Friday, August 10, 2012

Grading Obama's Green Energy Stimulus "Investments": Epic Fail

Earlier this year (in January), President Obama declared in his State of the Union speech that he would not "cede the wind or solar or battery industry to China or Germany". He wanted to "double down on a clean energy industry that has never been more promising".

What brought this up, you ask?

Well, earlier this week, I noticed an article in my iGoogle page in the Google News widget that Waltham, Massachusetts-based company, A123 Systems, was being bought out by a Chinese conglomerate (Wanxiang Group). In 2009, when the Obama Administration provided financial relief to this company to the tune of a $250 million grant on top of the $135 million in grants and tax breaks that it got from the state of Michigan (for building a factory in 2010 and where it recently laid off 17% of its workforce), a $30 million grant for a federal wind energy storage project, and another $380 million that they made from their IPO that same year, their stock value peaked at around $25.77/share. Today? $0.45/share. The Chinese are literally buying this clean energy company that the Obama Administration wasted our tax dollars on for pennies on the dollar - but in a way, thank God they are, or A123 Systems would be filing for bankruptcy and every employee would be losing their job.

This news got me thinking: what other green energy companies has the Obama Administration used tax payer money to invest in? How are they doing? We all know about Solyndra because it was a very public and embarrassing bust for the Obama Administration, but what about the others?

I decided to do a little research and find out...

Tesla Motor Company

Tesla Motors is actually one of the more promising of the green energy stimulus recipients (having actually met their June 2012 deadline of delivering the first of their Model S electrical cars - 29 delivered as of the end of July!), but even their future isn't bright enough to force me to wear shades.

In June, 2009, Tesla Motors received a $465 million loan from the Department of Energy. Of this $465 million loan, Tesla owner and Obama campaign donor, Elon Musk, reportedly pocketed $15 million. I have to wonder if there was any political back-scratching going on here...

Their entry-level Model S with a reduced-range battery (160 mile range, as opposed to the 300-mile range battery that has gotten them a fair bit of press) still costs $49,900 after a whopping $7,500 federal tax deduction for buyers which still makes it more expensive than most of its competitors which are charging under $40,000 even without any federal tax deductions factored in (except Fisker Automotive, another recipient of stimulus, which is charging $95,000 for their hybrid). Supposedly 10,000 potential buyers have made deposits of $5,000 (fully refundable), which, at first glance, seems pretty impressive (especially compared to the Chevy Volt, another recipient of Obama's stimulus, which sold about 20,000 units since it first went on the market 2 years ago in 2010). Of course, GM isn't exactly the golden yardstick by which success should be measured. For comparison, most automakers sell ~200,000 cars/year for most of their models, some as many as 300,000/year.

The company reportedly lost $90 million the first quarter of 2012 (up from $50 million in losses for the same quarter in 2011) and $106 million in the second quarter of 2012. So far, they've only produced around 40 Model S's (delivering 29 of those so far) but expect to produce and deliver the rest of their initial 5,000 car production by the end of the year. If they don't manage to pull that off, it's suspected that they'll need to look for another round of funding.

Ever since I was a kid, I've always wondered why no one had come along and made a fully electric car (I was really into RC car racing as a kid, and opted for the electric motors instead of gas-powered).

Let's hope Tesla succeed, but they'll have quite a challenge ahead of them competing with Toyota, Ford, Nissan, GM, etc. who all have EVs in their lineup as well (and all substantially cheaper).

Keep in mind that according to a CNNMoney analysis, GM's failed Chevy Volt sales are largely blamed on its expensive sticker price (~$40,000) which is roughly $10k lower than the discounted price of the Tesla Model S.

I suspect the market for EVs right now, at least in the US, is limited to households that expect to buy more than 1 car (160 miles isn't enough to go on much of a road trip), where the members of the household only plan to use it for driving to and from work and shopping expeditions.

The 300-mile Model S variant would be more appealing for households only wanting to own 1 car, but the $84,900 sticker price would give them a heart attack.

