Revision promoted for conventional wisdom about Solyndra
DOI: 10.1063/PT.5.8081
Remember Solyndra? That question has appeared a lot lately in the media, including from the liberal New York Times columnist and energetic Obama administration defender Paul Krugman. His 17 November column continues:
[Solyndra] was a renewable-energy firm that borrowed money using Department of Energy guarantees, then went bust, costing the Treasury $528 million. And conservatives have pounded on that loss relentlessly, turning it into a symbol of what they claim is rampant crony capitalism and a huge waste of taxpayer money.
Defenders of the energy program tried in vain to point out that anyone who makes a lot of investments, whether it’s the government or a private venture capitalist, is going to see some of those investments go bad. For example, Warren Buffett is an investing legend, with good reason—but even he has had his share of lemons, like the $873 million loss he announced earlier this year on his investment in a Texas energy company. Yes, that’s half again as big as the federal loss on Solyndra.
The question is not whether the Department of Energy has made some bad loans—if it hasn’t, it’s not taking enough risks. It’s whether it has a pattern of bad loans. And the answer, it turns out, is no. Last week the department revealed that the program that included Solyndra is, in fact, on track to return profits of $5 billion or more.
Krugman linked to a 12 November Bloomberg piece carrying that $5 billion claim in its headline. Bloomberg explains that the “figure was calculated based on the average rates and expected returns of funds dispersed [sic] so far, paid back over 20 to 25 years.” The piece quotes Michael Morosi, an analyst at Jetstream Capital LLC, which invests in renewable energy: “People make a big deal about Solyndra and everything, but there’s a lot of [venture capitalist money] that got torched right alongside the [Energy Department] capital. A positive return over 20 years in cleantech? That’s not a bad outcome.” Bloomberg adds that the loan “program’s biggest success story” has been the electric carmaker Tesla Motors, which repaid a $465 million federal loan nine years early.
At the business site Forbes.com, contributor Tim Worstall’s 15 November posting “The Department of Energy is not going to make an economic profit on the greentech program” cites the Bloomberg figure too—and asserts that “there is absolutely no way at all that this program is going to make an economic profit. Simply not going to possibly happen given the way it was set up.” Worstall stipulates that Solyndra failed not because of the Energy Department’s loan program or political cronyism, but because a reasonable technological assumption turned out to be wrong. But he emphasizes that what can legitimately be claimed is only “an accounting profit (and a hugely malleable one as it depends upon what interest rate you say these loans should have been paying).” He continues:
[T]hat’s not what we were or should have been looking for. Instead, we want to be making an economic profit. That means that we want to take account of opportunity costs: what else could we have been doing with the same resources over those 20 to 30 years? And that, in turn, means that we must look at the risk being taken in these projects. . . . These projects were, in reality, akin to VC [venture capital] funding not to simple loan funding. That means we should be looking for VC type returns and if we’re not getting them then we’re making an economic loss, not an economic profit. . . . [I]f we’re going to take VC type equity risks, even with public money, then we want to have VC style equity returns as well. . . . If we’re to be entirely fair there’s still a justification for doing something. Which is that climate change means we should be investing in research: something I’d agree with. But investing in research and throwing money around at a few manufacturers are not the same thing at all.
Donald Marron objects to the accounting too. He holds an MIT PhD in economics and serves as director of economic policy initiatives at the Urban Institute . His piece at the business site Forbes.com (also posted on his blog and at Metro Trends ) charges that the Energy Department “snookered” the media by obscuring accounting realities. Marron cites “incomplete figures” that “seem to suggest” falsely “that DOE has eked out a $30 million profit on its lending,” when in fact taxpayers are, he asserts, “actually well behind.”
Later Washington Post blogger Max Ehrenfreund, who originally reported the Solyndra-revisionism story as favorable news for the Obama administration, publicized Marron’s reasoning in a posting headlined “Why the claim that the Solyndra program earned money may have been misleading.” Ehrenfreund offers his way of looking at the news overall:
Relative to the massive scale of the loans, the program is close to breaking even either way, but there’s still a difference between profit and loss.
