The New York Times (Nov 11, 2011) has a revealing article on the massive amounts of subsidies that have been dumped into green energy ventures since Obama's election. Using the Stimulus Package as a cover, the Obama Administration has funneled billions of dollars into speculative energy projects. Noting the subsidies to NRG Energy, which is building a solar eletricity project capable of powering a small city of 100,000 homes, the Times reporters write,
"The [NRG Energy] project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009.
"The government support — which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates — largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG — even Google."
Many of the more viable projects would have happened anyway; it's just the Stimulus money jump started them by providing easy money now. And in some cases, state and federal governments are imposing significant increases in rates to subsidize these investments. With government subsidies and guarantees covering almost the entire investment, massive failures like Solyndra are almost inevitable. Since much of the money was spent during a politically charged environment to "get the money out the door" for "shovel ready projects," we can't expect the same level of risk scrutiny for these projects that would have occurred normally. Soyndra is likely just the tip of the iceberg.
Although not intended as foreshadowing, perhaps we should take the following quote from NRG's CEO as a warning of what is to come:
"As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity, and “we intend to do as much of this business as we can get our hands on.” NRG, along with partners, ultimately secured $5.2 billion in federal loan guarantees plus hundreds of millions in other subsidies for four large solar projects.
“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.”
"From 2007 to 2010, federal subsidies jumped to $14.7 billion from $5.1 billion, according to a recent study.
"Most of the surge came from the economic stimulus bill, which was passed in 2009 and financed an Energy Department loan guarantee program and a separate Treasury Department grant program that were promoted as important in creating green jobs."
Can you say Moral Hazard? We saw this play run out with the financial crisis, and the Stimulus Program is creating the same problems in the energy field. At some point, as the case of Solyndra shows, the chickens have to come home to roost on the solar panels.