The current auto loan rate is about 4.5% for a 5-year loan which works out to be around $931/month in car payments for the Tesla Model S. For a Toyota Camry Hybrid, it works out to $465/month (it's a ~$25,000 car). The Huffington Post, earlier this year, published an info-graphic that stated the average household spends $2120.40 on gas/year ($179/month), however, in 2011, CNNMoney claimed that the average household spent $386/month on gas (I suspect that this is based on 2+ cars per household). If, for the sake of argument, we assume that the average American spends $386/month on gas per car (that's around 100 gallons of gas per month, which seems rather extreme), then it's still cheaper to go with a Toyota Camry Hybrid for at least the first 6 years (that $80/month savings by going with a Hybrid is enough to cover a 6th year of gas payments) for the average American. Interestingly, the average American only keeps their car for 63.9 months (a little over 5 years) as estimated in 2011, which was up 4.5 months since 2009 (let's hope this trend continues). If the Huffington Post info-graphic is correct, then it will actually take closer to 10 years or more before the average American breaks even by going with the $50k Tesla Model S (depending how much gas prices change between now and then, of course).

Fisker Automotive

In September of 2009, the Obama Administration announced that it would be giving Fisker Automotive a loan of $529 million to supposedly create 5,000 jobs in the US.

As ABC reported in 2011:
Vice President Joseph Biden heralded the Energy Department's $529 million loan to the start-up electric car company called Fisker as a bright new path to thousands of American manufacturing jobs. But two years after the loan was announced, the company's manufacturing jobs are still limited to the assembly of the flashy electric Fisker Karma sports car in Finland.

Somehow this doesn't seem like it delivered on its promises to create jobs in America. Luckily, the US Government stopped funding Fisker Automotive after loaning it $193 million due to a failure to meet milestones.

Tesla Motors also filed a lawsuit against them claiming that Fisker Automotive stole trade secrets and design ideas from them.

Ener1

Ener1 was a battery maker for electric cars with lofty goals and promises (such as creating 1400 new jobs). They received a $118.5 million grant. They later filed for bankruptcy in January of 2012. In their bankruptcy filing, they claimed to have $73.9 million in assets and $90.5 million in debt.

Update: It appears that Ener1 emerged from bankruptcy at the end of March, ceding control to a Russian tycoon.

The Chicago Tribune has a handy timeline of events for Ener1.

Beacon Power

Beacon Power received $43 million in loan guarantees to build a flywheel power plant. 2 years later, they filed for bankruptcy and earlier this year found an equity firm willing to buy most of its assets for $30 million.

Energy Conversion Devices & United Solar Ovonic LLC

Energy Conversion Devices received a $13.3 million in stimulus tax credit (not a loan this time) in January of 2010. In February, 2012, they filed for bankruptcy; $350 million in debt with only $318 million in assets. In May of 2012, they announced that they would be laying off 300 employees because they were unable to find a buyer for their United Solar Ovonic LLC unit.

Abound Solar

Abound Solar was, like Solyndra, a solar-panel maker that received $400 million in government-guaranteed loans.

In February, they closed down their factory in Indiana, unable to compete with Chinese solar panel makers. In June, they filed for bankruptcy and laid off their 125 workers.

Luckily, Abound Solar had only received $68 million before the DOE wised up and cut off their credit last September. According to the New York Times article (linked above), the DOE also expects to receive some of that money back (I get the feeling that "some" means "very little", but every little bit counts, I suppose).

Amonix Solar

Yet another Solar energy company. Amonix received a $15.4 million DOE grant and another $9.5 million in Federal tax credits for opening a factory in North Las Vegas which it closed down 14 months later, according to Gigaom.

Cogentrix Energy

According to Cogentrix, they received $90.6 million in government loans in order to "support the Alamosa Solar Generating Project, a 30 megawatt (MW) High Concentration Photovoltaic (HCPV) power generation facility that will generate clean, emissions-free power in Colorado."

No bankruptcy filings... yet. Amazing. Could this be an actual success story?

Of course, their project only began in May 2012, so don't hold your breath.

They are/were also a big customer of Amonix Solar, so it sounds like they'll have to start shopping elsewhere.

BrightSource Energy

This company received $1.6 billion in federal loan guarantees in order to create 1400 jobs at its peak, according to their CEO. Uh... wut? That's over a $1 million per job created. Ouch!

More worrisome is that Robert Kennedy, Jr.'s firm is the largest investor in BrightSource and that one of the ex-Principals of his firm went to work for the DOE after the 2008 elections.

At the time of the grant from the DOE, they were $1.8 billion in debt and only generating $13.5 million in revenue each year.

