The Solyndra loan guarantee reflects irrational exuberance mixed with the twin enemies of good government—lobbying and lack of oversight. So what’s next?
It seems pretty clear that both the Bush and Obama administrations hoped to extract political capital from Solyndra. But before we throw out the baby with the bathwater, let’s look at the rest of the portfolio, which the Department of Energy (DOE) web site lists right here. Click on the projects tab, and you will discover that some $40 billion—a little more than half of the $76 billion allocated—has been committed thus far, creating 64,000 jobs and raising the question: is this worth half a million dollars per job?
Most of the DOE’s renewable-energy portfolio is likely to pay off handsomely. But is this the right way to go? The government here is functioning as the guarantor of last resort. While these are not losing investments, they are too risky for the private sector to make. That’s because our energy policies, which were developed over the past century, are not structured to handle renewable energy; instead, they favor fossil fuels and nuclear.
Both the depletion allowance and Master Limited Partnerships (MLP) are typical of the kind of economic assistance we provide to the fossil fuel industry. MLPs are tax-exempt corporate structures that help the industry get over the initial high cost of financing fossil fuel projects by shifting them to entities that can use them to offset their tax obligations. And as amazing as it seems, oil companies are actually compensated for depleting their own reserves: they get an extra tax cut to make up for the depletion of the oil they extract from the ground.
As for nuclear, the companies in that business receive even greater benefits: loan guarantees similar to, but even more generous, than the kind Solyndra received. The DOE provided Georgia Power with $8.3 billion in guaranteed loans to build two nuclear reactors (it’s in the same portfolio as Solyndra). The Union of Concerned Scientists has pointedly written on its website that: “even conservative estimates add up to a substantial percentage of the value of the power nuclear plants produce approaching or even exceeding 100 percent.”
The real takeaway from Solyndra is that we need an energy policy that reflects our energy needs for the 21st century. We need to extend MLPs and the depletion allowance to solar energy. Permitting solar-energy projects to be bundled as MLPs would dispense with the need for government-guaranteed loans. We could create a program similar to the oil depletion allowance by helping owners of solar-energy farms to exchange their panels for newer, more efficient ones. This solar-depletion allowance would empower the industry to move forward without the direct subsidies critics of solar complain about.
Finally, we need to recognize that solar energy is our salvation. The sun showers the earth with almost 6,000 times the energy we consume; all other energy sources pale in comparison. We can and must learn how to improve solar technology, which is now on the cusp of parity with fossil fuels, though we are still just at the inception of this science.
New York’s Mayor Bloomberg has been seeking to encourage the creation of a new engineering school in New York City. What if this vision were combined with a second Manhattan Project? Manhattan Project 2 would make it a national goal to crack the secrets of solar-energy conversion and utilization. What we need is to bring together the best minds to focus on solar energy. Success will dramatically alter the cost structure of the sun’s energy. The mayor would do well to establish the planet’s first College of Energy Science and Engineering here in New York City. The Manhattan Project 2, its centerpiece, will focus on solar science and engineering. In the future, it will be seen as the key success factor in leading our country and the planet away from fossil fuel as an energy source and on to a new limitless one that no country will have to go to war over, because everyone has access to it.