A Free-Market Energy Blog

Energy Loserville: U.S. DOE Picks in an Artificial Industry

By Sterling Burnett -- July 9, 2012

“When government undertakes tasks for which it is ill equipped it squanders the authority necessary for carrying out its core responsibilities. Pervasive rent-seeking, bad for our economy and worse for our republic, should be discouraged instead of rewarded. If government becomes integral to securing every advantage and assuaging every grievance, then governance becomes impossible.”

– Richard Voegeli, “Reclaiming Democratic Capitalism,” Claremont Review of Books, Spring 2012, p. 46.

Governments around the world are having buyers’ remorse with their bets that solar and wind could effectively diminish oil, gas, coal, and nuclear. So much cost, so little energy. So much cost, so little reliability, and so much need for backup power.

The story is the same for the U.S. Department of Energy. The Obama administration’s rocky road with green-energy boosterism is no secret. With big names like Solyndra and Solar Trust of America, it’s hard to lose sight of the administration’s funding failures.

But what may come as a surprise is the overall amount of money being thrown away on these green companies that the administration has championed. Of the $10.7 billion in green-energy commitments, detailed below, approximately $3.2 billion is to companies that are in bankruptcy, and another $7.1 billion is committed to teetering firms.

The good news is that private developers are postponing (and probably canceling) projects that even with government subsidies are uneconomic. General Electric Co. just last week halted construction of what would have been the largest solar-panel factory in the U.S. Some 335 workers can now find economic employment.

Here’s the breakdown of the “green” energy carnage to date:

Bankruptcies

  • Abound Solar: Spent $70 million of its $400 million DOE loan.
  • Beacon Power Corp: Received $43 million in federal loan guarantees in 2009 and also received $29 million in PA grantsBankrupt in October 2011
  • Ener1 (parent company of EnerDel): Received $118.5 million in federal loan guaranteesBankrupt in January 2012 – has since exited bankruptcy
  • Evergreen Solar: Received $58 million in MA loan guarantees (an undisclosed portion sourced from federal ARRA block grant)Bankrupt in August 2011 with $485.6 million in debt
  • Solyndra: Received $535 million in federal loan guarantees in 2009 and $25.1 million in CA tax creditBankrupt in August 2011
  • SpectraWatt: Received $500,000 in federal loan guarantees in 2009Bankrupt in August 2011
  • Babcock and Brown: Received $178 million in federal grants in December 2009 (4 months after it went bust)Bankrupt in early 2009
  • Mountain Plaza Inc.: Received $424,000 in federal grants through TN Department of Transportation in 2009Bankrupt in 2003 and again in June 2010
  • Solar Trust of America (parent company: Solar Millennium): Received $2.1 billion loan guarantee in April 2011Bankrupt in April 2012

Troubled ‘Green’ Energy Companies

  • A123: Received $300 million in federal grants and $135 million in MI grantsDeclining orders have forced multiple layoffs
  • Amonix, Inc.: Received $5.9 million in federal tax credits in 2009 through ARRALaid off 2/3 of work force
  • First Solar: Received $3 billion in federal loan guaranteesBiggest S&P loser in 2011, CEO fired
  • Fisker Automotive: $529 million in federal loan guaranteesMultiple 2012 sales prediction downgrades for first car release, delivery and cash flow troubles; Assembling cars in Finland
  • Johnson Controls: Received $299 million in federal grants in 2009Low demand caused cancellation of a new factory, operating at half capacity
  • Nevada Geothermal: Received $98.5 million in federal loan guarantees in 2009Defaulting on long-term debt obligations, 85% drop in stock value
  • Sun Power: Received $1.2 billion in federal loan guaranteesDebt exceeds assets; French oil company took over last fall
  • BrightSource Energy: $1.6 billion federal loan approved in April 2012 – loan obtained through political connections with the administration; absent the loan, Brightsource’s solar power purchase would have fallen through.

Here is the total green of federal “green” energy bets.

In Bankruptcy:

o $2,975,424,000 – federal grants and loan guarantees

o $112,100,000 – state grants, loan guarantees, and tax credits

o $3,087,524,000 total

Dire Finances

o $7,432,400,000 – federal grants, loan guarantees, and tax credits

o $135,000,000 – state grants

o $7,567,400,000 total

Overall Commitments

o $10,407,824,000 federal dollars

o $247,100,000 state dollars

o $10,654,924,000 total

Backdoor Costs

As high as the losses are, these numbers undoubtedly understate the problem. Accounting for the true, total costs of these programs is difficult given that government funding for “green” energy projects come from multiple, often unexpected and disparate departments and programs.

For instance, In addition to the costs noted above, an additional $9 billion was sunk into solar and wind projects through the stimulus bill, according to a national renewable energy laboratory report, since fewer than 910 direct jobs and just 4,600 indirect jobs were created by that spending, the cost per job topped $1.63 million dollars each – and some of those jobs are temporary.[1]

In addition, green energy programs routinely have both ancillary and/or hidden costs and they result in unintended consequences that also have costs.

