When taxpayers lost more than a half-billion dollars on the failed solar manufacturer Solyndra, they were understandably upset. But Solyndra isn’t the only corporate body in the graveyard of green bankruptcies. And more are surely on the way.
Over a decade ago Congress created a loan-guarantee program that allows the Department of Energy (DOE) to gamble taxpayers’ money to promote “clean” energy projects. The 2009 stimulus package created a new loan-guarantee program that expanded the pot of money available.
Many of the companies taking advantage of the program also rake in a wide assortment of other state and federal tax credits and grants. Throw in various mandates and you get an idea of how government has been rigging the energy markets from both supply and demand angles.
Yet even with a rigged game, some green companies still can’t win — and more are barely holding on. Take Abengoa, for instance. The company has already received $2.65 billion in loan guarantees for two solar projects. It recently released a “Viability Plan” seeking another $1.85 billion in creditor support to avoid bankruptcy.
Abengoa’s largest creditor is the U.S. taxpayer, with the Federal Financing Bank on the hook for more than $2.34 billion.
Taxpayers aren’t the only ones who lose out. Deserving projects that lack the government stamp of approval could miss out on private funding. A dollar invested in a taxpayer-backed project cannot simultaneously be invested into another company. DOE loans and loan guarantees pull capital out of the market and dictate who should receive it.
For example, private investors sunk over $1 billion each into failed companies Fisker and Solyndra. But much of that private financing came after the DOE announced and closed (respectively) the loan and the loan guarantee.
Government loan guarantees encourage private investors to plunge on risky enterprises. If a long shot pays off, the investor makes a fortune. If it doesn’t — well, no biggie; the government will cover most of the losses. Loan guarantees thus create a perverse investment climate: heads, the investor wins; tails, the taxpayer loses.
At times the DOE loan program has descended into blatant corporate welfare. Perhaps out of the fear of bankruptcies, DOE distributed loan guarantees to companies with huge market capitalizations and backing from some of the largest financiers in the world — Goldman Sachs, Berkshire Hathaway, Exelon, General Electric, Google and others.
These companies certainly don’t need taxpayers’ help. If they think the technology is promising and worth the risk, they have plenty of their own money to invest or gamble with.
I recently testified on the Energy Department’s loan programs before the subcommittees on energy and oversight in the House of Representatives. Testifying beside me was Mark McCall, executive director of the Loan Programs Office.
Hoping to assure the subcommittees that Energy Department reforms undertaken since the embarrassing Solyndra failure had fixed the program’s problems, Mr. McCall said that his “staff is very professional, very capable, very talented and hardworking, and has a lot of experience in terms of how to structure these deals and how to diligence them and how to monitor them.”
The department’s staff could be world class and that still would miss the point. The very nature of a government loan program is to pick winners and losers no matter who is in charge, Democrats or Republicans. The government is making decisions that should be left entirely in the hands of the private sector.
Further, choosing which projects and technologies to invest in — whether coal, renewables, nuclear, energy efficiency or something entirely new — is an inherently political exercise. An “all of the above” energy policy means something entirely different to many folks in Washington. Too often, it means subsidize it all.
Rather than build a better mousetrap to police the Energy Department loan program and provide more strict transparency and accountability, Congress should be working to eliminate the loan program altogether.
• Nicolas Loris is the Herbert and Joyce Morgan Fellow in The Heritage Foundation’s Roe Institute for Economic Policy Studies.