Last January, with typical understatement, President Obama proclaimed, in his State of the Union address, that alternative “clean” energy would be “our generation’s Sputnik moment,” and that it would be “an investment that will strengthen our security, protect our planet and create countless new jobs for our people.” (Never mind that the federal government does not make investments, it only spends money that otherwise belonged to taxpayers.)
Making Uncle Sam a venture capitalist was a surefire way of accomplishing these modest goals, or so he thought. He put the Secretary of Energy, Stephen Chu, in charge of the program. Mr. Chu, a physicist whose research was primarily in the study of biological systems at the single-molecule level, had no known business or economics background with which to judge the many applications for solar and wind plants coming his way.
What he and the White House did have, according to a Washington Post article published on Christmas Day, was the ability to grant “easy access” to investors in some companies “backed by the administration.” What they wanted was loan guarantees and more subsidies. Many were Obama campaign donors.
According to the Post article, senior administration officials “pushed career bureaucrats to rush their decision” on a large loan guarantee for Solyndra, largely to validate a planned plant ribbon-cutting by Vice President Joe Biden. Solyndra became a much-hyped favorite of the White House, including a later visit by President Obama
The Bush Administration had left office without approving a Solyndra loan guarantee and there were ample signs that the company lacked sound financial footing. The field was booming with start-up companies. By 2000, however, the Chinese government was giving banks free rein to lend money (more than $43 billion) to companies making cells and modules. New factories sprang up like mushrooms after the rain. Chinese solar equipment flooded the market, forcing companies not yet financially ready, to cut prices to match the competition. Not long ago, solar panel buyers would pay $1.60 per watt for them. Today it is $1.05.
Solyndra, never in solid financial shape according to its own auditors, sought and obtained from the Obama administration an unprecedented change in its loan documents so that, in the event of bankruptcy, a group of private investors would stand at the head of the line, in front of the U.S. Government. One of these investors, George Kaiser, paid more than a dozen visits to the White House over the space of a few months. White House press secretary, Jay Carney, claimed — with a straight face — that Mr. Kaiser was there to discuss his many philanthropic interests.
By late summer, Solyndra abruptly threw in the towel and went into bankruptcy. It closed the doors on its new plant in California. At that point, a counter version of Mr. Obama’s shovel-ready jobs theory went to work. All 1,000 Solyndra employees were shoveled right out the door — for good.
Altogether, the solar equipment industry is in a deep recession. Six of the 10 largest publicly-traded solar manufacturers in the U.S. have debt on their books in excess of their market capitalization.
Ironically, the boom in shale-gas production and the resulting decline in natural gas prices is leading ever more power plants to turn away from plans to get electricity from solar and wind sources. They are taking advantage of the low price of natural gas. The only hope for blunting this source of economic growth is for the Obama Administration’s friends among the environmental extremist movement to throw road blocks into the shale-gas business. They are claiming, without proof, that the process of fracturing (“fracking”) deep rock formations using water and some chemicals will ruin groundwater supplies. Their usual modus operandi is to throw the road blocks in order to slow projects to a crawl and tie them up in investigations and costly court proceedings for months — or years
Obama & friends can only hope this works. Meanwhile, the moral of the story is: The federal government should not try to predict winners and losers. It almost always ends up with losers.