New York Times
September 23, 2011
The Phony Solyndra Scandal
From Joe Nocera’s editorial in the September 23 New York Times: “If we could just stop playing gotcha for a second, we might realize that federal loan programs — especially loans for innovative energy technologies — virtually require the government to take risks the private sector won’t take. Indeed, risk-taking is what these programs are all about. Sometimes, the risks pay off. Other times, they don’t. It’s not a taxpayer ripoff if you don’t bat 1.000; on the contrary, a zero failure rate likely means that the program is too risk-averse. Thus, the real question the Solyndra case poses is this: Are the potential successes significant enough to negate the inevitable failures?” Mr. Nocera answers the question “no,” saying that “[m]ost electricity today is generated by coal-fired power plants, operated by monopoly, state-regulated utilities. Because they’ve been around so long, and because coal is cheap, these plants have built-in cost advantages that no new technology can overcome without help.”
For this author, I can’t say that I disagree with Mr. Nocera’s observations. At the same time, is the Department of Energy capable of evaluating the business risks and likelihood of success of speculative solar ventures? And can the process be insulated from political influences? As details of the Solyndra transaction unfold, it appears that many within the Department of Energy had doubts about the success of the company’s business model, while at the same time “the politically well-connected business began an extensive lobbying campaign that appears to have blinded government officials to the company’s financial condition and the risks of the investment.” While Mr. Nocera is correct that “[t]he federal guarantees help lower the cost of capital for technologies like solar; they help spur innovation; and they help encourage private investment,” isn’t there a better way to achieve these objectives than entrusting the Department of Energy to dole out billions of dollars in federal loan guarantees? Federal loan guarantees may not be necessary if the U.S. had a clearly articulated and credible national energy policy. One of the reasons the private sector will not accept the risks of investing in speculative ventures like Solyndra is that much of the risk arises from uncertainty that there is any commitment by this nation to renewable energy. Why invest in a manufacturing process if there is not a clearly defined and certain market for the product produced by that process? If the U.S. had a clearly articulated national energy policy with definite and certain commitments to renewable energy (including wind in addition to solar), the renewable energy industry would be able to attract capital on reasonable terms, and federal loan guarantees would not be necessary. With the certainty created by that commitment to renewable energy, the private capital markets would do their job of sorting out the risks (and returns necessary to compensate investors for those risks) of the various industries, and we would get the federal government out of the business of choosing winners and losers. It’s a job the Department of Energy seems to be incapable of handling.