U.S. Solar Activity

Solar installations are skyrocketing in the U.S., driven by subsidies and State mandates. In 2011, more than 1,000 megawatts of solar panels were installed through the third quarter and a total of 1,700 megawatts are expected to be installed by year’s end. This is an increase of 89 percent over last year.[i]

One of the drivers of this boom has been the Obama administration’s Section 1603 Treasury grant program. To date, this program has given $1.5 billion to more than 22,000 solar projects and 3,600 grants in 47 states through November 2011.[ii] The 1603 program, which also covers wind, is expected to cost $9.6 billion by the end of 2011—more than 3 times what Congress had expected.  Without further authorization, the program expires at the end of this year.[iii]  And when the taxpayer-funded subsidies end, things will get rougher for U.S. manufacturers.  They are already feeling the squeeze.

For instance, California’s largest utility, PG&E Corp. has been using a provision in the tax code to reduce its tax liability by providing equity for solar energy projects. By spending the capital to install home solar arrays through 2 companies, SolarCity and SunRun Inc., PG&E has doled out $160 million, receiving payments from those customers and local, state, and federal subsidies, including the 1603 program.[iv] But the company is halting putting equity in these projects to focus on its own equipment that needs repair.[v] PG&E will continue to buy solar and wind power to achieve California’s mandate of getting one-third of its electricity from renewable power by 2020.

As companies like PG&E pull back on solar investments because of the expiration of the 1603 grant program and fulfillment of state solar mandates, things will get tougher for U.S. solar manufacturers. While a 30 percent rebate on investment in solar power provided by the U.S. government spurred growth in solar power in the United States, U.S. solar manufacturers are being pushed out of the market by low-cost and government-subsidized Chinese manufacturers. In California, for instance, the Chinese solar panel manufacturers held 29 percent of the market at the beginning of the year, but their share grew to 40 percent in the third quarter of 2011, while U.S. solar manufacturers’ share fell from 37 percent to 29 percent.

With the Chinese flooding the market with cheap solar panels, prices for solar panels in 2011 fell by about 40 percent. Black and Veatch, an engineering firm, note that manufacturing costs may not be covered at this lower price level. Prices for solar panels started 2011 at $1.60 per watt, but started to drop by the end of the second quarter and now are around $1.00 per watt. The CEO of SolarCity, a U.S. solar installer, feels the price will decline further next year with the floor at $0.85 per watt. [vi]

This decrease in prices has led to bankruptcies by U.S. solar companies. Three U.S. solar companies filed for bankruptcy in 2011, and recently two more U.S. solar companies announced staff cut backs. MEMC Materials Inc. will be cutting staff by a fifth and closing some facilities to stay in competition. First Solar cut staff saying they expected their 2012 profits to be up to 50 percent lower than Wall Street forecasts. The federal government provided $3 billion in loan guarantees to First Solar, the most of any recipient, helping the company to develop 3 solar farms in Arizona and California.  According to government records, since 2007, First Solar spent $2.2 million on lobbying in Washington and the company’s representatives met Obama administration officials before receiving the federal loan guarantee. The company is eliminating 60 jobs in California where it received $3.43 million in state sales tax credits.[vii]

The most notable solar bankruptcy in 2011 was the Fremont, California-based Solyndra LLC. The company went bankrupt despite receiving a loan guarantee of $535 million from the U.S. government. This bankruptcy occurred despite increased demand for solar panels in the United States due to state mandates for solar energy. Once those mandates are filled, however, U.S. solar expansion will be stalled due to higher costs of solar power compared to onshore wind power, which meets most state renewable mandates, and to natural gas-fired generation.[viii]

Solar in the Global Market

Global demand for solar power has grown in 2011 but is expected to be level in 2012. In 2011, about 8 percent more solar panels are expected to be installed compared with 2010, according to Jefferies Group analysis. At least seven solar-panel manufacturers have filed for bankruptcy or insolvency recently, including two German companies, Solar Millennium AG and Solon SE. For years, Germany was the world’s largest market for solar, doubling its solar installations in 2010 alone. But the Jeffries Group expects a 29 percent decline in demand in 2011 compared to 2010.

One of the reasons for this decline in demand is a reduction in solar subsidies. According to Citigroup Global Markets, there is now “a very hostile political environment” for renewables in Europe.[ix] These analysts chronicle 27 political interventions in the utility industry, most of which are reductions in subsidies to the solar sector which will cost utilities 200 billion Euros. Without lavish subsidies, more solar companies will struggle.

Another factor in the bankruptcies of European solar firms is the rise of Chinese low-cost solar firms, helped out by government aid. The Chinese government directed its banks to lend freely to new manufacturers and according to Bloomberg New Energy Finance, Chinese banks have offered at least $43 billion in credit to Chinese renewable-energy companies since 2009. Easy access to capital during the height of the global credit crunch allowed Chinese companies to build factories and start production, forcing competitors in Europe and the United States to do the same. “The industry simply cannot support 300-plus cell and modular manufacturers, so the companies left will capitulate and exit the industry,” said Zhengrong Shi, chief executive of Chinese solar-panel manufacturer Suntech Power Holdings Company. Suntech is planning to cut its operating expenses by at least 20 percent next year.