Why Hidden Costs?

Leaving aside libertarian concerns about the very legitimacy of government spending on and regulation of energy development, there are a number of purely economic reasons for believing that federal and state agencies routinely overstate the benefits of green energy spending and understate the costs.

First, the some of the justification regularly cites things like premature mortality or hospitalizations avoided as a significant benefit from subsidized green energy substitution for traditional fossil fuels. Yet, as I and others have pointed out, the harms attributed to various regulated pollutants (which supposedly justify replacing standard, reliable fossil-fuel-powered electrical plants with more costly, less reliable wind and solar plants) are routinely, grossly overstated.

For instance, when the EPA recently updated its ozone regulations, most of the purported benefits were to come from avoided hospitalizations and deaths from asthma; however, claims that ozone is causing a rise in asthma are simply not plausible. While the prevalence of asthma has risen about 75 percent during the last 25 years — and nearly doubled for children – during the same time period, ozone levels have fallen.

In addition, worldwide the lowest asthma rates are found in developing and ex-Soviet countries with substantial air pollution, while western countries with the world’s cleanest air have the highest asthma rates. And, emergency room visits and hospitalizations for asthma in the U.S. are lowest during July and August, when ozone levels are highest.

Wealth is Health: The True Cost of Government Inefficiency

By contrast, there is a well-established relationship between wealth and health. Lower household incomes associated with increased risk of premature death. By this measure, the health cost of tougher ozone standards is high.

Using U.S. Office of Management and Budget estimates that every $7.5 million to $12 million dollars in regulatory costs imposed on the economy results in a life lost and the EPA’s cost estimate the new ozone regulations could result in 833 to 2,933 premature deaths. By the same token, replacing coal-fired power plants, with wind or solar plants, based purely on costs will result in thousands of premature deaths.

Concerning non-health based economic benefits, I would argue that these are usually overstated by the government as well. There is no question that subsidies produce benefits as well as costs. Unfortunately the benefits are usually concentrated–going to politically favored industries and businesses–while the costs are dispersed among both the industry (in this case the electric power and transportation industries) and the public as a whole.

Certainly subsidies that result in new domestic manufacturing and construction opportunities can create jobs – though many may be temporary jobs for those installing the equipment and those merchants who benefit secondarily from their commerce (restaurants, hotels, etc.). But if, as has proven the case in Europe (where the subsides have resulted in an overall net loss of jobs) and in the United States (where, as the few instances above demonstrate), job production has been underwhelming), then the subsides amount to a net loss to the economy.

This loss only grows when one considers consumers, who will pay higher costs and/or suffer from unreliability of supply from the energy source replacing coal, will bear these costs for years to come — meaning that they collectively will have billions of dollars less each year in discretionary income which would have created jobs in industries chosen by consumers in the market place.

Government Subsidies Reconsidered

This latter point is perhaps the greatest weakness of any benefit/cost analysis of any government subsidies. These subsidies substitute the government’s judgment about what the public should want for the public’s own judgment as express through their choices in the marketplace.

There are huge opportunity costs to such government directed spending. The money spent developing and promoting a green energy industry (especially one that has subpar development results) is

*money not spent innovating, not available to entrepreneurs to discover the next big thing(whether it be energy source or entertainment device),

* jobs not created in other sectors of the economy(and maybe in some industries that haven’t been created yet),

*money not available for better education or health care,or

* money not available to reduce the annual deficit and overall debt.

This, in my opinion, is the real economic loss.

More Bad Bets?

In the face of these multiple “successes,” the Obama administration wants to double down and throw more good money after bad. It’s never worked before, but hey, there’s always a first time, Right?

Election season, and bad ideology, have put the sitting President at odds with reality.


H. Sterling Burnett, senior fellow at the National Center for Policy Analysis, specializes on the intersection between ethics, economics and politics in relation to environmental issues. He blogs at http://environmentblog.ncpa.org/. Alexis Hunter, NCPA Environment and Energy Intern, also assisted with this blog.

10 Comments


  1. Jon Boone  

    Outstanding report. Thanks. Readers might find of interest, via Paul Chesser’s article this morning, that GE’s solar operations are also in trouble: http://nlpc.org/stories/2012/07/07/ge-solar-delay-shows-timing-will-never-be-good.

    However, while I value the data presented here, I continue to think such reporting misses the point. Renewable “investment” has never been about energy. Solar and wind energies are so dilute that any machinery designed to convert them to modern power will ALWAYS fail: they will require continuous and substantial supplementation, primarily by the kind of fuels the solar and wind machines are expected, by the gullible, to replace. And everyone in the know gets this.

    Until people understand that renewables, certainly those in most state mandated “portfolios,” are fundamentally income producing tax shelter mechanisms for large corporations with a desire to shelter income via tax avoidance. This is what all the rent seeking is about.

