Explaining Southern California's economy

Solyndra: Not about jobs, not about paybacks, but about…power

The Solyndragate feeding frenzy continues. There's blood in the water. The companies two top executives have taken the fifth in Congressional testimony. The Washington Post has done an expose. The New York Times has done an expose. The LA Times has done an expose after the Post and the New York Times did their exposes. Republicans are making plenty of noise about how Solyndra was somehow a corrupt undertaking designed to funnel taxpayer money to Obama supporters. It was also a stimulus boondoggle. And in California, it was a risky bet on precious few jobs.

My KPCC colleague and Pacific Swell blogger Molly Peterson and I have been talking about Solyndra for weeks. She provided a nice shout-out to several of the posts I've written on the topic at DeBord Report — and provided me with an opportunity to zero in on what's really going on with green energy funding.

It isn't about massive levels of job creation. Molly makes this point well:

[P]oliticians stuck the idea of job creation together with renewable energy, but that has always seemed to me like rhetoric, and risky rhetoric at that. Promising to create jobs from green enterprise is a little bit like patting your head and rubbing your belly at the same time: it happens a lot less than you think. I rarely, if ever, heard the DOE sell itself as a jobs creation machine. They're scientists; they're innovators; they're geeks. When Steve Chu talks about home runs, he's talking about technological ones, not getting 10,000 new workers across the plate.

It also isn't necessarily about the government putting excessive amounts of taxpayer money in play. This is an error that John Schwada (Molly is a fan) makes at LAObserved (I'm a fan):

The federal government's now controversial $535 million investment in Solyndra Inc. tells only a small part of the story of how the U.S. Department of Energy (DOE) is deeply subsidizing green energy projects in Southern California. All these California investments ipso facto involve size-able risks to taxpayers. If they weren't "risky" projects, private investors would be totally funding them; as it is the biggest investors in these projects are U.S. taxpayers.

Solyndra had attracted significant private investment before the DOE came along, when it was a much higher risk than it was after it had demonstrated some interest in its unique, thin-film, non-silicon-based solar technology. The $535 million DOE guarantee was matched by a billion-plus in private money, so it's wrong to suggest that the taxpayers were the dominant investor in this case. In fact, it's important to remember here that a loan guarantee is just that: a guarantee. Solyndra did received funding from the Treasury's investment arm, but a company doesn't have to go that way. The DOE guarantee just makes it easier to lend the specified amount to the company, at very low rates. And a company doesn't have to tap the full amount of the guarantee. It's simply a way to make getting loans easier.

Schwada also points to several pending loan guarantees to First Solar, the major player in the thin-film solar industry:

Meantime the DOE has conditional commitments to fund three projects being developed by First Solar Inc. DOE is talking about "partial" loan guarantees of $1.9 billion [for] First Solar's Topaz project in San Luis Obispo, $1.8 billion to the firm's Desert Sunlight project in Riverside County and $680 million to the firm's Antelope project, in Lancaster, in LA County.

First Solar is a public company with a market cap of $6.24 billion, $357 million cash on hand, and nearly $5 billion in total assets. The three projects that the DOE is looking at are all utility-scale, which means that in order for them to be financed, they need to have long-term power purchase agreements in place. In the case of the Antelope project, for example, PG&E has committed to buying power from the project for 25 years. So given First Solar's balance sheet and the nature of the projects, Californians aren't looking at much risk at all. Rather, they're looking at decades of cheap solar energy — and the reduced CO2 emissions from buying fossil-fuel generated power that go along with it. 

Jobs aren't a significant part of this picture. The Antelope project will create only about 320 jobs. Solyndra had a payroll of 1,100 prior to its bankruptcy. But the DOE isn't looking to create the millions of jobs that are needed to reduce the national unemployment rate from its current 9.1 percent. It's looking to invest in companies that can deliver renewable energy for less than $1 per watt. Solyndra was headed in that direction. First Solar is already there, at $0.75/watt.

This is where jobs come in. Cheap, renewable power has the potential to make California more attractive to employers who will need that power. 

The more you look at the way that the DOE is investing in solar, there more you realize that the government strategy has been to incubate a very high-tech, commercial- and utility scale thin-solar sub-industry that will leverage innovation, rather than be exposed to the inexpensive solar-panel market that the the Chinese have developed. China's panels could be competitive with…other silicon-based solar panels. But the energy that's produced by silicon-based panels aren't competitive on price with non-renewable energy, especially coal, which I actually think is literally cheaper than dirt when you figure in the value of some tracts of real estate in the U.S. 

Thin-film, on the other hand, promises a substantial over-the-horizon payoff. So the government isn't looking at the risk of losing money on some of the companies it dispenses loan guarantees to — it's looking at the risk of not supporting the alternative-energy industry through the middle of the decade. 

I'm not surprised that much of this discussion is getting missed, as the sharks circle and the media tries to play catch-up with how the solar industry works and how the DOE has been dancing its financing waltz with the private sector. I'm also increasingly disturbed by inability of green-energy critics to asses the amount of money that's in play. We provided less than $50 billion for green energy — and have so far spent only $4 billion in California. And how much does too-big-to-fail AIG still owe the U.S. Treasury? That would be $51 billion, from a total bailout of $180 billion.

What do you think will ultimately be the better investment?

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Photo: Solyndra

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