Tuesday, October 25, 2011

Obama Cleantech Stimulus: Bad Policy, Bad Politics and Bad for Cleantech

The Solyndra debacle is no surprise to this cleantech venture capitalist. The inherent conflict between trying to get money out of the U.S. Treasury as quickly as possible to stimulate the economy and, at the same time, have government agencies that are ill-suited at making business decisions do just that was nothing other than a recipe for disaster. 

Anytime a government program is giving money to the private sector with the intent of getting the money back, the program is doomed to failure.  Bureaucracies, politics and the lack of a profit motive simply don’t allow government to succeed in business.   Anyone who was surprised that politics played a role in the loan decision for Solyndra (and almost certainly other awardees) is very naïve. 

Even if, by some miracle, the government could make good business decisions void of political influence, such programs are still doomed to failure because the public and media won’t allow for even one loan or investment to fail. In venture capital we make investments that don’t succeed and we fail often.  Yet, we are still successful on the whole.  Our successes more than compensate for our failures.  The government has no ability to operate this way.  Even if a program like the DOE loan guarantee could operate with an overall effective return (which I find unlikely anyway), its first failure would sink it.  The government can give away money, but it cannot effectively invest money in individual companies.

Solyndra won’t be the last default from the DOE loan guarantee program.  The huge amounts of money that will ultimately have been wasted in the cleantech stimulus – both in terms of loans that won’t be repaid and the stimulus’ failure to create any meaningful job growth when growth was most needed - is bad for tax payers. The negative PR and the future demise of cleantech policies that otherwise may have had broader bipartisan support is bad for cleantech. 

In 2009, amid the euphoria of the Obama Administration’s cleantech programs, I wrote that the Administration’s cleantech stimulus was bad policy but good politics.  I was wrong… not only was the cleantech stimulus bad policy, it was bad politics too.  While the politics by which the Administration pushed through these ill-thought programs may have been deft, the ultimate political impact is clearly bad for both the Administration and cleantech itself.

Ultimately, we may look back at Solyndra as the dagger that burst the cleantech bubble.  The hype and euphoria are officially gone.  The long, hard work that will be required to diversify our energy base and increase energy efficiency wasn’t reduced when the government sent floods of money out the door to cleantech companies, and it won’t change now that the hype of those programs is gone.  The good news is that, like the Web and every other technology bubble, the real value creation comes after the bubble has burst.

So, let’s get back to work. 


Ann Stovel said...

Well said David! I agree 100% I've tweeted and wrote about this on a LinkedIn cleantech investor group - trading similar thoughts with other investors. I can't wait to find out which clean technologies /cleantech companies rise to the top now!

Graham Russell said...

Yes, indeed. You have been consistent in your view - entirely correct in my NOT very humble judgment - that the government has no business being involved in trying to pick winners, not specific clean technologies and most certainly not individual companies. And, of course, Solyndra is not the first government-backed solar company to go belly-up. Remember Evergreen Solar, which, just a couple months ago, went out of business after receiving $60 million in funding from the Massachusetts taxpayers.

A propos of this mess, readers might be interested in a brand new book from the Cato Institute: The False Promise of Green Energy (http://www.cato.org/store/books/false-promise-green-energy).

The authors lay out a pragmatic view of the way in which renewable energy will very gradually emerge as a significant component of our overall energy mix (decades, not weeks or months) and deliver a well-argued and entirely deserved barrage at the renewable energy fanatics and green jobs hypsters that seek to force the pace of this process through government mandates and borrowed money. Here's a quote from the Cato Inst.'s overview:

"The False Promise of Green Energy illustrates the irresponsibility of attempting to transform modern society with borrowed money, wishful thinking, and bad economics. It shows how the top-down control programs offered by green-energy and green-jobs advocates are unlikely to achieve positive results compared with allowing competitive forces to continue to provide ever greater environmental quality and energy efficiencies."

I sincerely recommend this book to anyone who's getting tired of the endless hype around energy and who's interested in pointing governments at all levels toward a more intelligent approach to encouraging its development than shoveling billions of taxpayer dollars (money that the US simply doesn't have!) into speculative ventures.

Matthias said...

I agree with you on the Solyndra analysis but disagree with the premise that government should stay out of the (this) business. If it were not for Germany and its simple FIT, Solar technology would not be where it is today. PV is now superior to other electricity generating technologies in many parts of the world (think cell phone repeaters). The military wants PV not because Obama wants it, they want it for logistic reasons and the list goes on. The biggest obstacle are POP's (Plain Old electricity Providers), bureaucracy, good (metric)standards (smart grid included) and better financing options. If ocean levels indeed rise (of which there is no evidence right now) carbon fuels will look very different. Big science can not be done by private industry.

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