Solar Secrets
Issue: Solar Cronyism

The Energy Department's Solar Cronyism
By Julian Morris & Victor Nava

(This article originally appeared in Real Clear Policy on December 4, 2013)

The Department of Energy recently announced another $60 million in subsidies for solar energy. Yet the billions of dollars the government has already spent subsidizing solar and other forms of "renewable" energy have done little but line the pockets of cronies. Worse, these subsidies have likely reduced investment in truly innovative energy technologies. Instead of throwing good money after bad -- and thereby increasing further the debts that will fall on our children -- the federal government should terminate this line item of discretionary spending.

The new subsidies are part of the department's SunShot Initiative, the primary stated goals of which are to reduce the cost of photovoltaic solar-energy systems by about 75percent -- to $1 per watt -- by 2020 and to help reach President Obama's goal of doubling the generation of clean energy in the U.S. over the next 25 years. Even renewable-energy advocates admit that these goals are probably unachievable. Worse, solar subsidies divert energy investments away from more productive uses that would more effectively reduce emissions.

Over the course of the past decade, the United States has shifted dramatically to the use of lower-carbon fuels, but almost none of that shift has come from solar. According to the Energy Information Administration, solar currently contributes at most 0.2 percent of U.S. electricity production -- an amount that makes even geothermal (at 0.4 percent) look significant. While a small part of the shift toward low-carbon generation has come from so-called "renewable" energy (specifically, windmills, which now generate about 3 percent of electricity -- up from 0.3 percent in 2003), the vast majority has come from natural gas, which went from about 17 percent of electricity production in 2003 to 30 percent in 2012. And the switch to gas was driven by the widespread adoption of hydraulic fracturing as a means of extracting gas from shale deposits.

Solar's market share is low becausesolar power is very expensive compared to the alternatives for most applications under most circumstances. Solar power is great if you happen to be trekking in remote parts of the world that lack distributed electricity. It is not so great if you want to heat your home at night during the winter. Solar propagandists claim that their favored technology is within spitting distance of competitiveness. But they have made the same claim since at least the mid-1990s. And for decades the government has been providing subsidies -- with no end in sight.

In a paper published this week by the Reason Foundation, we examined one such subsidy, the loan guarantees made by the Department of Energy under its "Section 1705" program from 2009 to 2011, which were part of the America Recovery and Reinvestment Act. If the DOE wanted to increase the amount of power produced from low-carbon sources, it would make sense to fund the low-carbon sources that are most cost effective and therefore most likely to be self-sustaining once the subsidies end. But we found that was not the case.

Out of the 26 projects funded under the 1705 program, only four have been completed, and the company behind one of those projects, Beacon Power, actually went bankrupt shortly after the project was finished. Two recipients, Abound Solar and Solyndra, went into bankruptcy before their projects were even completed, leaving taxpayers to pick up the tab of close to a billion dollars with nothing to show for it. Meanwhile, several other recipients, including SoloPower and the Spanish company Abengoa Solar, are in the process of laying off workers and selling off equipment, and are not paying contractors for services provided.

In all, while the DOE was not required to put any money into solar projects specifically, it chose to give such projects 83 percent of the funds it allocated under this program, amounting to guarantees for $13 billion. So what drove the choice of recipients? We looked at expenditures on lobbying by recipient companies and correlated them with the size of loan guarantees received. Excluding companies whose main business is not renewable energy generation, because their lobbying expenditures (sometimes massive) would likely be more geared towards influencing their primary mode of business and not necessarily obtaining green-energy loans, we found a correlation of nearly 0.5, suggesting that DOE loan officers made choices on the basis of the information that was most cognitively available -- because it had been fed to them by lobbyists -- rather than on the basis of a more rational analysis.

But in some cases, we found evidence of more sinister and direct cronyism. For instance, during his tenure as governor of Maine, Angus King signed into law a bill requiring utilities to generate at least 30 percent of their electricity from "green" sources such as wind. After leaving office, he founded a wind-energy company, Independence Wind, whose first project, Record Hill Wind, received a $102 million loan guarantee from the Department of Energy, in relation to which King received a $407,000 "success" fee.

Even if cronyism were absent, the fact that government agencies are not spending their own money would mean that they have less incentive to ensure that the money they spend -- our money -- is wisely invested. By contrast, angel investors and venture capitalists who spend their own funds have strong incentives to invest wisely. So it hardly surprising that the $154.7 billion that has been spent on "renewable energy" by U.S. government agencies since 1973 has achieved very little.

The recent partial shutdown of the federal government reminds us that we are currently living beyond our means. Every dollar issued in loan guarantees and other subsidies to renewable-energy companies comes from debt issued on our behalf. On present projections, our children and even our children's children will still be paying off the federal debt. Is it morally acceptable to force our children to pay off debt that primarily benefits a few of today's already-wealthy investors, while doing nothing to improve their lot? Our children would, we think, thank us if the federal government stopped subsidizing energy and furloughed the loan officers at the DOE permanently.

Julian Morris is vice president of research, and Victor Nava is a policy analyst, at the Reason Foundation. Their recent policy brief is "Stimulating Green Electric Dreams: Lobbying, Cronyism, and Section 1705 Loan Guarantees."