The Breakdown

Explaining Southern California's economy

Solyndra: The government isn't acting like a venture capitalist — it's acting like a super-venture-capitalist!

I nearly spit my coffee out when I saw this brief CNBC segment on whether the government should be acting like a venture capitalist when it comes to startup energy companies — like bankrupt, scandalized Solyndra. Eamon Javers strikes me as a good reporter, but he zipped through the question and gave me the impression that CNBC hasn't fully figured out what the Department of Energy is trying to do in the renewable energy industry

The DOE just approved two new solar-related loan guarantees, of the sort that Solyndra received (Solyndra got $535 million and drew on $527 of it before declaring bankruptcy). Mesquite Solar got $337 million and Tonopah received $737 — both as the DOE's program was officially winding down. 

Both are also doing some fairly out-there stuff. The Tonopah project, according to the DOE, is a "110 megawatt concentrating solar power tower generating facility with molten salt as the primary heat transfer and storage medium. It will be the first of its kind in the United States and the tallest molten salt tower in the world." Here's a picture of what it might look like and a rundown of how it will work.

Mesquite is notable for its size: the project is being run by Sempra and will install 800,000 panels made by Suntech, a Chinese company. It will also generate 110 megawatts, but reportedly be able to ramp up to 600 megawatts. For comparsion, the average coal-fired plant in the U.S. generates about 670 megawatts (these are yearly averages, by the way).

Mesquite is in Arizona. Tonopah is in Nevada. Places where there's a lot of sunshine and open space.

But the important thing to note here is that both projects are utility-scale. They're intended to feed power into the Southwestern grid. In order to be financed, projects of this scale require power-agreements from utilities — long-term agreements to buy the solar electricity they generate. The DOE is providing loan guarantees for these programs because its wants to see the price of renewable energy pushed down to the point where it's competitive with fossil-fuel electricity. That's its overarching goal — not, as Javers suggests in the video, to provide economic stimulus. 

Not in terms of jobs, anyway. Cheap, renwable power could be its own kind of stimulus, making a region more attractive to business that want to set up there.

Of course, whatever stimulus is provided will be a nice added benefit. But the government has moved well beyond the realm of VC as we understand it. VCs usually don't make such long-term bets. And in the case of Solyndra and other thin-film solar companies, VCs don't generally attempt industrial policy, supporting the development of an entirely new manufacturing sub-sector. Thin-film solar isn't intended to compete with cheap Chinese silicon-based solar panels — it's intend to deliver power at less than $1/watt, a critical threshold that the DOE wants to cross.

So the question we should be asking isn't whether the government should be in the VC business. It's whether the VC business that it's in is riskier than anything the private sector is willing to take on. From where I sit, it's good that the government is acting as a Super VC. But this is how we should be framing the debate. It's far too late to ask if VC is the right business for government. The government has already decided that it is.

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