Federal loan guarantees in the post-Solyndra era
Critics of the U.S. Department of Energy’s practice of extending loan guarantees to American renewable energy companies often cite failed solar manufacturer Solyndra as the poster child for the program–and as proof that the practice is too risky to continue.
Republican Presidential candidate Mitt Romney is among the notable critics of the U.S.’s current federal loan guarantee program for renewable energy. In March, Romney said in an interview, “In place of real energy, Obama has focused on an imaginary world where government-subsidized windmills and solar panels could power the economy.”
But recent independent analysis, performed separately by a Wall Street financier and Bloomberg Government, show that the Department of Energy’s federal loan guarantee portfolio is actually performing very well.
An overwhelming percentage of the program’s funded ventures–about 98%–are successful to date. Particularly effective are the solar power plants, which aren’t impacted by global competition in the same way that Solyndra (as a solar manufacturer) experienced last year. More about one such success story here.
In the last 5 years, the Department of Energy’s federal loan guarantee program for renewable energy has stimulated over $40 billion in private investments and employed more than 60,000 Americans in various renewable energy industries.
Former Wall Street Financier Herbert Allison found that “the great majority of the companies are on track to repay their loans on schedule, along with $8 billion in interest.” Similarly, Bloomberg Government reported that nearly 9 out of 10 of the Department of Energy’s program loans are actually low-risk investments. CleanTechnia classified only 1.4 percent of the loans as ”losers,” a way better percentage than those usually reported by private venture capital markets.
The loan guarantee portfolio managed by the federal government is comprised of over 65 projects, totaling $1.1 trillion. For anyone unaware of exactly how a federal loan guarantee works, it acts as a guarantee of a loan from private sources, not as a direct loan from the government or as a grant or tax credit.
Kevin Smith, CEO of SolarReserve, wrote a knowledgeable an essay on the topic for the McClatchy-Tribune News Service. Smith said that a popular phrase with critics that “taxpayers are on the hook” for the entire sum of a federally-guaranteed loan should the company go belly up.
According to Smith, this is not strictly true: in the event that the company receiving the loan guarantee fails, the federal government seizes the borrower’s assets (all bank accounts, properties, etc) and chooses whether to sell them or manage them to produce income to recoup loses.
California-based solar manufacturer Solyndra received a $535 million federal loan guarantee in 2009, but filed Chapter 11 bankruptcy less than two years later in September 2011. The exact value of the company’s assets (and consequently what taxpayers are “on the hook for” when the dust settles) and whether or not fraud was at play with the company are still undetermined at this time.
Rising competition from China has left the solar and wind manufacturing industries in the U.S. struggling to keep up in the international marketplace in recent months. Other federally-backed renewable energy companies that failed in the last few years include once-promising endeavors from Evergreen Solar, SunPower and Solar Trust of America.
