In light of the Solyndra scandal, many people are naturally calling for an end to government subsidies and mandates propping up particular technologies in the energy sector. This understandably terrifies those who have already invested large sums in the green bandwagon, and now they are telling taxpayers and consumers, “Nothing to see here, keep moving along.” Yet as IER has pointed out in its posts on Abengoa and Iberdrola, the corruption in government support of green (or “clean”) technologies isn’t limited to the one bad apple of Solyndra.
Investors Defend the Green Gravy Train
A recent Reuters story explains that green investors are rushing to defend the process that showers them with taxpayer backstop for their loans:
U.S. renewable energy investors defended the government energy loan program at the center of the political firestorm ignited by the high-profile collapse of solar panel maker Solyndra, one of the program’s beneficiaries.
Partners at top private equity firms that have participated in the government’s loan guarantee program for alternative energy described the program’s review process for applicants as “robust” and even more in-depth than in the private sector.
“It’s probably the toughest due-diligence exercise that any of us had ever experienced,” Neil Auerbach, a managing partner at Hudson Clean Energy Partners, a private equity firm that invests in the sector, told the Retech renewable energy conference in Washington on Wednesday.
Auerbach said his experience with the loan guarantee program might reflect the Energy Department’s applying lessons it learned after approving earlier projects, such as Solyndra.
“What we might have seen over these 40 loan guarantee approvals is a program start with a prototype — the first one through the chute was Solyndra — then successive screw-tightening exercises that were going on,” said Auerbach, a former partner with Goldman Sachs.
Solopower, a solar company backed by Auerbach’s fund, received a $197 million loan guarantee this year to retrofit a solar manufacturing plant in Wilsonville, Oregon.
Ed Feo, a managing partner at USRG Renewable Finance, said he also found that the level of detail required for the federal program was more than he was used to. He said in his experience the agency conducted “rigorous” oversight.
Feo said the loan guarantee program should not be blamed for the fall of Solyndra but should judged on the basis of all its investments, not just those involving a single company.
“If you want to innovate and you want to facilitate innovation, you have to accept the fact sometimes things don’t work and there’s a cost associated with that,” Feo said.
Feo is simply wrong in the quotation bolded above, when he implies that—aww shucks—taxpayers will just have to sometimes eat half a billion dollars and tolerate FBI investigations if they want “innovation.” On the contrary, at one point this country was supposed to be a free market, in which the government left innovation—and more specifically, the determination of how energy would be produced and distributed—to the voluntary private sector.
Besides their obvious self-serving bias in defending the government’s loan guarantees, the green investors quoted above are confusing bureaucracy with actual safeguards. By its very nature, government operations are inefficient and choked with red tape. Any small business owner recognizes the labyrinthine complexity of the tax code and labor laws. Yet these codes are riddled with carve-outs and privileges for special interests. That’s partly why the codes are so complicated.
It’s the same thing with “green” guarantees. The government can’t simply guarantee every loan application with “renewable” in the description; the Treasury would be bankrupt in a month. (Or rather, it would be officially bankrupt, as opposed to its current status as merely unofficially bankrupt.) So the government has to put up barriers, to make sure the gravy gets steered only to those people who really lobby for it.
Despite the defenses of those who are currently enjoying the program, the government’s loan guarantees for green projects are turning out to be more and more crooked. Currently 14 such grants are under investigation. Solyndra wasn’t a lone bad apple.
It would be nice to think that the bureaucratic hurdles for such loan guarantees dovetail perfectly with the requirements for a sensible business plan. But we know that must not be true: If it were, the investors wouldn’t need taxpayer backstops, they would go to the private capital markets for funding.
If the goal instead is to frankly subsidize bad business ventures, because of a non-financial concern for environmental objectives, then officials should at least have the decency to be frank with the American taxpayers that that’s what is going on here.