Solyndra Not the Only Questionable Obama Loan to "Green" Energy

June 27, 2012

The very public failure of energy company Solyndra has focused a lot of attention on the Department of Energy's loan guarantee programs. Beyond Solyndra's failure, it's interesting to take a closer look at these programs in order to understand what economic benefits, if any, they have conferred upon the American jobs market, says Veronique de Rugy, a senior research fellow at the Mercatus Center.

The economic justification for any government-sponsored lending or loan guarantee program must rest on a well-established failure of the private sector to allocate loans efficiently, meaning that deserving recipients could not have obtained capital on their own. Absent such a private sector deficiency, the Department of Energy's activities would simply be wasteful at best and politically motivated at worst.

  • Since 2009, the Department of Energy has guaranteed $34.7 billion in loans.
  • Of these, 46 percent were made through the 1705 loan program, 30 percent through the 1703 program, and 14 percent through the Advanced Technology Vehicles Manufacturing loan program.

The 1705 program (under which Solyndra received funding) deserves particular attention. This program is a product of the economic stimulus bill of 2009, and follow-up data shows just how wasteful this investment truly was.

  • Under the 1705 program, 26 projects were funded with guaranteed loans amounting to roughly $16 billion in total.
  • Some 2,378 permanent jobs were claimed to be created under the program.
  • This works out to a potential cost per job of $6.7 million.
  • The single largest recipient, NRG Energy Inc., received $3.8 billion (23.7 percent of the overall amount guaranteed under the 1705).
  • Four companies received 64 percent, or $10.3 billion, of the total amount guaranteed under the 1705 program.

Perhaps the most important conclusion to be drawn out of this data is the enormous expense of these green jobs, bought and paid for by the federal government.

A much more subtle implication is that much of this funding was allocated to companies needlessly, as they already had the resources necessary for their operations. Cogentrix, which received $90 million in loan guarantees under the program, is actually a subsidiary of Goldman Sachs. Presumably, the Fortune 500 Company could have funded this enterprise if it truly had good prospects.

Source:  Veronique de Rugy, "Solyndra Not the Only Questionable Obama Loan to 'Green' Energy," U.S. News & World Report, June 19, 2012.

For text:

http://www.usnews.com/opinion/blogs/economic-intelligence/2012/06/19/solyndra-not-the-only-questionable-obama-loan-to-green-energy

 

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