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Solyndra: A bad bet Obama should regret

By Editorial,

ONCE THE OBAMA administration’s paragon of a clean-energy future, Solyndra has gone bankrupt, taking a $527 million Energy Department-guaranteed loan with it. President Obama, however, has no regrets. “Hindsight is always 20-20,” he told George Stephanopoulos of ABC News. “It went through the regular review process. And people felt like this was a good bet.” Solyndra didn’t pan out, Mr. Obama conceded, but that’s the sort of risk the United States must take to compete with countries, such as China, that subsidize solar power.

This answer, which Mr. Obama essentially repeated at a news conference Thursday, was unsatisfactory — in tone and substance. When a profit-making venture blows half a billion taxpayer dollars, the president should be more upset about it. Much of the criticism Mr. Obama is taking over Solyndra is political. But not all of it.

The important lesson is that the government “is a crappy vc” — venture capitalist — as then-White House economic adviser Lawrence Summers put it in an internal e-mail. Government can foster clean energy by subsidizing basic research, whose fruits become available to a variety of entrepreneurs, and by setting broad incentives that shift demand in favor of alternative energy. Subsidizing selected technologies or companies, by contrast, is a game that taxpayers often lose, as the history of boondoggles from synthetic fuels to the fast breeder reactor suggests. We suspect China will learn this lesson, too.

The Obama administration has noted that private-sector biggies such as Richard Branson also bet on Solyndra. We concede that government officials are no less susceptible to irrational exuberance than capitalists. The problem is that bureaucrats are more likely to bet wrong because they are generally not full-time investment experts and have no skin in the game themselves.

Solyndra was risky in the sense that all solar-energy ventures are risky. Fossil fuel technologies are more cost-effective for the vast majority of uses. Though the solar space is growing — and might be growing more if Congress had passed cap-and-trade legislation, as the administration anticipated — it is still tiny. There is intense competition for every sliver of market share.

But Solyndra posed a special risk, as its business model hinged on a transitory market condition: high prices for silicon, the raw material of competing solar panels. As of the time Solyndra began seeking — and obtaining — venture capital a half-decade ago, this seemed like a huge advantage for the firm. By March 2009, however, when the Solyndra loan won conditional approval from the Energy Department, silicon prices had cratered — and stayed low through the loan’s closing in September 2009 and its restructuring by the Energy Department in 2011. This was no unforeseeable surprise. Savvy market players saw it coming. The silicon glut — compounded by a global credit crunch — explains why Solyndra was finding private capital harder to raise before the Energy Department stepped in.

The administration insists the Solyndra losses were in a good cause — several, actually: fighting global warming, creating construction jobs and building a clean-energy manufacturing base. But it could have pursued those public goods at less risk and cost. The lost $527 million, as well as the private capital drawn to the firm by the federal seal of approval, is money that now cannot be used for any good objective. Instead, the country just has a bigger pile of debt to pay back, with interest.

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