Commentary

Is Solyndra the Tip of the Green Energy Iceberg?

The New York Times (Nov 11, 2011) has a revealing article on the massive amounts of subsidies that have been dumped into green energy ventures since Obama’s election. Using the Stimulus Package as a cover, the Obama Administration has funneled billions of dollars into speculative energy projects. Noting the subsidies to NRG Energy, which is building a solar eletricity project capable of powering a small city of 100,000 homes, the Times reporters write,

“The [NRG Energy] project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009.

“The government support — which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates — largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG — even Google.”

Many of the more viable projects would have happened anyway; it’s just the Stimulus money jump started them by providing easy money now. And in some cases, state and federal governments are imposing significant increases in rates to subsidize these investments. With government subsidies and guarantees covering almost the entire investment, massive failures like Solyndra are almost inevitable. Since much of the money was spent during a politically charged environment to “get the money out the door” for “shovel ready projects,” we can’t expect the same level of risk scrutiny for these projects that would have occurred normally. Soyndra is likely just the tip of the iceberg.

Although not intended as foreshadowing, perhaps we should take the following quote from NRG’s CEO as a warning of what is to come:

“As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity, and “we intend to do as much of this business as we can get our hands on.” NRG, along with partners, ultimately secured $5.2 billion in federal loan guarantees plus hundreds of millions in other subsidies for four large solar projects.

“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.”

“From 2007 to 2010, federal subsidies jumped to $14.7 billion from $5.1 billion, according to a recent study.

“Most of the surge came from the economic stimulus bill, which was passed in 2009 and financed an Energy Department loan guarantee program and a separate Treasury Department grant program that were promoted as important in creating green jobs.”

Can you say Moral Hazard? We saw this play run out with the financial crisis, and the Stimulus Program is creating the same problems in the energy field. At some point, as the case of Solyndra shows, the chickens have to come home to roost on the solar panels.

Samuel R. Staley, Ph.D. is a senior research fellow at Reason Foundation and managing director of the DeVoe L. Moore Center at Florida State University in Tallahassee where he teaches graduate and undergraduate courses in urban planning, regulation, and urban economics. Prior to joining Florida State, Staley was director of urban growth and land-use policy for Reason Foundation where he helped establish its urban policy program in 1997.

Staley is the author of several books, most recently co-authoring Mobility First: A New Vision for Transportation in a Globally Competitive 21st Century (Rowman & Littlefield, 2008). Texas Gov. Rick Perry aid Staley and Moore "get it right" and world bank urban planner Alain Bartaud called it "a must read for urban managers of large cities in the United States and around the world."

He is also co-author, with Ted Balaker, of The Road More Traveled: Why The Congestion Crisis Matters More Than You Think, and What We Can Do About It (Rowman and Littlefield, September, 2006). Author Joel Kotkin said, "The Road More Traveled should be required reading not only for planners and their students, but anyone who loves cities and wants them to thrive as real places, not merely as museums, in the 21st Century." Former U.S. Secretary of Transportation Mary Peters said, "Balaker and Staley clearly debunk the myth that there is nothing we can do about congestion."

Staley's previous book, Smarter Growth: Market-based Strategies for Land-use Planning in the 21st Century (Greenwood Press, 2001), was called the "most thorough challenge yet to regional land-use plans" by Planning magazine.

In addition to these books, he is the author of Drug Policy and the Decline of American Cities (Transaction Publishers, 1992) and Planning Rules and Urban Economic Performance: The Case of Hong Kong (Chinese University Press, 1994).

His more than 100 professional articles, studies, and reports have appeared in publications such as The Wall Street Journal, The New York Times, Washington Post, Los Angeles Times, Investor's Business Daily, Journal of the American Planning Association, Planning magazine, Reason magazine, National Review and many others.

Staley's approach to urban development, transportation and public policy blends more than 20 years of experience as an economic development consultant, academic researcher, urban policy analyst, and community leader.

Staley is a former chair for his local planning board in his hometown of Bellbrook, Ohio. He is also a former member of its Board of Zoning Appeals and Property Review Commission, vice chair of his local park district's open space master plan committee, and chair of its Charter Review Commission.

Staley received his B.A. in Economics and Public Policy from Colby College, M.S. in Social and Applied Economics from Wright State University, and Ph.D. in Public Administration, with concentrations in urban planning and public finance from Ohio State University.