To top it off, this loan was given to them in order to finish what Solar Trust of America failed to deliver as part of its DOE loan before going bankrupt.

Whether political favoritism was truly at play or not, this deal stinks to high heaven.

Solyndra

As most of you probably remember from the news a year or two ago, this company received $535 million in stimulus loans in 2009 from the DOE and managed to use up $527 million of that before going out of business.

What you may not remember is that the Solyndra offices (along with the CEO's home) were raided by the FBI in an investigation into whether or not Solyndra had misrepresented their finances.

There's also question about whether George Kaiser used his political connections to influence the DOE to provide loans to the company. We'll likely never know, but seeing as how many of these companies seem to have had political ties, it does make me suspicious.

Evergreen Solar

Evergreen Solar, Inc. received $125 million in Federal stimulus funds in 2009 and another $58 million in funds from Massachusetts in 2010. Then, in 2011, Evergreen Solar filed for bankruptcy, laying off 800 workers.

Update 8/11/2012:

Ecotality

Ecotality is a company that makes and installs charge stations for electric cars. It received $99.8 million in green energy stimulus funding in 2009 and another $26.4 million in 2011 and is now under investigation for insider trading. As CBS News points out, they were supposed to install 14,000 charge stations across 5 states but have only installed 6400.

Mountain Plaza, Inc.

This company received $424,000 in stimulus funds in 2010 to install electric chargers at truck stops in Tennessee despite having filed for bankruptcy 12 days earlier and being sued for $2 million by the U.S. Bank. They also had numerous other financial troubles.

Needless to say, this company went kaput.

Raser Technologies

This company received a $33 million grant in green energy stimulus to build a geothermal plant in Utah. Late last year, in November of 2011, investors in Raser Technologies filed a lawsuit against current and former executives of the company for Federal Securities Law violations (in other words, fraud). Apparently these executives were short-selling the company's stock.

Can Obama pick 'em, or can he pick 'em?

Spectrawatt

Spectrawatt received $500,000 worth of stimulus grant money in 2009 only to turn around and file for bankruptcy and lay off most of their workers in 2010, paying out $745,000 to the executives before finally closing up shop.

They assure us that the $745,000 wasn't golden parachutes, but rather used to pay for unspent vacation time.

Color me convinced.

Azure Dynamics

This company apparently converted Ford commercial vans into hybrids and fully-electric vehicles. I'm unable to find an exact figure, but supposedly they received millions of dollars in stimulus from Obama's Green Energy bill.

Several cities bought hybrid buses (using millions of dollars in stimulus money of their own) from Azure in 2010 only to discover that the buses were "lemons", suffering from expensive maintenance problems.

Supposedly, these buses were supposed to be 30% cheaper in maintenance according to this PR announcement.

They have since filed for bankruptcy protection in Canada (in March of 2012).

Solar Trust of America

This solar power company received $2.1 billion in stimulus loans in 2011, filing for bankruptcy in April of 2012. Reportedly, they've found a buyer (NextEra Energy, which, coincidentally, also received a $935 million loan from the DOE a year ago). According to Reuters, Solar Trust had $10 million in assets and between $50 and $100 million in liabilities.

Le sigh...

SunPower

The DOE granted this company a $1.2 billion loan guarantee in the spring of 2011. According to their CEO, they'd be filing for bankruptcy by now if it wasn't for big oil company, Total, buying 60% of the company back in December of 2011.


There are a dozen or so other companies, but I'm going to call it quits for now. You get the idea.

Some of the other companies that I've come up with for having received stimulus money and/or tax breaks from Obama's Green Energy Stimulus Plan are:
  • Olsen's Crop Service
  • Range Fuels
  • Thompson River Power LLC.
  • Willard & Kelsey Solar Group
  • Babcock & Brown
  • Granite Reliable Power
  • NextEra Energy
  • First Solar
  • NRG Solar
  • Ormat Nevada
  • Schneider Electric
  • Johnson Controls
  • General Motors
  • Nissan

I'll leave it to readers to finish this investigation on their own time.

For those who have misunderstood my point and concluded that the goal of this post was to claim that Green Energy as a whole is not worth investing in: I make no claims to have investigated all Green Energy companies, only those which I have found that received stimulus loans, grants and/or tax breaks, so I would not feel comfortable in making any such claim. My purpose is also not to convince people to vote for Mitt Romney (which is a pretty laughable accusation to make about me, seeing as how I agree more with Obama than I do with Mitt Romney), but rather to criticize where criticism is due.

