Loan guarantees don’t cost the government anything because they are just guarantees that allow a favored c ompany to borrow money at preferred rates, unless the business fails! Solyndra has now failed and it is going to cost the government $535 million dollars.
This was a signature project for the Obama administration. Not only was he going to user in a new era of clean renewable energy, but he was also going to create millions of jobs building renewable energy systems.
Solyndra created a few thousand jobs for a couple of years, at a cost of over $1 billion. The problem with Solyndra is that is can’t produce solar panels at a cost that is competitive in the market place. There were warning signs when the loan was reviewed by the government. The projection from the accountants was that the business plan showed that the company would never become cash flow positive and would eventually run out of money.
Good business practices took a back seat to political expediency. It is clear that Barack Obama and his staff know very little about how economy works. Giving loan guarantees to companies that aren’t competitive will not start an industry.
The problem with renewable energy is that wind and solar power is not currently economically viable based on their cost. To get these industries started will require subsidies.
We should look to China as an example of how to do it correctly. China does not provide money to the companies producing renewable energy equipment. What they provide is a guaranteed rate or tariff to purchase the power produced. This rate may be forced upon the customers or paid for directly by the government. The business risk is completely born by the company. If they fail to produce solar cells cheaply enough, they lose their profit.
The idea behind this approach is to grow capacity and drive down costs as capacity expands. Learning curve and technology improvements will drop the cost closer to parity with fossil fuel produced electricity. Tariff rates can then be lowered so the subsidy per watt drops over time. Hopefully, this will drive down rates for renewable energy to the point where subsidies will no longer be required.
China takes their incentives further, trying to export all the renewable energy equipment that they can. They want to create a low cost, world class industry that will employ millions of Chinese workers because they will be the world’s lowest cost supplier.
I am all in favor of more renewable energy. All the renewable energy we produce displaces energy from fossil fuels. Once we get to the point where we are producing more renewable energy capacity each year than our energy demand grows, we are reducing our use of fossil fuels. The Obama approach will never get us there.