Solyndra flop stains a good program
BARACK OBAMA’S presidency has been notably free of scandal, but Republicans think they’ve finally found one in last month’s bankruptcy of the California solar company Solyndra, which received a $535 million loan from the Energy Department under a federal stimulus program meant to speed the development of clean-energy technology. In fact, Solyndra is no scandal - nobody has uncovered any wrongdoing. But it is a good illustration of a problem that has bedeviled Obama throughout his presidency: his preference for useful, even farsighted initiatives that require the kind of long-term forbearance and willingness to accept reversals that simply doesn’t exist in modern politics.
First, the back story: the company failed because of the declining price of silicon. Most solar panels use silicon; Solyndra’s didn’t. This was supposed to be its great advantage. Silicon is expensive, so the company appeared poised to outperform its competitors. Instead, prices plunged and it couldn’t keep up.
As a prime beneficiary of a premier White House program, Solyndra was an obvious political target. Not only its loan, but the entire federal program that supplied it has come under attack from Republicans eager to discredit the White House. That’s unfortunate, because even after the bankruptcy, the overall initiative appears to be working well.
Under Obama, the Energy Department’s loan-guarantee program aimed to solve two problems, and wound up creating a third. The first one - that of cost - wasn’t new. It is enormously expensive to develop clean energy technology. Google famously required just $25 million in venture capital to become a successful concern. But wind farms and solar facilities can cost upwards of $500 million, and the venture-capital model that funded the Internet boom can’t supply that kind of money.
“When you’re talking power infrastructure, you’re talking thousands of tons of steel and glass and giant turbines,’’ Peter Le Lievre, the co-founder of the solar company Ausra told me in 2009, just after the stimulus passed. “All the investors in Silicon Valley combined cannot put $500 million into a project.’’
To address this problem, President George W. Bush approved the loan-guarantee program in 2005. The idea was to encourage private financing for large energy projects by assuring lenders that the government would pay off bad loans. What Obama did through the stimulus was to greatly expand what Bush had begun.
The second problem the loan-guarantee program solved was how to save that private market when the 2008 financial crisis nearly destroyed it. Many of the biggest financiers of clean technology - such as Lehman Brothers, Wachovia, and AIG - were also some of Wall Street’s most irresponsible firms, and got wiped out or stopped lending. The entire industry was in danger of collapse.
The stimulus provided $32 billion in direct grants and $134 billion in loan guarantees to ensure that didn’t happen. But this introduced a problem that anyone could have foreseen: It put a federal agency in the role of venture capital investor (or in this case, debt investor), thus exposing it to the great likelihood that some of its investments would fail. (In fact, the program budgeted $2.5 billion to cover such failures.)
In the business world, that’s no big deal. It’s assumed some companies will fail, but that enough will prosper to merit the broader portfolio of investments. But in politics, it’s a very big deal - no one considers the broader context and failure is automatically assumed to be the result of incompetence or malfeasance. That’s especially true, and especially damaging, when the opposition party can launch hearings and investigations, as House Republicans are doing now.
So far, the investigation has only turned up e-mails showing how eager the White House was to tout the Solyndra deal. Last year, Obama cited the company as an example of “American ingenuity and dynamism.’’ That’s embarrassing now that Solyndra has gone bust. But it’s the only company of the 28 that received loans to have failed. Meanwhile, the program has funded the world’s largest wind farm, its largest solar thermal plant, and its largest photovoltaic solar array. In other words, it has performed very much as intended.
Obama’s problem is that any real advance toward a green economy probably won’t be apparent for years, whereas failures like Solyndra’s register immediately. In this way, the loan program has the same shortcomings as Obama’s health care law and bank reforms. However good they may be as policies, they exact great political costs in the here and now.
Joshua Green is a national correspondent at Bloomberg Businessweek. His column appears regularly in the Globe.