Obama can do better.

The Obama Administration has a lot of room for improvement when selecting which companies (Green Energy or not) to invest taxpayer money in. We, as tax payers, have a right to be upset that our money is funding failing companies instead of delivering what was promised: successful Green Energy technology / products and millions of new jobs for American workers. So far, neither of these goals has been reached.

I understand that not all companies that even the most knowledgeable investors invest in will turn to gold, but in order to be considered successful, they have to choose more winners than losers, and those winners have to make up for the losses incurred by the losers. From what I've seen, Obama's Administration has not only chosen more losers than winners, but also has not covered the losses of those losers.

If the US Government was a Venture Capital firm, it would have been considered a failure. Why is it so taboo to measure Obama's success with investing in Green Energy companies using the same yardstick?

One of the great mistakes is to judge policies and programs by their intentions rather than their results.
-- Milton Friedman

46 comments:

Anonymous said...

Interesting research - I have no relevant data to contribute, but a small note. 'wizened' is one of those literary words which is inevitably used, these days, in but one single context: old people in flowery fantasy novels invariably have 'wizened' faces, from which you can pretty much figure out what it means. The phrase you wanted was just 'wised up', which is itself a bit colloquial, but never mind =)

Anonymous said...

Great post. For a moment I though I was reading zerohedge.com instead of Planet GNOME. People there (ZH is a forum/blog) would probably like to read it.

Ben said...

The fact that the companies didn't succeed doesn't mean that the stimulus wasn't successful.

Jeffrey Stedfast said...

Ben,

What part of the stimulus do you think was successful?

It failed to create the promised number of new jobs in the US (e.g. Fisker added 500 new jobs, but in Finland, not the US).

The stimulus certainly failed at making the US competitive with China in wind, solar, and battery technology (Obama has had to introduce tariffs just to make it so that American companies could compete).

Where has it succeeded? I'd really like to know. And was it worth the billions of dollars we spent? I suspect not.

Jeffrey Stedfast said...

adamwill,

Thanks for the wizened correction! I'll correct that in a sec.

Alan said...

The underlying economics are quite complicated though. Let me give an example from Ireland. We were recently asking for tenders to build a metro line linking the city centre to the airport. Some Irish companies were quoting costs in excess of 40% higher for the same work as compared to a Spanish company.

Looking at these figures, you'd think we would be mad to choose the Irish firm, but actually the Irish company would significantly better economically. Firstly we wouldn't be exporting hundreds of millions of euro directly abroad. Secondly the income earned by the firm would be taxed in Ireland. Thirdly the people doing the actual labour are 'permanent' residents of Ireland and so are likely to spend a significant proportion of the income from the project within Ireland, and that income is taxed in Ireland too.

This means that by spending what some people may naively consider to be an extortionate amount, they are actually choosing the most economically viable option.

So, to properly ascertain whether or not these initiatives were economic successes or failures you'd have to consider the total benefit to the economy as compared to spending that money (or a portion of that money) abroad to import the same technology/knowledge/products.

Anonymous said...

Alan: The issue with that argument - I won't call it a problem, but an issue - is that, if consistently applied, it effectively precludes the possibility of any government _ever_ buying _anything_ from any other country, because your points will always apply to any project.

The theory of international trade is simply this: if Ireland can build railways really efficiently, Germany can build roads really efficiently, and China can make clothes really efficiently, then _in theory_, it doesn't make sense for all three countries to make their own railways, roads and clothes. It makes sense for Ireland to make the railways for everyone, for Germany to make the roads for everyone, and China to make the clothes for everyone. In Theoretical Economics Land, the benefits are quite inarguable - it works out significantly better for everyone. No-one loses.

The real world is always massively more complex, of course. But it's worth keeping in mind that your argument is a similarly simplistic one; yours is the essential form of the protectionist argument, really. The debate between your viewpoint and the one I outlined above is a large part of the history of 19th century economics and politics. These days, things get a lot more complicated and icky. You have to develop more sophisticated arguments.

