Washington, D.C., July 8, 2010 — It’s become a cliche that government should not try to pick winners and losers in the marketplace. But cliches are useful by the circumstance that they are often correct.
So now we come to government loan guarantees, a classic example of government picking winners and losers. That, by definition, is what a government loan guarantee is. The government guarantees to put the full faith and credit of the taxpayers behind a project or technology that otherwise would not find adequate private-sector investors.
The record of federal loan guarantees and direct loans, particularly those related to energy, is pretty dismal. Synfuels (remember “solvent refined coal”?) and the feckless “clean coal technology program” come immediately to mind. Now we are beginning to see another round of failure of the government to pick winners and losers in the energy market.
Two nice examples have surfaced in recent weeks. The first, and most ludicrous, was the completely-expected decision by the Obama administration to kill former president George W. Bush’s favorite energy project, what the Bushies called GNEP, or “Global Nuclear Energy Partnership.” This was a half-baked plan to revitalize, and internationalize, plutonium reprocessing and fast breeder reactor technology.
GNEP was also a fig leaf to cover the nakedness of the Yucca Mountain spent nuclear fuel dump. Yucca was clearly a failure well before the Bush administration took office, but the White House (unlike the Obama administration, paying its debts to Nevada) refused to acknowledge the Yucca collapse. Instead, the administration changed the subject.
GNEP was a non-starter from the beginning. It relied on unproven (dare we say “pie in the sky”?) technology for winning Pu from fatigued fuel rods that did not provide a path to diversion for nuclear weapons production. It also diverted money and attention at DOE from real nuclear power plants. My DOE sources at the time told me they wanted nothing to do with what I called the “Goofy Nuclear Energy Program.” But the White House, and Bush in particular, were in love with the beast.
Now it is not only dead (the Obama administration essentially bailed out last year, according to an account in POWER NEWS), but has a new name — the International Framework for Nuclear Energy Cooperation — and a new, fuzzified mission to “more effectively explore the most important issues underlying the use and expansion of nuclear energy worldwide.” Sounds like some folks are going to spend a lot of time — and the government’s dime — at capitals and resorts around the world, producing reams of waste paper.
Chalk one up for the government.
Wait, there’s more. Congress, in its infinite wisdom, in the energy legislation of 2005 authorized major loan guarantees for nuclear plants, and for renewable technologies, including solar photovoltaics. One of the first solar recipients of DOE loan largess was Solyndra Inc., a San Francisco company with a unique design for a tubular PV technology touted as more efficient than traditional flat arrays.
The technology mavens at DOE bought into the concept, and President Obama visited the company last May to deliver a $535 million loan guarantee, hyping the company as a model for future energy enterprises.
But the sun quickly stopped shining on Solyndra when the company, on the strength of the loan guarantee, tried for an initial public stock offering in June, designed to pay off some of the venture capitalists who had invested in the company. The IPO never got off the ground, as investors demonstrated that they were very wary of a company that, said a New York Times article, was “hemorrhaging cash,” after raising nearly a billion dollars in venture capital. DOE, noted some observers, may have to eat the loan guarantee.
It should not have been hard to discover that Solyndra was a dicey vehicle for a federal loan guarantee. The company lost $172 million last year and $242 million in 2008, according to Securities and Exchange Commission documents cited by the Times. According to the SEC filings, the company was spending over $6/W for its solar panels and selling them for under $3.50/W.
Why did this clearly troubled firm get such a big commitment from Uncle? One analyst was quoted: “Solyndra has the powerful lobbyists in the business. So they get a lot of love from the government.” Another said, “It certainly makes the politicians look silly and makes me wonder who was advising them. I think they did not have the appropriate technical advisers or else the government folks were influenced by the company and its backers.”
Now, of course, the White House is awarding more solar loan largess, claiming that these projects are engines of job creation, a proposition I find laughable. The administration wants much more energy loan guarantee money, and Congress has coughed up another $18 billion, split evenly between the nukes and the renewables.
What’s that Einstein definition of insanity? Something about “doing the same thing over and over again and expecting different results?”