Factors in the Over Supply of Solar Panels

While China is a significant reason for the glut in solar manufacturers, other factors include governments’ encouraging clean technology through subsidization, venture capitalists pouring into the solar sector, and investors buying into IPO issues of solar companies. In the United States, records show that the Obama Administration gave easy access to venture capitalists with stakes in some of the companies backed by the loan guarantees of the administration. For instance, documents show that senior Administration officials pushed career DOE bureaucrats to rush their decision on the Solyndra loan so Vice President Biden could announce it during a trip to California.[x]

A noted contributor to the Obama campaign, George Kaiser, complained to the president about Chinese manufacturers dumping cheap solar panels on the U.S. market and pressed the need for a “Buy American Act” for federal agencies. Solyndra wanted to make the federal government a major customer, which it called the “Uncle Sam” strategy. The George Kaiser Family Foundation, a nonprofit organization, owned a third of Solyndra.

Conclusion

The plentiful production of solar panels resulted in cut-throat pricing competition. A year ago, distributors of solar panels and project developers could buy solar panels for $1.60 per watt, on average. Now the price is between 90 cents to $1.05 per watt, according to investment bank Jefferies. China, with its subsidization and low labor costs, is overtaking the market and putting U.S. and European companies   out of business. Of the 1,100 Solyndra workers who lost their jobs, an estimated 90 percent remain unemployed. It does not seem like Obama’s green job strategy is working!

But when you look at the subsidies on an energy production basis, the disparity becomes stunning (or scandalous from a taxpayer viewpoint).  Wind’s 5.6 cents per kilowatthour is more than 85 times that of oil and gas combined. And solar … would you believe 13 times that of wind, making the disparity north of a thousand times?

But a second argument of renewable advocates has crept up: that government subsidies over many decades allowed the oil and gas industry to cement its perch atop the energy chain. The implication is that wind and solar may need the same long-lived subsidization to achieve commercial viability too.

Argument from History

This argument from history is errant as well.

The commercial oil industry dates to 1859, the year of the Drake well in Pennsylvania. The U.S.petroleum industry matured in the next decades and then shifted to the southwest with the discovery of the Spindletop gusher in Beaumont,Texas in 1901.

Meanwhile, a commercial petroleum industry developed abroad, a development that would lead to increasing oil imports to the U.S.and price “demoralization” for domestic producers by the late 1920s. From this period through the 1960s, the “problem” was too much oil, not too little.

Does this sound like an infant industry? Hardly! It was an industry that was ‘too good for itself’ in some ways, and certainly not one threatened by a cheaper energy source as, say, electricity was to manufactured (coal) gas in this era.

So when did government oil and gas subsidies begin in the U.S.?

Corporate taxation began in 1909, and the depletion tax writeoff began in 1913. The intangible drilling and development cost deduction began in 1917. So the classic subsidies cited by renewable apologists began a half-century after the industry was born. Direct government subsidies, such as checks written on the U.S. Treasury, were virtually nonexistent in the history of the petroleum industry.

Industry Penalization

The federal government has a long history of penalizing the industry, not only subsidizing it via the tax code. Price ceilings on oil production and the sale of petroleum products during World War II and again in the 1970s are cases in point. Also recall the Windfall Profit Tax of 1980, however short-lived.

On the natural gas side, comprehensive price controls on wellhead gas sold in interstate commerce lasted from the 1950s through the 1970s. Such controls caused predictable shortages for consumers, making not only producers but consumers victims of federal energy policy.

Moreover, the brunt of special tax favoritism was removed beginning in the 1970s. So an argument can be made that the U.S.government has reverse subsidized oil and gas in the last half-century.

Imagine if electricity from wind and solar were constrained by a federal price ceiling. Imagine is solar and wind companies were subject to an excess profits tax. Imagine if a wind-turbine exploding or a wind worker falling to his death led to a moratorium on new wind projects.

Or imagine if governments around the world suddenly announced a 50-year holiday on taxpayer favor to correspond to the sink-or-swim period of the oil industry.

Say goodbye to virtually all of industrial windpower. And the solar industry would shrink to its rightful off-grid self, where its niche applications would provide bridge energy until the place/area could graduate to (fossil-fuel) grid power.

Conclusion

Wind and solar are consumer-rejected forms of electrical power, pure and simple. They are not infant industries but perennially inferior ones. Government subsidies for any form of energy, and certainly the least economic (most dilute), is an easy budget cut for any democracy in deficit.

Source: Robert L. Bradley Jr., Oil, Gas & Government: The U.S. Experience (Roman & Littlefield, 1996): chapter 5 (wartime price controls); chapter 7 (oil and gas taxation); chapter 8 (natural gas price controls); chapter 9 (crude oil price controls).