The reason people get so worried about the China/U.S - hell, China/everywhere else - trade balance is that trade balances are really what you use to make sure the 'free trade' system is working as intended: ideally you'd want each country to have a perfect trade balance, obviously that's not possible, but you want to get as close as possible, and if there's a significant imbalance for a long period of time, it indicates something's screwy with the system. Deciding what's screwy with the system should on no accounts be done by carefully and calmly evaluation the facts; it should be done by picking a factor that will best rile up your supporters into a foaming frenzy, and going with that. Thus free market economists think what's wrong with the system is too much government interference, anti-immigration conservatives think what's wrong with the system is immigration (somehow), neocons are convinced that what's wrong with the system is Chinese currency manipulation, bleeding heart liberals think what's wrong with the system is exploitative Chinese (and developing world generally) labor conditions, and so on and so forth...

Jeffrey Stedfast said...

adamwill,

Nicely said!

Anonymous said...

Jeff,

I applaud your effort to research the topic, the original premise of the post are good, but even in those first five paragraphs, your goals is made clear: you are less interested in finding out what happened with those investments, but you are trying to dig up dirt. This is made clear by your use of quotes in the word "invest", you have from the start dismissed the intentions and you are set out to find public data that will backup your initial assumption: that there

This post is packed with innuendo.

You blend valid business observations with insinuations that somehow there is some wrongdoing going on. You even use the expression "the plot thickens".

Your valid business observations include your comments on Tesla, the same kind of comments that could be made about Google, Apple, Facebook or any other modern company.

But the plot can not thicken when all you have is innuendo. What you have a series of disconnected factoids whose major connection is that they were recipients of aid.

Your Tesla comments were on spot, so I moved to the next one: Fisker Automotive. A google search finds a detailed rebuttal from the Washington Post's Fact Checker and labels the claim with their highest award for a lie: Four Pinocchios:

http://www.washingtonpost.com/blogs/fact-checker/post/4-pinocchios-for-mitt-romneys-unproven-claim-of-crony-capitalism/2012/07/17/gJQAYuYPsW_blog.html

It seems that in your quest to connect the dots, you ignored or avoided information that would contradict your original thesis.

Anonymous said...

Adam,

Alan's point is not simplistic. It is merely an observation on a country's own strategy.

You might be under the mistaken impression that people are out to create a perfectly well-oiled machine and that the good of the world economy and no-barrier trading is the ultimate goal.

But the goal of most people is their personal happiness, to live a happy life, to enjoy their friends and family. To provide for their kids, to give their kids a bright future, and to die peacefully and surrounded by people that love them.

As such, people make decisions towards these goals. And some of these goals include protecting your local industry, educating your people, creating and subsidizing a local industry (even if it is more expensive), keeping jobs in the country and taxing foreign goods. Because most individual's goals are not to create the most throughput for the world economy, but to create a world they want to live in.

Government use subsidies as a strategic tool to create new industries or to enter new industries, because their goal is to provide for their citizens in the long-run. So Alan's story highlights that goal and how it does not matter if they have to pay twice as much, if they get to increase the benefits to the local population.

At a local level, I will gladly pay more to a DJ friend of mine to play at my place to help him develop his skills, get him to learn the business than pay the cheapest DJ on craigslist.

Basically, there are some of us that believe that Being Nice is Awesome. And some that believe that Being Selfish is Awesome.

Anonymous said...

This blog makes me sad.

As a software fella, you should know that even the best teams, with the best intentions can fail. You have worked in various projects, some worked, some failed. Most recently, Moonlight, that flopped.

Just because things fail does not mean that we have to stop trying. And those failed efforts are just that: failed efforts, but we will keep on trying. For the sake of the world, the sake of the environment and to bootstrap new industries.

Jeffrey Stedfast said...

Anonymous,

Last I checked, Google hasn't needed a massive stimulus investment from the US Government.

I would, however, say that I'm not so convinced that Facebook's business plan will work out and it is quite clear that a lot of investors feel the same way, seeing as how their stock plummeted after their IPO. That said, they are still probably more likely to succeed than many of those Green Energy companies that needed stimulus to even last as long as they did. They were clearly doomed before they got stimulus and the stimulus they got obviously wasn't enough to save most of them.

I'm glad you agree on my observations of Tesla. I do hope they succeed, their car looks pretty sweet, I just can't justify spending $50k on one and I doubt most other Americans can justify it either. If they can manage to bring it down to, say, $25k, I think they'll end up being a real contender.

