Well played, Mr. Secretary. Clean-energy loan guarantee programs have enjoyed bipartisan support. Financial loss is, indeed, an inescapable risk — and would be whether or not the money got dished out to the Obama administration’s political cronies, as Republicans imply but as the evidence so far does not prove.
So what is the scandal here? Well, the review process behind the Solyndra loan was not quite as diligent as Mr. Chu insists. The secretary claimed Thursday that the solar panel maker failed due to an unforeseen, and unforeseeable, “tsunami” of subsidized Chinese competition and low prices for its competitors’ raw materials. In fact, the administration knew, or should have known, of these threats to Solyndra’s business model before the loan closed in September 2009. The Office of Management and Budget warned about them in an Aug. 31, 2009, e-mail to President Obama’s staff.
But the real scandal is the loan guarantee program itself. The United States needs alternatives to oil, for reasons ranging from climate change to national security. Shoveling taxpayer dollars into profit-seeking manufacturing companies is not the way to develop them.
You can call it crony capitalism or venture socialism — but by whatever name, the Energy Department’s loan guarantee program privatizes profits and socializes losses. It’s an especially risky approach in the alternative-energy space, where solar energy is many years from being cost-competitive with fossil fuels for most uses — and history is littered with failed government attempts to back the next big thing.
Mr. Chu raised the specter of Chinese dominance in photovoltaics, a market he estimated at $80 billion globally and growing by leaps and bounds. Of course, Solyndra’s inability to survive without government funding casts doubt on this. Mr. Chu contradictorily noted that Solyndra failed in part because photovoltaic “demand has softened due to the global economic downturn and a decline in subsidies in countries including Spain, Italy and Germany.” Given their current financial woes, we’d be surprised if Spain and Italy could afford to restore solar-electricity subsidies anytime soon. The U.S. Energy Information Agency, an office in Mr. Chu’s department, noted in its most recent International Energy Outlook that, until 2035, “most renewable technologies other than hydroelectricity are not able to compete economically with fossil fuels . . . except in a few regions or in niche markets.”
As for the $10 billion loan-guarantee loss reserve, that’s $10 billion the country could devote to other uses, including more effective means of limiting carbon emissions or achieving energy security. We hope, as Mr. Chu does, that the losses don’t reach that level. Yet we’re also worried by the description of the department’s loan portfolio in a 2010 internal OMB e-mail. “What’s terrifying,” one staffer wrote, “is that after looking at some of the ones that came next, this one [Solyndra] started to look better. Bad days are coming.”