of the total $35 billion program.
“The reality is the Department of Energy’s loan guarantee program will likely result in minimal costs and large gains for taxpayers—just like many other federal lending efforts,” add Mark Muro and Jon Rothwell, both with the Brookings Institute, in the New Republic.
Altogether, the Energy Department is at some stage of awarding $35 billion in loans to about 40 alternative energy projects, which according to the administration have saved or created 62,000 jobs. Some of those deals may get cut off in the new fiscal year. But if Republican lawmakers reason that loan guarantees are “wasteful spending,” then they must apply same logic to such investments as carbon capture and sequestration as well as nuclear development.
So is it in the interest of the political opposition to hammer away at the Solyndra debacle in light of what they will be asking government to do for the industries backing them? No doubt, Solyndra is fair game and any potential cronyism should be exposed. But it should work both ways.
Take Big Oil: The five leading companies have made huge profits and as a result, they have been asked by some lawmakers to forego some of their lucrative tax breaks. President Obama would use that money to reduce the annual deficit while allocating some of it to green energy enterprises that need some seed money.
Oil companies aren't about to budge and will argue that higher taxes in any form would serve to discourage domestic oil and gas drilling. Because demand is expected to continue increasing, prices would rise. The make-up of the Congress will mean that the oil companies get their way -- even though Americans are paying high gasoline prices and have witnessed the worst oil spill in history.
But that’s a case that President Obama will take to the American people and it’s one that will be juxtaposed next to a collapsing solar company.