As far as Fisker Automotive, I don't believe that I even mentioned the John Doerr connection (I'd actually not even heard about it until I read your link).

Regardless of whether or not Fisker Automotive got funding through any political back-scratching, they did not create the jobs in American like Joe Biden made it sound like they would do in a speech that he made in Michigan.

According to some articles I've read, the Obama Administration knew before they gave Fisker Automotive any money at all, that Fisker would be building the cars in Finland as opposed to building them in the US.

Alan said...

@adamwill, If the argument is consistently applied then the government would spend it's money wisely. If that means importing from foreign parts, then so be it. There are many factors other than pure economics which need to be taken into account but that's beside the point. I just wished to point out that by spending $100 internally versus $50 externally can make fiscal sense.

I just wished to add another dimension to the analysis other than "Company X went bankrupt and is now being bought for peanuts so the tax dollars were wasted". That's an overly simplistic view which does not give an accurate picture as to the real benefits (or lack thereof) of the stimulus packages.

Jeffrey Stedfast said...

Anonymous,

I don't recall ever saying that we should "give up" on Green Energy. I just feel that the US Government is lousy at picking which companies to invest in.

Tesla may end up being worth the investment. It is too early to tell. But there are clearly a number of other investments that were total flops and cost US taxpayers massive amounts of cash.

I have no issue with other people investing their own money where they see fit, but don't forcefully take *my* money and flush it down the toilet.

Yes, Moonlight failed, and in some ways that made me sad (and in others I was thankful that we were done with it), but it didn't cost you a dime.

If the US Government had decided to raise taxes in order to crowd-source fund the Moonlight project and then it failed, wouldn't you be annoyed? Of course you would be.

Investing is risk vs reward. A lot of Green Energy companies will fail, but a few will succeed. The trick is to invest in the winners and not waste tons of money investing in the losers; unfortunately that's what it appears the US Government has done, largely invested in the losers.

Serious investors do a lot of research into potential companies in the sector they'd like to invest in before actually investing. They don't just invest in a random sampling of companies and expect to make a profit like the US Government has done (you can't honestly tell me that the US Gov't did their due diligence in researching very many, if any, of the companies I listed in my blog post).

Anonymous said...

Jeff,

You have shown that you had a razor-thin knowledge of the very topics you were reporting. Now you follow up to my post where I give you a debunked story and you still did not bother to read the whole story, so you again bring up "american jobs".

Read the link again, because clearly, you did not understand it.

It pains me to say this, but you made your conclusion before you started your research. So you were only trying to find information that ratified your beliefs.

You are echoing GOP talking points (congrats! You can get a job outside technology!) and did not bother to actually research anything that would have contradicted your thesis.

Breaking news: reporting disconnected factoids, and adding the phrase "the plot thickens" does not constitute facts or a credible story.

Anonymous said...

You are missing the point.

The point is not "Moonlight failed, but at least did not use tax dollars".

The point is: projects fail. I merely draw from your own experience. You would think that then you would realize that *shit happens* despite the best people, the best intentions and the best plans.

But somehow you made this into an argument about taxes.

Learn to differentiate.

You have turned the argument into "It is ok to spend taxes as long as success is guaranteed".

Which is just a fucking dumb position. Unless you are 10.

Jeffrey Stedfast said...

Anonymous,

The article you linked me to seemed to be mostly about rebutting Mitt Romney's accusations that John Doerr used his political connections with the Democratic party to get stimulus for Fisker Automotive.

Need I quote Joe Biden, *again*, saying that the investment in Fisker Automotive would create thousands of US factory jobs?

And did it? No.

From your very own article:

"The second part of the loan, $359.36 million, will be used for “the manufacture of a plug-in hybrid in the U.S.”"

Look at that, "manufacture of a plug-in hybrid in the U.S."

Except it was manufactured in Finland, not the U.S!

Your article confirms what I wrote about Fisker.

Maybe it is *you* that needs to re-read the article that you linked.

Anonymous said...

