In the wake of Solyndra’s bankruptcy, federal investigators continue to look for sinister ties between the firm and the Obama administration. Conservative pundits continue to use Solyndra to show that government has no business in business. How does the Department of Energy’s loan guarantee program really measure up? Should the Solyndra affair be a sign to the government to leave investment to the private sector?
The DOE’s loan program provides loan guarantees to firms in the clean energy sector to encourage clean energy projects. It is just one of many programs the Department has in its arsenal to encourage investment. Those suspicious of government participation in venture capitalism argue that this amounts to the government “picking winners and losers.” However, when the DOE provides loans to renewable energy firms, they’re generally doing so to projects that have already received a significant amount of venture capital from private investment.
The renewable energy sector is young and still developing, which makes it difficult to attract investment. In order to move from planning to fully financing a renewable energy project, firms must continually attract rounds of investment. The uncertainty of the sector and long development times make it difficult for firms to get from the development phase to the final commercialization phase. A government loan guarantee provides the necessary capital to get to the commercialization phase and ensures private investors that there is confidence in the firm. Without government loans, many of these companies are never able commercialize projects.
Aside from structural challenges, renewable energy firms face external factors that necessitate government involvement. Governments around the world, China in particular, are subsidizing their renewable energy firms at greater levels than the United States. This foreign competition makes it even more difficult to get renewable energy programs off the ground. If a foreign country is giving a head start to its firms, private investors will likely not invest in U.S. firms since they will lose to the foreign ones.
Foreign competition certainly played a role in Solyndra’s failure. The firm invested heavily in a type of solar panel that was expensive to produce which Chinese firms could make considerably cheaper and was not as “cutting-edge” as originally thought. Couple these poor management decisions with the devaluation of Chinese currency and Solyndra did not stand a chance.
Solyndra’s loan of $527 million accounts for only a fraction of the $37.8 billion in loan guarantees already committed or closed, representing only 2% of the total funding. Needless to say, that is not a bad success rate. Regardless, perhaps the Department of Energy could have been more thorough in its evaluation of Solyndra’s loan.
A number of potentially embarrassing e-mails for the Obama Administration have surfaced in the House Committee on Energy and Commerce’s investigation of the Solyndra affair. These e-mails show White House staffers pushing to speed up the loan approval process so the President could use it as an example of successful green energy policy, and also show acknowledgements from the White House that Solyndra could go bankrupt. These e-mails will likely stay in the news until election night in November 2012–that’s to be expected.
But it should not mean the end of a program which has generated tens of thousands of jobs since the program’s inception in 2004. The goals of the loan program are creating jobs, increasing American competitiveness in the field and decreasing the United States’ reliance on foreign energy sources–all goals that are well within the national interest. As China continues to develop its renewable energy sector, the United States must provide similar subsidizes to compete. De-funding these sorts of programs will destroy any chance that the United States has to develop an industry that will prove vital in the future.
The Senate passed a bill on Thursday that places reactionary measures on countries that devalue their currency. Along with continuing to fund programs, Congress would be wise to pass this bill to help fledgling industries such as clean energy develop and compete in the global economy.
Further Information on the Department of Energy’s Loan Programs: Link