As the Solyndra bankruptcy and its half-billion-dollar gut-punch to the U.S. taxpayer reverberate across the clean energy landscape, the Solyndra failure itself can be viewed as a symptom of a disconnect much larger than a loan-guaranteed company going belly-up, sticking taxpayers with the bill. Go back to the start of the green energy movement. We all fell in love with the dangling carrot of a clean energy future where our electricity would come from nature herself in the forms of giant wind farms spanning hundreds of miles of prairie land, majestic, 200-foot, high-tech airfoils whooshing above the deep waters offshore, and mile after mile of uninhabitable desert veneered with photovoltaic panels.

The idea that wind, solar, tidal, geothermal and other renewable technologies are here to free us from pumping carbon dioxide into the atmosphere while they generate the electricity required to keep our advanced societies functioning is patently false. But it’s a seductive vision that environmentalists, governments, politicians, entrepreneurs, media, and the public bought into. Fast forward to Solyndra’s “cool solar technology/no sustainable market for it” failure. What we must start to realize is that no matter how sleek, shiny, sexy and loved the solar and wind energy technologies are, they are doomed to fail. Here’s why.

BASELOAD POWER:  BIG, NOISY AND UGLY

The massive amount of constantly flowing electricity that is required to keep homes, apartment buildings, factories, shopping centers, 911 call centers, water treatment plants, nursing homes, police stations, and the food infrastructure operating will never come from renewable energy. To exist, industrial societies must have what is known in the electrical generation industry as baseload electricity. It comes from big coal, gas and nuclear power plants that deliver millions of megawatts of electricity every day and every night, rain or shine. These plants make our electricity-based lifestyle possible. The output of solar cells and windmills will never satisfy the power consumption needs of the planet’s industrial economies. They are known as “intermittent power sources” for a reason.

THE ONLY REAL CARBON-FREE OPTION WE HAVE

Besides hydroelectric, which requires damming rivers or living within close proximity to an elevated water source such as Norway’s fjords or Niagara Falls, there is only one proven carbon-free option that has the capacity to generate baseload power—nuclear energy. Nuclear plants emit zero carbon dioxide and they are one of the cheapest and safest sources per kilowatt hour of baseload electricity.* Today 440 nuclear reactors are peacefully chugging along worldwide, while 558 new nuke plants are under construction, on the drawing board, in the planning phase or proposed.

BESIDES GERMANY, THE REST OF THE WORLD IS EMBRACING THE ATOM

In the same breath that Germany used to announce it would pull the plug on nuclear power in the days following Fukushima, France, Russia, China, South Korea, Saudi Arabia, Jordan, Egypt, India, the United States and even Japan have restated their support for nuclear energy. France has 58 reactors now operating, the world’s second largest number (the U.S. has 104). France recently invested US$1.4 billion in their nuclear energy program. China‘s goal is to increase nuclear capacity ten-fold to at least 80 gigawatts by 2020, 200 gigawatts by 2030, and 400 gigawatts by 2050. (Four hundred gigawatts is as much total electrical capacity as Japan and France combined have today.) India‘s overall goal is to add 20 megawatts of nuclear by 2020 and to produce 25% of its electricity from nuclear power by 2050. South Korea has 21 reactors producing 18.7 gigawatts. They are planning to more than double their nuclear energy to 43 gigawatts by 2030. Russia has 32 reactors now, with 54 more on the drawing boards. Saudi Arabia, the UAE, Jordan and Egypt just announced that they are moving ahead with $400 billion worth of nuclear projects and South Africa is preparing to accept bids for a one-trillion-rand nuclear power contract for six new reactors scheduled to begin generating electricity in 2024. As John Borshoff, the CEO of Paladin Energy, recently said, “Nuclear is not here because people love it, it is here because there is no option, period.”

*AUTHOR’S NOTE: for an in-depth, updated review of the safety surrounding nuclear reactors and upgrades since Fukushima, please see http://www.world-nuclear.org/info/inf06.html.

Mark J. Morabito, J.D., is chairman and CEO of The Exploration Group, Canadian company providing management, geological, regulatory, tax, corporate development and investor relations services to copper, iron ore, uranium and precious metals mining companies throughout North America. Mr. Morabito is also executive chairman of Crosshair Exploration & Mining, an exploration-stage uranium mining company operating in the U.S. and Canada.

Investors Defend the Green Gravy Train

A recent Reuters story explains that green investors are rushing to defend the process that showers them with taxpayer backstop for their loans:

U.S. renewable energy investors defended the government energy loan program at the center of the political firestorm ignited by the high-profile collapse of solar panel maker Solyndra, one of the program’s beneficiaries.

Partners at top private equity firms that have participated in the government’s loan guarantee program for alternative energy described the program’s review process for applicants as “robust” and even more in-depth than in the private sector.

“It’s probably the toughest due-diligence exercise that any of us had ever experienced,” Neil Auerbach, a managing partner at Hudson Clean Energy Partners, a private equity firm that invests in the sector, told the Retech renewable energy conference in Washington on Wednesday.

Auerbach said his experience with the loan guarantee program might reflect the Energy Department’s applying lessons it learned after approving earlier projects, such as Solyndra.

“What we might have seen over these 40 loan guarantee approvals is a program start with a prototype — the first one through the chute was Solyndra — then successive screw-tightening exercises that were going on,” said Auerbach, a former partner with Goldman Sachs.