Alan: I don't honestly think anyone can convincing make the argument that it's a good use of *anyone's* money - the government's, a private investor's, or anyone else's - to spend it backing a company which goes broke in a very short time frame. Spending several hundred million dollars backing a company which employs a couple of thousand people and then goes broke in two years is an utterly terrible way to spend money, whatever your politics. Hell, if your goal is just to support your population with government money in the short term, you might as well just give the several hundred million dollars to the couple of thousand people. Anonymous is correct that any kind of large-scale investment program will wind up backing a few losers, and it's fine as long as there are enough winners. But I don't see how you can plausibly argue that it's a good idea to spend vast sums of money backing losers exclusively. I can't claim to be qualified to critique Jeffrey's research, so I'm not. But you don't appear to be arguing, as anonymous is, that Jeffrey's research is wrong. You appear to be arguing that Jeffrey's research is right, but it was a good idea for a government to invest in all those projects. I really don't see how that's sustainable. I mean, in your example, you seem to be saying you'd be happy for the Irish government to spend $400m on an Irish company building the railway rather than $300m on a Spanish company building the same railway. Fine. But would you be happy for the Irish government to spend $400m on an Irish company to put up a website, lay a couple of miles of sleepers, then go broke? Cos that seems to be what you're saying.

Anonymous: you seem to be assuming that Jeffrey found lots of failures and some successes, and intentionally - and maliciously - didn't report any successes. What is the basis for this assumption of bad faith on his part?

Anonymous said...

Anonymous 1:02pm: I'm sorry, but Alan's point *is* simplistic. Yours is less so, but your point is not his. You've just come up with a potential rebuttal to the post I made and decided that was what I was responding to. It wasn't.

I'm not a free market economist. I don't entirely subscribe to the theory I described in my post. I am a university-trained historian and hence entirely capable of arguing six viewpoints on any issue, none of which I actually agree with.

My point was not that free market economics is invariably the correct way to do everything, I certainly don't believe such. My point was that the basic arguments for a) free market economics and b) protectionism have existed for a couple of centuries now, and regurgitating them ad infinitum isn't a particularly useful way to spend your time. If you want to oppose the broad consensus that exists among economists and world economic/political/financial institutions today, which - to oversimplify grossly - involves enthusiastically embracing pure free market ideology while instituting systems which do not match up to it in any way - you have to at least understand the existing arguments in the field, and move on from them. Not just pick one and wave it ever harder and harder.

If you believe pure nation-state protectionism is the way to go, then at least know your enemy: understand the free market theory and come up with ways to counter it. Otherwise you're not going to get very far.

Jeffrey Stedfast said...

I'd like to point out that I've listed every company I could find that received stimulus (there are likely more, but I gave up trying to track them all down).

If anyone knows of any other companies I should look into that got stimulus and are even arguably successful that I haven't already mentioned (Tesla, SunPower and Solar Trust of America, which, I guess, you could count as quasi-success stories depending on how you define success), I'd be more than happy to list them (it'd also lift my spirits seeing as how discovering all of these failures has been extremely depressing).

Jeffrey Stedfast said...

I'd like to point out that my sources have largely been ABC News, CNN, NBC, The New York Times and The Huffington Post, DOE's own website, and the websites of some of the recipients of stimulus money, none of which, to my knowledge, have ever been accused of having right-wing bias.

Anonymous said...

@anon 1:02: btw, it's important to remember that the original free market theorists were very much _about_ creating a good world to live in. Smith was very big on this. It helped that in his time, economies were rather simpler and adhered more closely to theoretical models.

So let's take another Economic Theory World example. One trick I like to use in thinking about economics is to take the money out. Money's just a medium of exchange, more efficient than barter; but you can conceive of things in terms of barter when thinking theoretically, because you can happily ignore all the practical problems with barter systems.

So: let's say we have three countries, A, B and C, each with three citizens - A1, A2, A3, etc. For each person in our world of nine people to be happy, they need a red ball, a yellow ball and a green ball. (We're in economic theory land here, remember. You can scale this up to millions of people and real goods at your leisure).

Usually it takes ten years to make a ball. But each country is really good at making one type of ball: the people of A can make a red ball in one year, B can make a yellow ball in one year, and C can make a green ball in one year.

