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Commentary By e21 Staff

26 Solyndras

A newly-released Reason Foundation report by Victor Nava and Julian Morris, Stimulating Green Electric Dreams, highlights problems with the government’s green “investments.”

The report reviews the Department of Energy’s $16 billion Section 1705 Loan Guarantee Program

—part of the 2009 American Recovery and Reinvestment Act and an expansion of Section 1703 of the 2005 Energy Policy Act.

The loans suffered from rampant green-energy cronyism: those with the right political connections and highest lobbying contributions received the most money. One example: George Kaiser, a campaign contributor to President Obama, was the lead investor in Solyndra, the solar power company that declared bankruptcy in fall 2011. The Department of Energy's poor investment cost taxpayers $510 million.

The government invested in these firms in an attempt to subsidize and promote new technology. While government funds the development of new technology through basic research grants to labs and universities, its role is not to pick winners and losers among companies. 

The report found that $16 billion in taxpayer funds were essentially wasted. The 2012 U.S. House Oversight Committee report reached a similar conclusion, stating that the program held a, “high risk, speculative and undiversified loan portfolio.” Section 1705 was not an investment in any realistic sense of the word.

A main standard for the program’s loans was “reasonable prospect of repayment by the Borrower.” One would never infer this by examining the companies that were loaned money, such as Solyndra. As Nava and Morris state, “22 out of the 26 projects were rated as ‘junk’ grade investments or lower, and the other four projects were rated in the ‘BBB’ range, the lowest ‘investment’ grade class.”

In addition to a portfolio composed entirely of risky assets, the loans lacked any semblance of energy diversification. Eighty-three percent of funds were received by solar companies. Eleven percent went to wind, while geothermal, biofuel, transmission, and storage technologies received a combined 6 percent of the total. Sixty-eight percent of loan guarantees went to just four firms. 

 

 

The energy sources that received loans (solar, wind, biomass, and geothermal) produce about 6 percent of energy in the United States. Nuclear and hydropower produce 19 and 7 percent, respectively. Even these percentages are low compared to coal (37 percent) and natural gas (30 percent).

The bankrupt firms were not able to deliver new technology to American consumers. The government would do better to stick to basic research, and let companies and consumers choose the technology.