Solopower, a solar company backed by Auerbach’s fund, received a $197 million loan guarantee this year to retrofit a solar manufacturing plant in Wilsonville, Oregon.

…

Ed Feo, a managing partner at USRG Renewable Finance, said he also found that the level of detail required for the federal program was more than he was used to. He said in his experience the agency conducted “rigorous” oversight.

…

Feo said the loan guarantee program should not be blamed for the fall of Solyndra but should judged on the basis of all its investments, not just those involving a single company.

“If you want to innovate and you want to facilitate innovation, you have to accept the fact sometimes things don’t work and there’s a cost associated with that,” Feo said.

Feo is simply wrong in the quotation bolded above, when he implies that—aww shucks—taxpayers will just have to sometimes eat half a billion dollars and tolerate FBI investigations if they want “innovation.” On the contrary, at one point this country was supposed to be a free market, in which the government left innovation—and more specifically, the determination of how energy would be produced and distributed—to the voluntary private sector.

Bogus Oversight

Besides their obvious self-serving bias in defending the government’s loan guarantees, the green investors quoted above are confusing bureaucracy with actual safeguards. By its very nature, government operations are inefficient and choked with red tape. Any small business owner recognizes the labyrinthine complexity of the tax code and labor laws. Yet these codes are riddled with carve-outs and privileges for special interests. That’s partly why the codes are so complicated.

It’s the same thing with “green” guarantees. The government can’t simply guarantee every loan application with “renewable” in the description; the Treasury would be bankrupt in a month. (Or rather, it would be officially bankrupt, as opposed to its current status as merely unofficially bankrupt.) So the government has to put up barriers, to make sure the gravy gets steered only to those people who really lobby for it.

Conclusion

Despite the defenses of those who are currently enjoying the program, the government’s loan guarantees for green projects are turning out to be more and more crooked. Currently 14 such grants are under investigation. Solyndra wasn’t a lone bad apple.

It would be nice to think that the bureaucratic hurdles for such loan guarantees dovetail perfectly with the requirements for a sensible business plan. But we know that must not be true: If it were, the investors wouldn’t need taxpayer backstops, they would go to the private capital markets for funding.

If the goal instead is to frankly subsidize bad business ventures, because of a non-financial concern for environmental objectives, then officials should at least have the decency to be frank with the American taxpayers that that’s what is going on here.

Crony Capitalism and the Failed Green Energy Dream

Washington—Today, the House Energy and Commerce Subcommittee on Oversight and Investigations conducted a hearing on the bankruptcy of Solyndra, the recipient of a $535 million federal loan guarantee and the poster child of President Obama’s green stimulus.  The Institute for Energy Research released the following video highlighting the questionable ties between Solyndra and the Obama administration.

Click the video or here to watch.

Unfortunately, as both the video and the House hearing shows, it may be a very long time before we finally get some answers.

In response to Solyndra executives pleading the fifth and the release of IER’s latest video, IER President Thomas Pyle issued the following statement:

“While the story of Solyndra is only now beginning to unfold, what we do know is the Obama Administration has much to answer for.  The American people have been led down the primrose path with the promise of green jobs and now the American taxpayer is even further in the red.

Government subsidies for so-called green energy are not creating jobs, not producing affordable energy, and wasting taxpayer money.  President Obama’s green dream is becoming a taxpayer and economic nightmare.”

In its heyday, Enron set out to become the world’s leading renewable energy company, having entered the solar business in 1994 and wind business in 1997. Enron CEO Ken Lay believed that Enron, as a green company, was about the energy future; ExxonMobil and the other oil majors were about the energy past.

In 1999, Enron lobbyists persuaded Gov. George W. Bush and the Texas legislature to enact an electricity restructuring bill that included the nation’s stiffest renewable quota. Texas would become the leading wind state in the nation in fairly short order and lead America’s renewable-energy boom.

Business-wise and legislatively, Enron did more than any other U.S. company to promote the dream of a “green” energy economy.

Today, we have the sordid tale of bankrupt Solyndra, the California solar company which received a $535 million federal loan from the federal government. This loan was made despite Solyndra accumulating losses of $558 million in the five prior years. The company’s recent bankruptcy and layoff of 1,100 apparently caused President Obama to forego mentioning “green jobs” in his September 8^th Jobs for America speech.

Enron’s Solar Misdirection: 1994

But if politicians had paid attention to Enron years ago, they would have seen through Solyndra’s risky, government-dependent strategy. Solyndra is just one more company to promise a solar breakthrough and fail to achieve their claims.

Seventeen years ago, Enron announced a breakthrough via the New York Times of a proposed solar project that could generate electricity at a rate competitive with that from fossil fuels. “Solar Power, for Earthly Prices: Enron Plans to Make the Sun Affordable” reported a fixed rate from Enron of $0.055 per kilowatt hour for the life of the contract.

