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Posts Tagged ‘Energy Subsidies’

$249 Million Obama Grant Recipient, Defective Battery Maker A123 Systems Bankruptcy

In Electric Cars, Government Spending, Obama Administration on October 18, 2012 at 12:04 am

A123 Systems, Inc. logo.svg

The flailing saga of private firms going bankrupt after massive infusions of public funds continues with A123 Energy.  It defaulted on its debt and is declaring bankruptcy.  It received a $249 million grant in strings-free taxpayer money, using $129 million to build a factory.  [1]  It was a grant of money, not a loan, not equity. 

Like Solyndra and others who received government money, it didn’t live up to its job creation promises (touted by President Obama in 2009 as going to create “more than 3,000 [jobs] by the end of 2012.” [2]  Not quite.  It shipped defective batteries, leading to a $55 million recall and was selling batteries at a ratio of $1.57 cost to $1 revenue. [3]  Not a long-term winning strategy.

A123 is just another example of why governments, regardless of the party in the White House, should never, ever pick and choose winners, or as Mitt Romney pointed out, “pick losers” in private business.  They use scarce tax dollars and, sadly, fail because politicians like Mr. Obama haven’t a clue about what is a good or bad business idea.

Considering President Obama’s dislike of many for-profit corporations, the hand outs to private firms like Solyndra, A123 and Johnson Controls make no sense whatsoever.  Good ideas will get built on their own, they don’t need government hand-outs. 

[1] http://blogs.wsj.com/corporate-intelligence/2012/10/16/187/

[2] http://online.wsj.com/article/SB10000872396390443675404578060882850041910.html?KEYWORDS=electric+car+crash

[3] http://www.technologyreview.com/news/427991/what-happened-to-a123/

Pictures (A123 Systems logo & Solyndra building with “for sale” sign) from Wikipedia Commons.

Washington Picks Losers & Subsidizes Chinese Solar Panel Makers With Your Money

In American Recovery & Reinvestment Act (Stimulus), Government Spending, Obama Administration, Uncategorized on August 2, 2012 at 8:29 pm

The Solyndra scandal is back in the news after today’s Washington Post article,

As the Obama administration moved last year to bail out Solyndra, the embattled flagship of the president’s initiative to promote alternative energy, a White House budget analyst calculated that millions of taxpayer dollars might be saved by cutting the government’s losses, shuttering the company immediately and selling its assets, according to a congressional investigation.

Even so, senior officials in the White House’s Office of Management and Budget did not discourage the Energy Department from proceeding with its plan to restructure a federal loan to Solyndra— a move that put private investors ahead of taxpayers for repayment if the company closed, [1] 

It is not just Solyndra.  Several articles help us take the big view about what a disaster government energy “investments” are:

Like the mythical monster Hydra—who grew two heads every time Hercules cut one off—President Obama, in both his State of the Union address and his new budget, has defiantly doubled down on his brand of industrial policy, the usually ill-advised attempt by governments to promote particular industries, companies and technologies at the expense of broad, evenhanded competition.

Despite his record of picking losers—witness the failed “clean energy” projects Solyndra, Ener1 and Beacon Power—Mr. Obama appears determined to continue pushing his brew of federal spending, regulations, mandates, special waivers, loan guarantees, subsidies and tax breaks for companies he deems worthy.

Favoring key constituencies with taxpayer money appeals to politicians, who can claim to be helping the overall economy, but it usually does far more harm than good. It crowds out valuable competing investment efforts financed by private investors, and it warps decisions by bureaucratic diktats susceptible to political cronyism. Former Obama adviser Larry Summers echoed most economists’ view when he warned the administration against federal loan guarantees to Solyndra, writing in a 2009 email that “the government is a crappy venture capitalist.”

Even under optimistic projections, heavily subsidized wind and solar would each amount to a tiny fraction of global energy by 2030 and thus cannot be the main answer to energy-security or environmental problems… Mr. Obama is spending immense sums for subsidies to particular industries and technologies, almost $40 billion for clean-energy programs alone (some, appropriately, for pre-competitive generic technology). [2]

As T.J. Rodgers, CEO of Cypress Semiconductor, writes, industrial policy can have unintended effects. 

Consider the current 30% federal solar energy subsidy. A home solar system with 60 solar panels produces about 15,000 watts of power, enough to completely offset the $6,000 annual electricity bill of a typical upscale California home. The system costs about $90,000 prior to the 30% federal income-tax credit, which reduces its cost to $63,000. After a simple payback period of about 10 years, the homeowner literally enjoys free electricity for the remainder of the guaranteed 20-year system life, a very profitable 10 years.

But what if that $27,000 tax credit, the accelerated-depreciation tax savings, and most of the hefty post-payback profits went to Wall Street firms with a “tax appetite,” not the homeowner? That’s just what happens with the majority of new home solar-system installations today.

Today, most new home solar systems are purchased by special Limited Liability Corporations (LLCs) that are specifically created by Wall Street firms to purchase home solar systems and to sell power to the homeowner on a cell-phone-like contract. The homeowner does not mind giving up the tax benefits as long as the “free” system reduces utility bills.

However, when the system is paid off and the monthly LLC profit jumps to 100% of the electricity bill, the LLC solar electricity price to the homeowner is maintained just below market—and the profit really begins to roll into the LLC. Since the risks to the LLC grow as the solar systems age, many banks offload their risk by selling the LLCs before their 20-year lifetime is up, locking in much of the long-term profit. There is now a growing market for what might be called “solar-backed securities.” Wall Street understands the time-value of money; the federal government and consumers do not.

One of the largest solar-system installers in the U.S., SolarCity Corp., uses the LLC strategy and currently buys a majority of its solar panels from the low-cost Chinese supplier, Yingli. Thus when President Obama said that we must subsidize our solar industry to remain competitive with the Chinese, it would have been more accurate to say that we subsidize Wall Street to create employee-less corporations that buy and install Chinese solar panels in the U.S. Wall Street and consumers understand that free markets are borderless; Washington does not.

Just last week, the U.S. International Trade Commission found the Chinese solar industry guilty of “dumping” solar panels in the U.S. Tariffs are likely to be levied against Yingli and others. Here then, is a practical guide to the Obama administration’s nonsensical solar policy: Washington gives tax breaks to Wall Street to fund LLCs that buy solar panels from the Chinese to “help” the American solar industry, while the ITC threatens to levy a tariff on those solar panels, which would raise the price of solar energy to U.S. homeowners. In short, Wall Street pockets the money and consumers get higher solar-energy prices. [3]

[1] http://www.washingtonpost.com/national/white-house-budget-analysts-thought-saving-solyndra-could-be-expensive-move/2012/08/01/gJQAf2QGQX_story.html

[2] http://online.wsj.com/article/SB10001424052970204883304577221630318169656.html

[3] http://online.wsj.com/article/SB10001424052970204903804577082631863392956.html

Picture from Wikipedia Commons.