What are the Lessons From Solyndra?
Debate: Lessons of Solyndra
Mijin Cha
Debate: Lessons of Solyndra
Lachlan Markay
Competition has Finished
Government Should Invest in Renewables and Clean Energy
- Mijin Cha
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- 5 months ago
Despite what critics say, the DoE’s guaranteed loan program is a successful program and government investment to further develop clean energy is the right thing to do.
Let’s start by definitively debunking the Solyndra critique: The company's loans process began under the Bush Administration, it raised $1 billion dollars in private capital, and was named the top cleantech company in 2010 by the Wall Street Journal. Yes, it defaulted and went bankrupt, but the default rate for the entire loan portfolio is less than four percent. By comparison, the default rate for the popular Small Business Administration loan program is three times as high. Solyndra’s failure is not representative of the industry or government investment.
And, the idea that government shouldn’t be in the business of “picking winners and losers” is both misguided and disingenuous. Our current energy policy “picks” fossil fuels. Among the many tax breaks and incentives provided to the oil and gas industry, the Energy Policy Act of 2005 allows for reduced royalty payments and royalty-in-kind payments, instead of cash royalties, which leaves uncertainty as to whether fair payment is received. The royalty waiver program is estimated to cost billions of dollars in lost revenue over the life of the leases.
The Act also provides for direct investment of billions of dollars of taxpayer money in fossil fuel industries. Title IX, Subtitle J of the Act provides for direct payments to oil and natural gas corporations to drill in deepwater wells and Section 962 allots $1.137 billion of taxpayer money to make coal power a cost-competitive source of power generation. This is all money given to industries that don’t need it. Big oil companies made over $32 billion in profits just in the third quarter.
In fact, if anything, the renewable energy sector has shown its potential for market viability by posting record production levels, despite receiving far less government support. This year, the renewable energy sector produced 18 percent more energy than nuclear power. The U.S. is set to break its record on solar panel installations this year alone. Employment growth in the solar industry was 10 times higher than the national average and is expected to increase an additional 24 percent by 2012. Over 2.7 million people currently work in green jobs.
A recent report issued by Bill Gates, GE’s Jeff Immelt, and other top CEOs lays out several arguments for why the government must play an integral role in clean energy development. The report points out government's long and successful history of investing in research and development projects that spur new technologies — the internet, anyone? — and makes an economic argument often ignored: There is no private market for certain benefits, like public health or protecting the environment. Therefore, advancements in these areas must necessarily come from public funding.
Without substantial government support, offshore drilling would never reach the scale it has today. There is no reason why we should stop investing in renewables and continue to advance towards cleaner and better energy sources. Renewable energy has proven its strong market potential, and reaching parity in government support with fossil fuels will show its true market strength.
Photo Credit: Wikimedia Commons
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The Discussion
This is a great piece! My understanding of Solyndra was that it's demise was due to a failure to keep pace with both the level of innovation and falling prices of renewable energy. So while many label it as a prime example of government waste, it actually reflects the growing strength of the sector, which should be encouraging!
While your analysis of renewable energy may be accurate after the downturn as oil costs soar and thus making alternative renewable energy more viable without Fed funding, your essay is more of an apologia of Obama. Solyndra is political croniesm by Obama not just a normal business failure. Obama's Admin. went against federal regulation to subjugate the US's interest to the Democratic Party's investment and George Kaiser, an Obama fundraiser
Of course we should limit the governments ability to spend money on creating localized sustainable infrastructure. If the government controls all the power when the global infrastructure collapses it will retain its control over the people. Obviously Big Money is doing a much better job controlling the populace, besides Big Money has more to invest. So we must let Big Money have control of green energy or Big Money will lose it's power.
Investing in localized sustainability for individual communities in strategic places throughout the USA could very well be the tipping point of power in the event of the catastrophic loss of global infrastructure when (not if) the banks collapse under their own weight. The question isn't whether or not the government should invest in sustainability. The fact of the matter is if the government wants to remain a government then it must invest.
U.S. Solar Industry Reports Record Power Installed: http://bit.ly/tffTW6
"The report’s authors come right out and admit: 'Much of this growth is due to the Department of Treasury’s 1603 program, which is due to expire on Dec. 31 unless Congress extends it.'"
"Our current energy policy “picks” fossil fuels."