Enron’s solar price surprised even environmental pressure groups. “Even the most optimistic supporters of solar power have doubted that they would see commercially competitive production until the next century,” Times reporter Allen Myerson wrote. “The Worldwatch Institute, an environmental group in Washington, said earlier this year that solar cell electricity, now as low as 20 cents a kilowatt-hour, might reach 10 cents by 2000 and 4 cents by 2020.”

But while there was some skepticism, there was also optimism that mighty Enron was going to do what existing solar manufacturers had hitherto been unable to accomplish. The Times article also reports:

Size is key, according to Sigurd Wagner, a professor of electrical engineering at Princeton University.

“If a good group of people puts a plant of that scale in, it will have a real consequence on costs,” he said. “It’s not going to go down by just a little bit, but by a factor of two.”

To accomplish this feat, Enron was banking on government help at many levels. “Enron has asked the Government to buy or guarantee a market for its power, with annual increases of 3 percent, for 30 years,” explained Myerson. “It also depends on leasing Government land, receiving Federal tax benefits for renewable energy and financing construction with tax-free industrial development bonds.”

But the project never materialized. No announcement was made or autopsy performed. Evidently, the different governmental jurisdictions could not stomach what Enron was demanding. There was a lot of smoke amid Enron’s mirrors. Even today, the U.S. Energy Information Administration estimates the levelized cost of photovoltaic solar at above twenty cents per kWh, some four times what Enron was touting back in 1994.

Lessons

There is little excuse for the present situation of the Obama Administration with its solar loan guarantees souring.

Did not DOE Secretary Stephen Chu tell the New York Times that solar technology would have to improve fivefold to be competitive? Aren’t politically dependant companies, á la Enron, bad risks given that consumers bat last? Evidently, Obama’s Department of Energy has evidently shown far less prudence than Clinton’s Department of Energy did in solar matters.

Government trying to pick energy winners instead has picked energy losers—and picked the taxpayer’s pocket.

Daniel Simmons contributed to this post.

First, the government loaned Solyndra money at a really, really low interest rate—a mere 1.025 percent quarterly. In fact, this was the lowest rate provided for any green energy project.

Second, this low rate was in spite of “red flags” about the risk of investing in Solyndra. One outside rating agency rated Solyndra only a B+ and another rated Solyndra only as “Fair” for credit worthiness.

Third, Obama’s Department of Energy announced the loans before the due diligence was complete and even after auditors raised concerns. But this was not for lack of attention because even the President visited the plant and praised Solyndra as an example of the future of energy.

Fourth, according to ABC News, “Solyndra’s most prolific financial backer is George Kaiser, an Oklahoma oil billionaire who was a bundler of campaign donations for Obama’s 2008 race. Kaiser’s Argonaut Ventures and its affiliates have been the single largest shareholder of Solyndra, according to SEC filings and other records.” This connection alone should have caused pause for the federal government when considering an expedited loan arrangement.

And last, and in my mind, by far the worst, Kaiser and his Argonaut Ventures are first in line to recoup their investment in Solynda in bankruptcy proceedings. As ABC News explains, “Energy officials confirmed this arrangement, saying that private investors including Kaiser would first recoup their $75 million, then the U.S. government would have a chance to recover $150 million of its investment. If any money is left, the private investors and the U.S. government would divvy up the remainder in equal shares.”

In sum, the Obama administration rammed through a half billion loan on very favorable terms to a shaky company, run by a George Kaiser, one of President Obama’s largest fundraisers. If Kaiser and his company made money with Solyndra, they would keep the profits and if Solyndra failed, as in this case, they still get their money back while the taxpayer is left holding the bag.

This is one example of what’s wrong with crony capitalism. With Solyndra, the Obama administration, using taxpayer dollars, insulated the private investors from any risk. For Obama fundraiser George Kaiser, it was a no lose situation. For the American taxpayer, it’s no win.

As this situation with Solyndra shows us, there is no reason the federal government should be in the business of loaning companies money. There were good reasons private firms didn’t loan Solyndra the $500 million—reasons that the Obama administration overlooked because Solyndra was a politically correct business.

Correct as these arguments may be, the defender of the free market is often at a rhetorical disadvantage in such debates. The proponent of some new government intervention appears to “have good intentions,” while the free-market critic comes off as a do-nothing stick-in-the-mud. Worse still, the free-marketeer can appear as the paid shill for corporations that would be harmed by the proposed interventions.

In the present post we’ll try to correct that rhetorical imbalance by focusing on the dark side of government intervention into energy markets. Here too we’ll see that it is corporate interests (often originating outside the United States) that stand to benefit from political favoritism.

The massive regulations, taxes, and subsidies—which we already know make consumers worse off—don’t just fall out of the sky, or from an academic’s blackboard. Often they are designed and lobbied for by corporate special interests. The more one studies the actual processes by which government policies are created, the uglier the whole thing looks.

In today’s post we’ll focus on a Spanish firm, Abengoa, which through its subsidiaries specializes in solar and bioenergy.

Abengoa, S.A.

Abengoa started out in 1941 as an engineering company founded primarily by Javier Benjumea Puigcerver and José Manuel Abaurre Fernández-Pasalagua in Seville, Spain. The company today is a multinational corporation with almost 600 subsidiaries (see page 20 of this report). Two subsidiaries, Abengoa Solar and Abengoa Bioenergy, have benefited from the renewable energy movements in Spain and in the US.

