The U.S. Department of Energy's Loan Program Puts Crony Capitalists in the Green
(This is the first in a three-part series examining taxpayer-subsidized green energy.)
As taxpayers are well aware, government spending on “renewable” energy seldom goes according to plan. This long track-record of failure includes green companies such as Abound Solar, Range Fuels, and the infamous Solyndra debacle. Despite this disappointing history, President Biden is actively trying to expand the U.S. Department of Energy’s (DOE) loan guarantee program. To understand why this is a very bad idea, it is critical to dissect the federal government’s many borrowing misadventures.
Supporters of federal loan guarantees for renewables often argue that critics cherry-pick the worst outcomes in the DOE’s lending operations to make green government loans look ineffective or inefficient. Yet, the data makes clear that even the loan guarantees trumpeted as “successes” by energy officials are hardly the best use of taxpayer dollars.
In its fiscal year (FY) 2020 review of Loan Programs Office portfolio, the DOE repeatedly highlights NextEra Energy’s 250-megawatt (MW) Genesis Solar Project for paying back its agency-backed loan “in full 18 years ahead of schedule” after receiving more than $850 million in taxpayer-backed guarantees in 2011. While it’s nice that taxpayers got their money back, it is unclear just what the DOE was trying to accomplish in giving a large loan guarantee to an already-successful company that already had the solar project in the works.
When the DOE greenlit the guarantee 10 years ago, NextEra had revenues totaling more than $15 billion with plenty of projects underway and purchase power agreements inked with major companies. By the time the project started receiving taxpayer dollars, the project had already been in development for four years and was more than six months into construction.
While it can never be known for sure, it just does not seem all that likely that NextEra would have suddenly pulled the plug on the massive project and wasted the committed time and resources. One thing that is clear, though: DOE picked an unnecessarily expensive way to subsidize solar. Genesis relies on something called concentrated solar power (CSP), which makes use of the sun’s energy and can store this energy for future use.
This is a more roundabout method than using photovoltaic (PV) solar panels, which rely directly on the sun’s light. DOE chose to bet on CSP instead of PV, even though “CSP technology has been plagued with performance problems and a high price point” according to Wood Mackenzie Senior Analyst senior analyst Colin Smith. Sure, the DOE managed to recoup its lent-out funds, but that hardly proves that the agency is betting on the cutting-edge of renewables technology or that the agency should even be giving out these loans.
The agency also bet on PV projects, but the resulting funding fell into the same trap of subsidizing the ventures of established companies that likely would have built solar arrays anyway. Take, for example, the DOE’s $967 million loan guarantee finalized in 2011 to bankroll a 290-MW PV solar generation project called Agua Caliente. This large solar plant was built to completion by NRG Energy, a Fortune 500 company with about $2 billion in net income when the DOE approved the loan.
Even before the DOE announced that it would be subsidizing the project, Pacific Gas and Electric Company had already inked a 25-year power purchase agreement for the Agua Caliente project. The project’s original developer First Solar (who sold it off to NRG) certainly had no problem calling it “shovel-ready” and discussing construction months prior to DOE approval.
More often than not, the agency’s supposed success stories “result from the DOE awarding money to very profitable, well-established companies or ones that benefit from the great number of federal, state, and local subsidies at their disposal.” In assessing the program’s future, policymakers need to ask hard questions about the real goal of the program. If the objective is to identify “safe” projects and throw money at Fortune 500 companies in order to pad the portfolio’s finances, there seems to be little issue. But if the goal is to spearhead a “cradle-to-market innovation strategy” to commercialize cutting-edge technologies, the DOE is falling down on the job.
The Biden administration is bound to accomplish little by pumping more resources into a moribund corporate welfare program.
Ross Marchand is a senior fellow for the Taxpayers Protection Alliance.