Who Besides Solyndra Got Loan Guarantees?

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Solyndra CEO Brian Harrison just resigned, as the controversy stubbornly refuses to go away.  Seems worth revisiting the loans once again, since I've spent a little time looking more deeply at the program over the past few days.


Supporters of these programs claim that they're a necessary part of winning the green future because these are investments that are too risky, or too big, for private capital to take on.  

Of course, if the government is going to be a VC, supporters say, they have to expect a high failure rate. There's a lot of talk about the manufacturing "Valley of Death", where startup manufacturing firms may have difficulty getting capital to commercialize their prototypes.  According to proponents of this theory, there's plenty of money for early stage ventures, and plenty of bank loans for established firms, but no money for mass commercialization of new manufacturing ideas.  (Hence the "valley").  This valley, they say, is especially wide for energy firms, because the capital costs for starting up are so high.

I've been somewhat skeptical of those claims--why are people pouring money into manufacturing startups if they're inevitably doomed to die at the commercialization stage?  But say it's true.  I thought it was worth looking at who got the money from these programs, and for what.  How well is the government doing in its role of VC/valley of death sherpa?

So I went to the DOE's website and manually copied the data on the loan programs.  I didn't scrutinize all of the projects--I've already spent more time on this than is probably justified.  But I looked at the biggest ones.  I put all the number into pretty graphs.  And then I thought I'd share those graphs with you, because hell, I have them.  

What I'm trying to say is, I just made my first infographic.  

I know what you're thinking: "But Megan, infographics are so July 2011!"  Yes, it's true: I only adopt trends when they are hoary with age.  And I know what else you're thinking: "But Megan, you have the design sensibility of a blind person!"  Also pitifully true.  In my defense, however, I confined myself to pie charts.

Hell, I can't really defend it.  I was in the grip of forces beyond my control.  Anyway, here's the breakdown of where the money went:

infographic new.png

I thought about adding a breakdown by state, but figured that I'd already subjected you to enough.  However, I couldn't help but notice a distinctly heavy Nevada presence, including $343 million for a transmission line that has no obvious "clean" application, except for some vague promises that it could be used to carry clean Nevada energy to California.

Obviously, there's a point to this.  That is, I hope that the infographic will be broadly useful to people who support the program: I figure everyone should be interested to know where the money went.  (And here's a spreadsheet for those who want to trundle through the data themselves). But I have highlighted what jumped out at me: most of the money has gone to enormous companies that should have no trouble accessing capital.  Established utilities, large multinational auto manufacturers, a global warehouse owner.  The bulk of these funds are not going to rectify some gap in the capital markets.  They're straight subsidies to huge corporations.  Even some of the smaller firms/deals are owned by large corporations like Total SA.

Giving large, established companies extra-cheap loans to build power plants, run transmission lines, and fix up the roofs of their warehouses is, in the immortal words of P.J. O'Rourke, like paying a Dairy Queen owner to keep his ice cream freezers on.

This has implications for the default rates.  The genuine startups seem to be shaky--it's not just Solyndra, but also Nevada Geothermal and Brightsource.  In other words, the firms that actually need the money are likely to experience a far higher default rate than the overall portfolio.

Why does that matter?  Because it skews our perceptions of the usefulness of the program.  If we loan a bunch of money to firms that could easily get the money elsewhere, and a little bit of money to firms that are very risky, we can claim a high "success" rate even if all the risky firms fail.  But we won't have actually added much value, because the government wasn't addressing a genuine market failure.  It was just giving Ford and Nissan some extra-cheap money.

But if we're not really filling a gap in the capital market, this is a terrible way to go about subsidizing clean energy.  We should be subsidizing the outcome we want: more solar panels installed, more clean vehicles purchased.  If the demand is there, companies will be able to go out onto the market and borrow to fill it.  It doesn't do us much good to have a bunch of shiny new electric cars--that sit on dealer lots.  Or solar panels in the Solyndra warehouse.  We should be paying for performance.  Otherwise, we're not winning the future.  We're just sticking a green smiley face on the same old corporate welfare--and the government's less like a VC than a farmer slopping the pigs at the trough.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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