Abengoa Solar has various projects in Spain and the US. In the past two years they received $2.65 billion dollars in loan guarantees from the DOE. In July 2010 Abengoa Solar received a $1.45 billion guarantee for the Solana project, while in June 2011 it received a conditional commitment of a $1.2 billion guarantee for the Mojave Solar project.

Job-Creation Bang for the Buck?

It is instructive to see just what the federal government hopes to achieve with its generous offer of a taxpayer-backstop to Abengoa Solar’s borrowing spree. President Obama himself, in a July 2010 video address, touted the Solana project (at 2:15 in the video) as part of his “solar recovery.” So how many jobs do these loan guarantees (allegedly) create—using the government’s own figures?

Well, the DOE’s own fact sheet claims that the Solana project has created 1,700 temporary construction jobs, while yielding a permanent 60 jobs “created or saved.” Simple division shows that the $1.45 billion guarantee therefore works out to $824,000 per job (when we include the temporary construction ones), and a whopping $24.2 million per permanent job “created or saved.”

The numbers are similar for the more recent Mojave Solar project. For a guarantee of $1.2 billion, the DOE estimates it will create 830 permanent construction jobs, and will “create or save” 70 permanent jobs. This works out to $1.33 million per job (including permanent ones), and $17.1 million per permanent job.

Now it’s true, a loan guarantee is not the same thing as an explicit subsidy. So long as Abengoa Solar doesn’t default on its loans, the US taxpayer hasn’t kicked in anything. Nonetheless, the whole reason Abengoa Solar had to get the guarantee from the government, is that no private lender thought the risk was worth it. It is not “costless” for the US taxpayer to be on the hook in this fashion. If any reader doubts our claims, we’ve got some personal loans we’d like co-signed.

Tax Credits

Beyond reliance on federal loan guarantees, Abengoa Solar also receives government assistance in the form of investment tax credits (ITC). In 2008 CEO Santiago Seage said that the company would start construction on the Solana solar plant in 2009 if Congress extended the ITC. (Presumably Seage should have also mentioned he would need, in 2010, a $1.45 billion loan guarantee for the Solana project.)

Lobbying Efforts

Say what you will about Seage, he didn’t just rely on the grapevine to get his request up the chain of command. Abengoa hired Cornerstone Government Affairs to lobby Congress on the issue. Later that year Congress extended the ITC.

Abengoa’s most credentialed conduit to policymakers and the scientific community is Dr. Fred Morse, their Senior Advisor on US operations. Morse served in senior-level positions in the DOE under Nixon, Carter, and Reagan working on solar energy. He currently sits on the board of various solar industries groups.

In 2011 CEO Santiago Seage and other leaders of renewables companies sent a letter to Congress asking them to extend DOE loan guarantee funding. Abengoa hired O’Neill, Athy & Casey P.C to lobby the House and Senate on the issue. Senator Dianne Feinstein wrote a letter to the DOE on behalf of Abengoa asking the DOE to speed up the permit process for assessing private land for DOE loan guarantees. (Fred Morse gave $1000 to “Feinstein for Senate” on June 15, 2011, as the reader can ascertain using the search function at the FEC’s website.)

When it comes to dubious lobbying, however, Abengoa Bioenergy is literally award-winning, as this article explains:

BRUSSELS, Dec 10, 2008 (IPS) – An unconventional awards ceremony was held in Brussels Dec. 9. The ‘Worst EU Lobbying Awards’ gave recognition to those corporate interest groups that have resorted to deceptive tactics while seeking to shape legislation in their favour.

Following an online poll which generated over 8,500 votes, the top prize went jointly to three firms that have been striving to convince policy makers that biofuels are ecologically benign.

Abengoa Bioenergy (the U.S. subsidiary of a Spanish firm), the Brazilian sugar industry association Unica and the Malaysian Palm Oil Council (MPOC) were lambasted for the content of their advertisements.

One ad by Abengoa attributed a quote to the European Federation for Transport and Environment (T&E), a green campaign group, which suggested that ethanol made from crops such as sugar was the only solution to addressing society’s “addiction to oil”. Not only did T&E never make that claim, it has been critical of the EU’s efforts to use the increased consumption of biofuels as a pretext for avoiding measures to boost the energy efficiency of cars.

Abengoa Bioenergy hasn’t restricted its lobbying to Europe. Vice President Chris Standlee was head of the Renewable Fuel Association (RFA). The RFA has repeatedly pushed for the VEETC, a tax credit for ethanol blenders. On Abengoa’s website they say that one of the reasons why the reopened their plant in Portales, New Mexico was the favorable legislation and administration conditions. Additionally their CEO said the plant could not have been reopened without the help of the New Mexico Senators who supported the VEETC.

Abengoa: A Creature of the State

To underscore the reliance of the solar industry on government assistance, an article on the 2010 loan guarantee award to Abengoa began this way:

In 1969, the Nixon White House asked a young assistant professor of engineering at the University of Maryland whether solar energy made sense for America. Absolutely, he replied.

