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Solyndra: We Told You So

The failure of the government-backed solar company points to the dangers of conflating job creation and energy innovation.
September 15, 2011

The political hand-wringing and posturing over the bankruptcy of the California solar-cell maker Solyndra, which received a $535 million federal loan guarantee in 2009, is both predictable and misplaced.

It is not surprising that one of the many renewable-energy projects supported by loan-guarantee programs and the 2009 federal stimulus bill—which budgeted $45 billion for energy—would fail. The U.S. Department of Energy’s loan guarantees program is designed to fund innovative, cutting-edge companies. Such companies are risky, and some inevitably fail, as any venture capitalist can tell you (hence the need for a federal guarantee in the first place). Even more predictable is that the downfall of Solyndra is being held up by politicians and some in the media as an excuse to question federal support for clean energy.

Witness yesterday’s hearings held by the House Energy & Commerce Committee on “Solyndra and The DOE Loan Guarantee Program” and the ensuing mainstream media reports, including ones in the Wall Street Journal on “House Probes Solyndra Loan,” the New York Times on “Furor Over Loans to Failed Firm,” and Bloomberg Businessweek on how White House aides “pressured White House budget officials to complete a review” of the loan. Of course, it all comes down to a stream of endless e-mails. The smoking gun? Apparently, some in the White House were anxious for a decision on Solyndra. It is, some say, SolarGate.

Luckily, the Washington Post confidently assures us, despite the fishy nature of the Solyndra loan, the company’s failure doesn’t mean that federal support for energy R&D is a bad thing, or that solar is “doomed.” And, according to the New York Times blog, “Solar Is Not Dead, Says Prominent Investor.” Or as the blog somewhat snarkily adds, “at least that is what John Doerr” says. How silly can it get?

The backlash against federal support for energy projects fails to identify the fundamental policy mistake that produced the Solyndra debacle.

As we warned readers in these pages in June 2009, just months after the stimulus legislation passed, the real problem with the bill was that it conflated two objectives: creating jobs and building a clean-energy infrastructure. As we pointed out, both are very important and worthwhile, but they are very different and require very different policies.

By its nature, stimulus spending needs to be fast and immediate. The switch to clean energy will take decades of work and investment. The development of new energy sources will take patience and thoughtful investments. By conflating job creation with technology objectives, the stimulus bill made a Solyndra almost inevitable. Of course, decisions on funding were made in a hurry; spending the money quickly is the whole point of a stimulus bill. Unfortunately, evaluations of technologies do not lend themselves to rush jobs.

As Daron Acemoglu, an economist at MIT, warned our readers at the time about the stimulus package for energy projects:

“It’s very much like pork-barrel politics,” he says. As a result, it’s hard to properly evaluate the different spending programs. And, he suggests, “when you make investments in bad projects under the name of stimulus and in the name of technological investments, you’re doing damage in a number of ways. First of all, you’re not helping; second, you’re confusing matters; and third, you’re poisoning the well for the future.”

Elsewhere, the 2009 article points out:

Not only could the federal spending support uneconomical energy sources (as has been the case with ethanol), but the resulting backlash could discourage policy makers, investors, and the public from embracing newer, more efficient technologies. As the stimulus runs its course in two to three years, pressure to reduce the federal budget and cut government spending could make such a backlash even worse.

One renewable sector that could be particularly vulnerable in such a scenario is the solar industry.

The downfall of Solyndra does point to some fundamental mistakes made in conflating job creation and clean-tech development. But the lesson has nothing to do with the importance of federal support of energy innovation. That’s as important as ever.

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