    In consequence, it’s not just the Obama Administration doubling down and throwing money down these energy ratholes: it’s a whole panoply of interests, ranging from an overwhelmingly bipartisan Congress (including most of the new Republican House members) and its staff; the nation’s electricity regulators; a substantial majority of the nation’s governors: virtually all the world’s Big Energy corporations (which understand that wind especially increases fossil fuel marketshare); and political pundits like Grover Norquist (who never met a tax shelter he didn’t admire) and Karl Rove, who recently cheered wind at the American Wind Energy Association’s annual convention.

    Pretending that wind and solar are alternatives to fossil fuels in order to pick the public’s pocket is a massively cynical enterprise, and, for me, symbolic of the rot at the core of our Republic.

    Reply

  2. - Resourceful Earth  

    […] of Energy which hands out money to energy companies and manufacturers. Do read the entire post, but here’s a summary of the loan guarantees that have been given to companies now in […]

    Reply

  3. Stirling Burnett: Energy Loserville: U.S. DOE Picks in an Artificial Industry | JunkScience.com  

    […] MasterResource Share this:PrintEmailMoreStumbleUponTwitterFacebookDiggRedditLike this:LikeBe the first to like this. This entry was posted in Clean energy and tagged energy subsidies, government subsidies, really stupid idea, rent seeking, subsidy farming. Bookmark the permalink. ← Travis Fisher: Economic Efficiency, Not ‘Energy Efficiency’ (Economist Cordato parses a sacred cow) […]

    Reply

  4. Willem Post  

    Great post with good facts.

    Regarding wind energy, its CO2 emission reduction is overstated by at least 30% in grids where primarily gas turbines are used for balancing variable wind energy, such as the Irish and Dutch grids; the Irish import their gas, the Dutch have their own gas.

    This article explains.

    http://theenergycollective.com/willem-post/89476/wind-energy-co2-emissions-are-overstated

    Reply

  5. Fezzik  

    So how do we separate out the “cynical” act of tax shelters and crony capitalism from the “idealistic” aspect of necessarily propping up technologies that we wish to transition to out of social and ecological necessity? I don’t see how “normal” investment gets us there.

    Reply

  6. Jon Boone  

    Fezzik:
    What are the technologies you wish to move toward beyond, say, fossil fuels, hydro, and/or nuclear in the production of electricity, the fundament of our modernity? According to The Sierra Club, for example, all of these are dangerous socially and ecologically. Without them, however, and absent any proven alternative, we’ll quickly lose our modernity. Transitioning back to 1810 conditions doesn’t get it for me.

    As I said earlier, our collective culture should continue to invest in researching alternatives, in part on the public’s dime. But committing large public funds toward the “development” of some–and not others–would be generally a fool’s gambit, since government is operationally incapable of wisdom in this area.

    My suggestion is that government, in the electricity arena, should mandate a general principle for the marketplace: producing abundant, secure, reliable electricity at prices affordable to all in ways consistent with the most informed knowledge of public health (and not epistemological/epidemiological speculations). In other words, I think it is socially and ecologically necessary to make reliable electricity an abundant resource. We should begin to ridicule those who would have the public in general, and electricity consumers specifically, believe that reliable electricity must be a scarce resource. Chicken Little stories about energy apocalypse should be treated as the children’s literature they are.

    Beyond this, regulators of electricity should require that all grid based generating systems produce firm capacity according to cutting edge standards of modern power delivery.

    Reply

  7. Oil and Gas News | Lousiana Oil and Gas Association  

    […] only a fraction of the companies that received federal support have failed, the tally has grown large enough–with the addition of Abound Solar last week–that it’s no longer acceptable […]

    Reply

  8. The 2013 US Energy Agenda | outlook indir  

    […] only a fraction of the companies that received federal support have failed, the tally has grown large enough–with the addition of Abound Solar last week–that it’s no longer acceptable […]

    Reply

  9. Crony Capsule 2: Energy Welfare | Crony Chronicles  

    […] In this article we see the full list of bankrupt green companies and we realize how the government more than often, […]

    Reply

  10. Federal Program Leaves Taxpayers on the Hook for Another Green Energy Company Failure - Heartland Daily News  

    […] A 2012 analysis of the approximately $10 billion in federal loan guarantees and tax credits offered by the Obama administration to companies in the renewable energy field, found more than $3.2 billion of that support had been given to companies subsequently declared bankruptcy. For instance, solar panel manufacturer Solyndra defaulted on more than $500 million in federal loan guarantees before it went bust in 2011. Other companies that received DOE loan guarantees and then subsequently declared bankruptcy include, lithium-ion battery manufacturer A123, that had received $300 million in federal grants and $135 million in additional grants from the state of Michigan before declaring bankruptcy in October of 2012, and Fisker Automotive, which declared bankruptcy in October 2013, despite having received federal loan guarantees of nearly $529 million. […]

    Reply

Leave a Reply