The tea-party congress, in it’s frenzy against the DOE’s loan guarantee program for renewable energy, is missing a detail. If they succeed in poisoning the idea of Loan Guarantees, they kill off the primary finance mechanism for their ‘future energy” of choice, huge nuclear power plants.
Even with the Guarantees, private capital is shunning nuclear projects – not so renewables, which have compelling long term economic advantages.
Jesse Jenkins, Devon Swezey, and Alex Trembath of the Breakthrough Institute, writing in Forbes:
Critics have seized on the news of Solyndra’s bankruptcy to condemn the Department of Energy’s Loan Guarantee Program, which provided a $535 million loan guarantee in 2009. TheNational Review’s Greg Pollowitz writes that Solyndra’s failure shows “why the government should not play venture capitalist.” Yet the fact is that, when judged by its entire diverse portfolio of investments, the LGP has performed remarkably well. Indeed, with a capitalization of just $4 billion, DOE has committed or closed $37.8 billion in loan guarantees for 36 innovative clean energy projects. The Solyndra case represents less than 2% of total loan commitments made by DOE, and will be easily covered by a capitalization of eight to ten times larger than any ultimate losses expected following the bankruptcy proceedings.
The broad success story of the LGP shows why federal investment in clean energy is necessary to help early-stage clean energy technologies achieve scale and reach commercialization. The inherent uncertainty in investing in novel technologies, coupled with the high capital costs and long time horizons, prohibits most venture capital funds from investing in large-scale clean energy projects. Financing tools and direct investment from the federal government can help bridge this well-known “Commercialization Valley of Death,” and the LGP is an effective way of doing that.
Instead of “picking winners and losers,” as the program’s critics allege, the program actually reduces risk for a suite of innovative clean energy technologies and allows venture capitalists and other private sector investors to invest in the best technology. Rather than picking winners, the LGP enables innovative companies to compete in the marketplace, allowing winners to emerge from competition. And while Solyndra is shutting its doors, companies like SunPower, First Solar, and Brightsource Energy, which also received loan guarantees and other support from the federal government, are industry leading success stories.
This is a difficult issue for me. On the one hand, I’m very much a free marketer, and I strongly believe that government should not spend money to help any commercial operation. It’s just too easy for something like that to be captured by lobbyists with a cozy feedback loop of federal dollars flowing into companies that make campaign dollars to politicians. It’s worst with fossil fuels companies that don’t need any money at all, and certainly the nuclear industry has profited from such programs. I’d like to see all these expenditures terminated, including those for renewables as well.
But then there are the special considerations. For example, the government clearly has a responsibility to fund research that would ultimately advance energy-generation technologies. It’s impossible to draw a sharp line between applied research and commercialization — so how do we forbid one while advancing the other?
The conundrum is worst with the learning curve. Economies of scale are critical factors in the advance of any technology. Does the government have a responsibility to help an industry move down the learning curve? My inclination is to say “no”, because learning curves are everywhere. Huge fossil fuel companies are developing frakking technology. That’s a new technology that is still moving down its learning curve; should the government subsidize that effort? If we subsidize renewables, we must also subsidize fossil fuel technologies.
In the same fashion, if renewables truly are economically viable in the long run, then they should have no problem attracting capital to move down their own learning curves.
The counterargument is that government subsidies will accelerate progress down the learning curve, getting the technology to profitability sooner. After all, the argument runs, sources of capital are necessarily conservative and are always just one step behind the technology. If government subsidies can get us there sooner, then shouldn’t we use them?
While this argument has some merit, I don’t quite buy it. The computer industry was never funded by the government (at least not the industry that started with micros) and it progressed quite smartly. If the government had stepped in to subsidize what looked like the winners, wouldn’t IBM still be dominating the industry? Would Apple exist if it had been forced to compete with big government-subsidized competitors? Would we be using bubble memory instead of rotating disks? Would ANY of the scrappy little startups that became giants have gotten off the ground if they were up against government-subsidized dinosaurs?
The real market is only an approximation of a free market, and in many areas its approximation is so poor that it functions improperly. But we have plenty of evidence that the market does a great job picking high-tech winners to fund — a better job than government does. I think we should leave it alone where it works well, and work hard to address its weaknesses, such as moral hazard.
I don’t condemn DOE for picking Solyandra; the market makes mistakes, too. DOE’s recent track record is actually pretty good, but all we need is another Republican president to reverse that.
” The computer industry was never funded by the government”
Holy crap – you’ve got to be kidding, right?