Four decades later, Fred Morse is still trying to persuade the government to put its muscle behind solar. Last week, he scored a big victory.

The same article explains that in addition to the extension of the investment tax credit and the $1.45 billion loan guarantee, Abengoa Solar needed another set of training wheels for its Solana project, namely a government-mandated customer base:

[Arizona Public Service] has agreed to buy $4 billion worth of electricity from the [Solana] plant over the next 30 years, in part because to comply with a state law requiring utilities to generate  at least 15 percent of their electricity from renewable sources.

But don’t take our word for it. Abengoa Solar itself acknowledges its reliance on government assistance:

Despite the prevailing financial uncertainty and the constraints on debt markets, the sector’s development was bolstered by governmental support, including the confirmation in December of the current regulatory framework in Spain, the establishment of the Federal Loan Guarantee (FLG) program in the US, and the publication of stable and attractive regulatory frameworks in new markets.

The website of Abengoa Bioenergy is even more candid about its dependence on government:

At present, Abengoa Bioenergy ranks as one of the leading biofuel producers in Europe, the United States and Brazil…

The Bioenergy business unit is currently reporting excellent levels of business, reflecting its standing as one of the world’s leading bioethanol producers and marketers…

There is now a clear need for a change of practices and policies and various governments have already begun to act accordingly. Business performance depends largely on favorable legislation that facilitates the development of new technologies while enabling biofuel culture to expand and combat the obvious signs of climate change. 2009 turned out to be a very fruitful year in this respect.

Two new legislative acts were enacted on June 25th 2009 in order to consolidate and kick-start the biofuel market over the coming ten-year horizon. European Directive 2008/28/EC on renewable energy sources dictates that at least 10% of transportation fuel within EU member states must be produced from renewable energies by 2020. The amendments made to Directive 2009/30/EC on fuel quality include an additional incentive for using biofuels by ushering in a compulsory reduction in greenhouse gas emissions during gasoline and diesel life cycles between 2011 and 2010.

Working in tandem, these two directives ensure the future of existing biofuel production plants and those currently under construction. At the same time, they provide a platform for long-term growth within the biofuel sector by harnessing current commercial technologies, and also offer special incentives and support for those attempting to develop the next generation of lignocellulosic technologies. All in all, they provide the market platform and the outlook for the coming decade that the sector was hoping for.

The true irony in all this is that, even with all of the government assistance documented above, Abengoa Solar has been losing money: €10.8 million in 2010, €60.2 million in 2009, and €8.7 million in 2008. It’s thus not accurate to say Abengoa Solar is profiting at the expense of taxpayers and consumers—it’s losing at their expense.

Conclusion

There is a charming naïvete among many of the rank-and-file supporters of government “renewables” policies. Even when particular projects experience outrageous cost overruns and fail to deliver their promised benefits, the supporters chalk it up to an honest mistake by people with the right intentions.

Unfortunately, the world is full of business leaders who have no problem turning to the government to ensure them market share at the expense of taxpayers and consumers. We can find such leaders even within the so-called clean-energy industries. Abengoa is one prominent example, but there are others, as we will explain in future posts.

Solyndra, a California based solar panel manufacturer, filed for bankruptcy on August 31, following in the footsteps of Evergreen Solar, based in Massachusetts, and SpectraWatt, based in New York[ii]. According to GTM Research, a renewable energy market analysis firm in Boston, these bankruptcies and the closing of BP Solar’s plant in Frederick, Maryland last year removes about one-fifth of the solar panel manufacturing capacity in the United States.[iii]  Solyndra will be laying off 1,100 workers[iv], the largest to date in a solar firm bankruptcy. Solyndra’s size was aided by loan guarantees from the U.S. Department of Energy totaling $535 million of U.S. taxpayers’ money. The cause of Solyndra’s demise, like that of other solar companies, is due to Chinese solar panels, subsidized by the government, undercutting the global solar market.[v]

China’s Solar Energy Industry

The U.S. Department of Energy indicated that the price of a solar array had declined 42 percent since December 2010.[vi] According to Shayle Kann, a managing director of solar power studies at GTM Research, pricing of solar equipment is determined by the Chinese industry, “and everyone else prices at a premium or discount to them.”

The graph below from the U.S. Department of Energy website indicates that the United States must regain the lead in solar manufacturing from the Chinese.  In 1995, the United States had 43 percent of the market but our share has dwindled to 7 percent in 2010–just a pittance compared to that of China and Taiwan. China now has almost three-fifths of the world’s solar production capacity. To compete against China’s low cost labor and beneficial policies is truly difficult and is making U.S. companies file for bankruptcy. Besides inexpensive labor, China provides free or subsidized land from local governments, extensive tax breaks, low-cost loans from state-owned banks, and other state assistance.[vii]

Sources: PV News and Navigating Consulting.

Instead of subsidizing the purchase and use of solar power as the United States and European countries have done, China has focused on building the competitiveness of the country’s solar panel manufacturers, exporting 95 percent of the solar panels it produces.  In the last two weeks, China’s three biggest solar power companies — Suntech Power, Yingli Green Energy and Trina Solar — announced second-quarter sales increases of 33 to 63 percent from a year earlier.