Dawn Selak, an Energy Department spokeswoman, said the goal of the agency’s loan program was “not to make a profit,” but that officials were managing the program in a fiscally responsible way.
“Congress established these programs to accelerate the construction of innovative clean energy projects and advanced vehicle manufacturing facilities in the US in order to advance our clean energy future, create economic opportunities, and address the threat of climate change,” she said in an e-mail. “An important indicator of the program’s success is whether borrowers are repaying loan principal and interest. Based on those criteria, the report shows that the department is making prudent investments and our portfolio is strong.”
While Marron rejects what he calls the agency’s “spin,” he essentially agrees. He says the loans were intended to encourage private-sector research into clean technology. By the government’s reckoning, the loan program has prevented some 14 million metric tons of carbon dioxide emissions. The fact that the loans are losing money is, in itself, “not an indictment” of the program, he said in an interview.
Whatever is to be said about the accounting, the Energy Department’s new claims about its loan program are being promoted in the media. National Journal, expressing irritation with what it called “how Washington bungled the Solyndra story,” quotes Jonathan Silver, who served as head of the clean-energy loan program during Washington’s peak Solyndra era: “The DOE loan program record is better than virtually every bank and clean-energy investor in that space over the same period.”
National Journal continues:
Silver, who stepped down from his position as head of the loan program in 2011, has long argued that the overall loan program was well structured. Now he has the numbers to prove it. . . . The findings are particularly striking because the program was never expected to make money. When it was created in 2005, Congress predicted there would be losses and set aside $10 billion to cover them. “If we only go after projects we know are going to succeed,” Joe Aldy, who worked as a special assistant to the administration for energy in 2009, told Bloomberg Businessweek recently, “all we’re doing is subsidizing people for what they’d do anyway.”
The National Journal article also recalls that presidential candidate Mitt Romney estimated that “‘about half’ the businesses the loan guarantee program had invested in had gone under,” when in fact, National Journal says, the “true number of failures at the time was only three out of several dozen—it has since crept up to four.” The article declares that a sampling of headlines from 2011 “shows just how little perspective most coverage offered.”
Concerning that coverage in years past, NPR reported that the former critics have gone silent and that they “either declined or ignored” requests for comment. Al Jazeera America said the same . NPR also quoted energy secretary Ernest Moniz exclaiming that the loan program “kick-started the whole utility-scale photovoltaic industry,” and reported a Moniz example of the importance of taking risks:
[A] small company called Beacon Power . . . got an Energy Department loan, went bankrupt and defaulted on about $14 million in debt. Today the company is back in business, providing a valuable service to electricity grids and repaying the rest of its loan.
In eastern Pennsylvania, one of Beacon’s facilities sits on 4 acres in an industrial park. Underground are 200 black flywheels that each measure 7 feet tall and 3 feet around, and weigh 2,000 pounds. They spin faster when storing energy and slow down when releasing it.
“We’re recycling excess energy that’s on the power grid and then putting it back into the grid when it’s needed,” explains president and CEO Barry Brits. He says the flywheels are essentially mechanical batteries. . . . Being able to store electricity is important because wind and solar generators only produce power when the sun is shining and the wind is blowing.
The liberal Media Matters criticized the now-mostly-silent past critics especially energetically. Salon promoted Krugman’s interpretation of the news. A Reuters article that appeared in the Huffington Post and at Newsweek framed the news as a vindication of the Obama Energy Department’s loan program. The Hill and other publications have reported in much the same way.
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Steven T. Corneliussen, a media analyst for the American Institute of Physics, monitors three national newspapers, the weeklies Nature and Science, and occasionally other publications. He has published op-eds in the Washington Post and other newspapers, has written for NASA’s history program, and is a science writer at a particle-accelerator laboratory.