Beacon Power Corp., a clean-energy technology company that received a $43 million loan guarantee from the US Department of Energy, filed for bankruptcy protection on October 31st. Coming two months after the collapse of the solar panel manufacturer Solyndra and only two days after the White House called for an independent review of the Department of Energy’s loan programs, this news has led to renewed Republican criticism of federal financing of renewable energy and skepticism over the viability of a green energy economy. As politically embarrassing as these bankruptcies may be, however, they are actually a sign of the value and importance of the DOE’s Loan Guarantee Program, and the renewable energy industry is thriving. For example, in the September 2011 edition of the United States Deal Tracker, Solarbuzz identified 1,865 non-residential projects totaling 25.9 gigawatts that were either installed, being installed, or in their development phase since the beginning of the year, which is the rough energy equivalent of 26 new nuclear reactors.
DOE’s Loan Guarantee Program was first authorized by a Republican Congress in the Energy Policy Act of 2005 and signed into law by President George W. Bush, but its implementation was delayed and the first loan guarantees were issued under President Obama after the program was expanded in the American Recovery and Reinvestment Act of 2009. Recognizing that the inherent uncertainty of investing in novel technologies combined with the high capital costs and the long time horizons involved were restricting investments in large-scale clean energy projects, the program was crafted to encourage venture capitalists and other private sector parties to invest in a broad suite of innovative clean energy technologies by providing a degree of security. The goal was not to pick “winners and losers” as the program’s critics allege, but to spur investment and allow the market to identify and reward the best technologies, and it was understood from the beginning that some portion of the loans and investments would fail, and indeed must fail. If there were no risk involved, there would have been no need for the loan guarantees in the first place and the entire program would have been one large wasted effort. As large as the two loan guarantees may be, the two bankruptcies are not very substantial given the overall size of the program.
Some of the programs’ current investments include a conditional commitment of $344 million to the Solar Strong Project to install 374 megawatts of photovoltaic panels on up to 160,000 rooftops at 124 military bases in 33 states; a $1.4 billion loan guarantee for Project Amp to install 733 megawatts of solar panels on commercial rooftops in 28 states; loan guarantees for the world’s largest wind farm in Oregon and the world’s largest solar thermal plant in California; and guarantees for a host of innovative projects such as $150 million for the Massachusetts company 1366 Technologies to support a new manufacturing process that promises to cut the cost of silicon wafers by up to 50%. At $344 million for Solyndra and $43 million for Beacon Power, the total value of the two guarantees constitute less than one percent of the Department of Energy’s $40 billion clean-energy portfolio; even were the government to be unable to recover any of the value of these loans, over $2 billion would still remain in reserve in the program fund.
From penicillin to the internet and GPS, the government has long played a vital and successful role in helping America’s entrepreneurs succeed with high-risk, high-reward new technology sectors. Despite the failures of Solyndra and Beacon Power, that is the role the government continues to play today through the DOE Loan Guarantee Program, and it is a role that will help us to reach a cleaner and more brighter future.
For more information on this issue:
1. Ben Geman, Second Energy Department-Backed Company Goes Bankrupt, The Hill (Oct. 31, 2011), http://thehill.com/blogs/e2-wire/e2-wire/190641-second-energy-dept-backed-company-goes-bankrupt.
2. Dawn McCarty, Beacon Power, Backed By U.S. Guarantee, Files Bankruptcy, Business Week (Oct. 31, 2011), http://www.businessweek.com/news/2011-10-31/beacon-power-backed-by-u-s-guarantee-files-bankruptcy.html.
3. Jesse Jenkins, Devon Swezey, and Alex Trembath, Solyndra’s Failure Is No Reason To Abandon Federal Energy Innovation Policy, Forbes (Sep. 2, 2011), http://www.forbes.com/sites/energysource/2011/09/02/solyndras-failure-is-no-reason-to-abandon-federal-energy-innovation-policy/.
4. Michael Grunwald, Forget Solyndra: Obama’s Green Loan Program Is Still Worth It, Time (Sep. 8, 2011), http://swampland.time.com/2011/09/14/dont-be-fooled-by-the-solyndra-bankruptcy-circus-solar-is-booming/.
5. Michael Grunwald, Don’t Be Fooled By The Solyndra Bankruptcy Circus – Solar Is Booming, Time (Sep. 14, 2011), http://swampland.time.com/2011/09/08/forget-solyndra-obamas-green-loan-program-is-still-worth-it/.
Written by: Jae Yong Shin, GIELR Staff