Solyndra’s Story

In Solyndra’s case, it borrowed money directly from the U.S. government through the Federal Financing Bank, part of the Treasury Department, rather than a commercial bank, which is the way the U.S. government typically guarantees loans. To date, Solyndra has received $527 million of the $535 million awarded by the Energy Department, which provided the outlays in multiple stages, contingent on reaching various milestones.[viii]

The Government Accountability Office (GAO) auditors investigating the Department of Energy loan guarantee awards found that the agency had given favorable treatment to some applicants, bypassing required steps for funding awards.  One of those applicants was Solyndra.[ix] Interestingly enough, one of the biggest investors in Solyndra is George Kaiser, a Tulsa billionaire, who was also a key Obama fundraiser.  The chairman of the Energy and Commerce Committee’s subcommittee on oversight and investigations, Representative Cliff Stearns, said he is “concerned that there was a hurry to get this money out of the door and that companies and individuals that supported the president were among the beneficiaries.’’[x]

Conclusion

Solyndra is just another solar firm that failed due to competition from China, who has low cost labor and a policy environment to compete in global markets where they can undercut their competition. China’s entrance into solar panel manufacturing makes total sense. What doesn’t make sense is the allocation of loan guarantees by the U.S. Department of Energy that bypassed steps in the award process and put so much taxpayer’s money at risk. And, it is interesting to note the relationship between Solyndra’s investor, George Kaiser, and the Obama Administration.  This is just more evidence that “trendy, politically directed investments don’t make for efficient allocation of capital.” There is an opportunity cost in that the money provided to Solyndra was not available to be directed where there could be a better chance of success.[xi] Further, even GAO auditors fear that further defaults may occur because not all the loan-guarantee applications were fully vetted.[xii]

Solon North America

Solon North America is a subsidiary of Solon SE of Germany and was founded in 2007. It opened its 105,000 square foot, 60 megawatt capacity, solar panel factory in Tucson, Arizona in 2008. Solon SE recently reported that through the first half of this year, it lost about $90 million. Due to competition from low-cost factories overseas and the market favoring low-cost products rather than better fitted or finished products, Solon North America announced that it will have to close its Tucson manufacturing plant, laying off about 65 workers in October. It will maintain operation of its power plant development business where it is currently building power plants for Arizona Public Service Company, Tucson Electric Power Company and Pacific Gas and Electric Company, all of whom are subject to state renewable energy mandates which force the utilities to purchase electricity from such sources.  It will still employ about 70 workers in the Tucson area.[iv]

Among Solon’s other endeavors are a partnership with the University of Arizona and Tucson Electric Power to study storing energy generated by solar power at a plant built at the University of Arizona’s Science and Technology Park. The company also worked with Arizona Public Service on a 145-acre, 18-megawatt solar plant.[v]

Evergreen Solar

Evergreen Solar started business in 1994 in a 2,500 square foot laboratory in Waltham, Massachusetts with an innovative idea to reduce the cost of photovoltaic solar using a “string ribbon” process for making solar cells.[vi] It started selling solar cells using this technology in 1997 and went public in 2000. However, in the first quarter of this year, Evergreen Solar saw its shipments of solar panels drop 62 percent from the last quarter of 2010. The company said the drop was due to sluggish demand and the lowering of subsidies for solar power in Europe. That forced the company to lay off 800 workers at its Devens, Massachusetts plant.

In the hopes of capitalizing on China’s skilled, low cost labor and Germany’s expanding solar market, in 2005, Evergreen Solar expanded globally to Germany and China in conjunction with companies in those countries. It received a $33 million loan from the Chinese government for its China expansion.[vii] But even this move was not able to keep Evergreen Solar from filing for bankruptcy and laying off an additional 65 workers, mostly at its Midland, Michigan plant.

The state of Massachusetts subsidized the company ’s solar panel manufacturing industry to the tune of $58 million. Now that Evergreen Solar has filed for bankruptcy, the state is trying to recoup about $4 million from the company. In its bankruptcy filing, Evergreen Solar listed a $1.5 million debt to MassDevelopment, the quasi-public state economic development agency.[viii]

Conclusion

Solar panel manufacturing may be profitable for some countries where skilled labor can be found cheaply, especially as long as governments direct consumers to purchase electricity from such sources, regardless of economics. But, in the United States, solar manufacturing plants are closing and the “green jobs” associated with them are evaporating. One may wonder why, but the economics are clear. Without massive subsidies, these industries cannot survive, and without policies that force these products to be purchased, they can’t survive. European countries (e.g. Spain and Germany) are examples where legislative and regulatory policies required solar energy to be purchased at rates far above the going retail rate.[ix] These countries found that they had to slash subsidies because of high rates and little power production due to low capacity factors of solar plants.

With such European experiences, and with companies closing down solar manufacturing plants and laying off workers, why must our government continue to push for these expensive technologies[x] that cannot survive in the market place on their own?