You've just outlined why Libertarians were right all along. If big government wasn't involved, the free market would have produced clean energy long before now and we'd all have been driving Tesla's. It is this business of interfering in the economy for political purposes which is slowing it down. If you want to save the planet, get out of politics and become an entrepreneur!
You can't have a global economy and expect to have a clean environment. It's just impossible. The globalist mentality that is currently prevailing in government is the problem, not a lack of investment in renewables. Think of all the extra emissions produced by an integrated Europe! We need more political and economic localization, the market will do the rest by producing cheap electric vehicles and clean energy, not government.
The premise of your argument seems flawed. You clearly understand the problems associated with subsidies when the recipients are oil and gas producers, but somehow subsidies to alternative energies sources are going to usher in a new era of prosperity.
The fact of the matter is, nobody should be receiving special treatment in the tax code. There isn't one solid economic reason for any of it.
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Darwin if you are out there?
As an expert on home Solar Power, could you "PITCH" any U.S. based Solar Panel providers for those of us who would really like to stop sending our federal tax dollars to China's Solar Panel Industry.
Thanks for a great article Mijin. As mature and profitable industries, oil and coal clearly no longer need the public's assistance. If the taxpayers and voters of this nation (aka the "government") decide that it is in their best interest to provide the means to help start new technologies, then so be it. I find it odd that the naysayers so energetically avoid talking about the subsidies taxpayers are saddled with to pay for the status quo.
Are you kidding me? Big Oil won't even get out of their easy chairs unless the govt. subsidizes their drilling programs - and then they insist that they need to drill on preserved public lands to save their industry. A truly unique approach to dissing the taxpayers' charity - they don't really want to accept corporate welfare unless we let them rape us for it.
I disagree. With the impending climate changes cause by energy creation and use, the government must be involved. It is an enormous challenge that concerns everyone. As much as we need a military for protection and security, we need sustainable energy sources.
Let me get this straight. The major problem here is not as much government making investments as it is that politics trump sound economics. I really hope the Heritage Foundation is just as quick to uncover crony capitalism and election maneuvering under a Republican president.
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What about the grand Spanish experiment in funding green jobs? Am I wrong to suggest it was a miserable failure?
http://www.qando.net/?p=8481
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If ever there was a misnomer, it's the Department of Energy. It spends all its time finding ways to limit production of efficient energy, while bolstering the inefficient.
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The most powerful sorting tool in the world is the profit/loss mechanism. Profits encourage risk taking. Losses encourage prudence. Why would the government, which is not party to this mechanism, make better decisions than private concerns which are?
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If not for Federal subsidizies for renewalable solar energy dominated by dumped Chinesse imported solar panels the Bankruptcy of Solyndra might have been avoided underscoring misplaced taxpayer resouces.
Conservely, while France now enjoys the benefits of 70% electrical generation by Nuclear, the U.S. has not bult a new facility for decades. While France leads the world in "clean energy" production from an emmissions stanpoint, America's limitations on the advancing nuclear technology we developed continued our use of fossil fuel based plants.
Before anyone buys into "renewables strong market potential" examine the factual downsides of storage capacity a major restrictions in their ability to provided reliable power for the grid.
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Ben,
Again, the issue is not whether companies are, at a given point in time, doing well. The issue is whether economic or political considerations dictate investment decisions. In that sense, Solyndra is the rule: ~80% of sec. 1705 loans have gone to companies owned or operated by Obama backers.
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A few stats: the gov spends a shockingly low amount on energy research (~3B in '09 compared to ~77B for defense research). The utility sector under-invests in RnD, at something like 0.1% of % of industry revenue. (avg. for U.S. industries is 3.5%).
The Solyndra loan guarantee accounted for just 1.3% of the entire DOE energy loan-guarantee program.
To be sure, there is a cronyism/undue influence to the Solyndra narrative that is troubling, but this does not itself negate the benefits of energy loan-guarantee program. Many of the companies in DOE's portfolio are doing quite well. The failure of Solyndra is the exception, not the rule, at this point. This is the way fringe industry becomes mainstream, which involves some level of coddling before the industry or company reaches its maturity where it can compete with other, more developed and cheaper forms of energy. These are still highly risky enterprises, but could pay huge dividends, and not just the $ kind. Worth the risk.
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