There would be no microchip industry without the massive military buys of microchips which drove down prices in the 1970s, leading to the personal computer revolution of the 80s and 90s.
There would be no internet without the DARPA program that was begun in the 1960s and quietly brought to fruition in the late 80s. If you listened to Rush Limbaugh in the early pre-internet boom 90s, you would not have missed the constant ridicule of ‘Al Gore’s Information Superhighway”.
I guess this is some kind of common misperception – I was on a panel a few weeks ago with a right wing think-tanker who waxed on about how Steve Jobs and Bill Gates built great companies with “no government help.”
I trashed that sorry freak, and won’t allow nonsense like this to be unanswered.
There would be no auto industry as we know it without the best system of highways in the world – which our tea party politicians seem to think were created by God on the sixth day, and don’t need silly things like repair and upkeep – which (horrors) require government dollars.
We wouldn’t have computer scientists, or any other kind – without a massive system of public education, and public universities – another area that our tea partiers hate for being hot beds of free thinking, evolutionary research, tolerance, and climate science.
Going back to the Erie Canal, this country has a history of government investment in infrastructure that makes possible all kinds of creative entrepreneurial activity.
There would be no renewable energy industry without the research from NASA that created both photovoltaic cells, and perfected wind turbine designs. The reason we are losing this industry – that we invented – is that other countries recognize that the right policies, – subidies, R&D, feed in tariffs, RPS’s and others, create the market conditions and predictability that attract investment and keep the pipeline open long enough for the new industries to take root an get economies of scale going.
No government help for computer industry? really? really?
Yep: Really. Please note my qualification: “not the industry that started with micros”. I agree that there was considerable government investment in the early computers and that DoD was a major client of IBM. But the microcomputer revolution was definitely a grass-roots event. The companies that kicked things off (Apple, Commodore, Radio Shack, Atari) received no government subsidies. The government was slow to start using micros, mostly playing catch-up with everybody else, and their purchases were never a major factor in sales. The boom that started in 1979 and has been continuing ever since was at no time accelerated by government intervention.
The most important thing that the Feds did to advance computing was the Internet, but that was not predestined to succeed. There were other computer networks during the 80s: CompuServe, AOL, and GEnie are the three that first spring to mind. Even Microsoft had its own network, which it famously abandoned in favor of the Internet in the 90s. Had the Internet never existed, these existing networks would have filled the gap, albeit not as quickly or effectively as the Internet did.
“This is a difficult issue for me. On the one hand, I’m very much a free marketer, and I strongly believe that government should not spend money to help any commercial operation.”
Ah ha! Thank you for turning that card over. Your comments are truly fascinating. You see the problem. That’s why you’re here – right? Yet, your anxiety about solutions, all of which will be less than perfect, is a noticeable constant theme in almost every one of them.
Government participation is greater in most advanced economies than in ours. Many for better. Some for worse. It’s the way it works. If a Republican is elected, the only thing that’ll change is that they’ll be investing more in the past than in the future. Your closing sentence says as much – if I’m not mistaken.
BTW, the government would have NEVER let the computer industry decline. Once the computing power per dollar powered up past the tipping point, of course they backed off. Once internet standards were established, of course they took off the training wheels. Alternative energy isn’t there yet. Wouldn’t it be great if they could get there faster by attracting more investors? That would happen if investors could put a level playing field into their spreadsheets. We’d all like less command and control, but what else do we have to work with?
I am a reluctant believer in the need for Nuclear Power. The only alternative is the industrialisation of the countryside (so hated by the likes of James Lovelock). David Macakay has done the math (as you Americans would say) and concluded this to be the case.
However, we do not have time to sit around and wait for new nuclear plants to be built, commissioned and brought online. We need now to invest in, roll-out, and scale-up workable renewable solutions (not wind turbines), some well-constrained industrialisation of land not fit for much else, and micro-power generation (to take people off the grid altogether).
Finally, on the subject of finance, the UK government has persuaded the private sector to invest in new nuclear power despite demanding that £900 million be put aside by them over 40 years to finance waste management and decommissioning. What the UK government is keeping very quiet about, however, is the £25 billion cost of constructing a permanent deep geological repository for the waste. Presumably, the situation is the same in the USA (wth regard to Yucca Mountain or whatever)? Although this completely demolishes any argument that nuclear energy is cheap, it must be borne in mind that we already have a nuclear legacy and must find some way to “dispose” of it.
Net result: Yep, I’m sitting on the fence; and trying to have it both ways (so will probably be attacked by both sides).