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September 19, 2011

Greengate: Enron Yesterday, Solyndra Today

September 19, 2011
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Ten years ago, Enron, one of the largest energy companies in the world, imploded and filed for bankruptcy. Enron’s dissolution should have been a red flag to both business and government that business plans predicated on government handouts, special treatment, and subsidies are inherently unstable and flawed. But as the recent bankruptcy of Solyndra shows, politicians still haven’t learned and are willing to bet billions upon billions of the taxpayer’s dollars on risky schemes.

In its heyday, Enron set out to become the world’s leading renewable energy company, having entered the solar business in 1994 and wind business in 1997. Enron CEO Ken Lay believed that Enron, as a green company, was about the energy future; ExxonMobil and the other oil majors were about the energy past.

In 1999, Enron lobbyists persuaded Gov. George W. Bush and the Texas legislature to enact an electricity restructuring bill that included the nation’s stiffest renewable quota. Texas would become the leading wind state in the nation in fairly short order and lead America’s renewable-energy boom.

Business-wise and legislatively, Enron did more than any other U.S. company to promote the dream of a “green” energy economy.

Today, we have the sordid tale of bankrupt Solyndra, the California solar company which received a $535 million federal loan from the federal government. This loan was made despite Solyndra accumulating losses of $558 million in the five prior years. The company’s recent bankruptcy and layoff of 1,100 apparently caused President Obama to forego mentioning “green jobs” in his September 8th Jobs for America speech.

Enron’s Solar Misdirection: 1994

But if politicians had paid attention to Enron years ago, they would have seen through Solyndra’s risky, government-dependent strategy. Solyndra is just one more company to promise a solar breakthrough and fail to achieve their claims.

Seventeen years ago, Enron announced a breakthrough via the New York Times of a proposed solar project that could generate electricity at a rate competitive with that from fossil fuels. “Solar Power, for Earthly Prices: Enron Plans to Make the Sun Affordable” reported a fixed rate from Enron of $0.055 per kilowatt hour for the life of the contract.

Enron’s solar price surprised even environmental pressure groups. “Even the most optimistic supporters of solar power have doubted that they would see commercially competitive production until the next century,” Times reporter Allen Myerson wrote. “The Worldwatch Institute, an environmental group in Washington, said earlier this year that solar cell electricity, now as low as 20 cents a kilowatt-hour, might reach 10 cents by 2000 and 4 cents by 2020.”

But while there was some skepticism, there was also optimism that mighty Enron was going to do what existing solar manufacturers had hitherto been unable to accomplish. The Times article also reports:

Size is key, according to Sigurd Wagner, a professor of electrical engineering at Princeton University.

“If a good group of people puts a plant of that scale in, it will have a real consequence on costs,” he said. “It’s not going to go down by just a little bit, but by a factor of two.”

To accomplish this feat, Enron was banking on government help at many levels. “Enron has asked the Government to buy or guarantee a market for its power, with annual increases of 3 percent, for 30 years,” explained Myerson. “It also depends on leasing Government land, receiving Federal tax benefits for renewable energy and financing construction with tax-free industrial development bonds.”

But the project never materialized. No announcement was made or autopsy performed. Evidently, the different governmental jurisdictions could not stomach what Enron was demanding. There was a lot of smoke amid Enron’s mirrors. Even today, the U.S. Energy Information Administration estimates the levelized cost of photovoltaic solar at above twenty cents per kWh, some four times what Enron was touting back in 1994.

Lessons

There is little excuse for the present situation of the Obama Administration with its solar loan guarantees souring.

Did not DOE Secretary Stephen Chu tell the New York Times that solar technology would have to improve fivefold to be competitive? Aren’t politically dependant companies, á la Enron, bad risks given that consumers bat last? Evidently, Obama’s Department of Energy has evidently shown far less prudence than Clinton’s Department of Energy did in solar matters.

Government trying to pick energy winners instead has picked energy losers—and picked the taxpayer’s pocket.

Daniel Simmons contributed to this post.

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