I guess you can see where I'm going with this. If each country manufactures its balls and trades entirely domestically:

A1 - red x3 = 3 years
A2 - yellow x3 = 30 years
A3 - green x3 = 30 years

B1 - red x3 = 30 years
B2 - yellow x3 = 3 years
B3 - green x3 = 30 years

C1 - red x3 = 30 years
C2 - yellow x3 = 30 years
C3 - green x3 = 3 years

And then A1, A2 and A3 trade off so that each has one ball of each color, same for B and C - then to make all three of its citizens happy, each country spends 63 citizen-years of labour - 21 for each citizen. If we do it the efficient, free international trade way:

A1 - red x3 = 3 years
A2 - red x3 = 3 years
A3 - red x3 = 3 years

B1 - yellow x3 = 3 years
B2 - yellow x3 = 3 years
B3 - yellow x3 = 3 years

C1 - green x3 = 3 years
C2 - green x3 = 3 years
C3 - green x3 = 3 years

Then the *countries* exchange their ball production so that each citizen of each country has their three differently colored balls, *each country* has benefited. Each country now expends just 9 person-years of labour. Each citizen of each country now has to work for just three years to achieve happiness! Wouldn't you rather work for 3 years than 21, for the same result? Economic efficiency *is* related to human happiness, in this conception - and, at the time Smith was writing, in the real world. The efficiency brought to us by specialization and trade allow us to work less and have a much greater quality of life.

It really is a very powerful theory, and one you can't just dismiss or ignore. You have to critique its application or its effects in specific circumstances.

I wrote a much longer post extending these thoughts which is too long to post as a comment here. I'll post it up on my blog and link it.

natermer said...

The real solution to this 'green' problem is this:

Have the USA pull it's military out of foreign countries and cease and desist all attempts to protect and control the supply of oil for our country. Then you dramatically cut back on the amount of money and debt it takes to run a imperial military force.

Take the money saved and us it to pay down debts and reduce taxes on Americans.

As Russia and China struggle to then control the oil prices will gradually rise for gasoline and other related goods. The economy will naturally then funnel money into alternative energy programs. The rising cost of oil will make investing in technology more economically attractive.

Therefore you can depend on highly motivated and highly educated individuals to make the choice about what and who to invest rather then shadowy government committees and politicians who invest based on political expediency rather then what actually is promising or effective.

As rest of the world struggles in the nightmare of oil energy politics machinations the USA will then be positioned as a new energy economic super power.

Meanwhile to help out Obama can do things like remove the massive new tariffs levied against importing solar panels.

These tariffs, which were put in place by the Obama administration, have decimated the economic effectiveness of using solar energy for individuals in order to protect incompetent domestic manufacturers and has held back the development of new technologies.

http://www.nytimes.com/2012/05/18/business/energy-environment/us-slaps-tariffs-on-chinese-solar-panels.html


On a side note we can also get rid of draconian and discriminatory IP law to help move the emphasis for funding research away from finding new ways to patent incremental improvements on existing technology and to collaborative theoretical research that will have a much higher potential for yielding dramatic improvements in efficiency and energy gathering techniques.


But none of this can happen because the government doesn't give a shit about individuals, green energy, or technology. What they care about is staying in power and lining the pockets of politically important allies in industries.. to the detriment of freedom and progress.

Jeffrey Stedfast said...

natermer,

Sounds like a good plan to me!

Anonymous said...

Jeff,

Regarding Frisker:

You claim that "Fisker Automotive received a stimulus package of $529 million to supposedly create jobs in the US. The first thing it did with the money was to run to Finland to manufacture its cars."

The article debunked a lot of what you said:

(a) It was not a stimulus, it was a loan.

(b) They never reached 500 mill, because they missed deadlines.

(c) The loan was granted in the Bush years

(d) The money that they got (159mill, the first chunk) was to buy parts from US companies, not to build the product in the US. So there was no "run to Finland" with the money.

(e) The second part (359mill) was to actually manufacture in the US, but since they were delayed, neither the loan was granted, nor the jobs created.

So there we have it. Your statement is factually wrong in five places. Why? Because you made up your mind before researching the subject.

As for the Biden quote: he grants the loan and makes a positive sounding announcement, hoping for the best. What did you expect? For Biden to say, "we are loaning 500 mill, but this looks like shit"?

That said, they did not manage to hit their deadlines, so the loan stopped at 159.

I do not blame you for trying to shift the discussion from your -blatantly incorrect- statements and into Biden's PR quote. I would do the same if I found myself trapped like a rat between facts, ideology and the unpleasant effects of cognitive dissonance.

Jeffrey Stedfast said...

Mr Anonymous,

a) A government-backed loan is a form of stimulus. There are various types of stimulus: loans, grants, and tax breaks. Most of these companies received loans and not grants or tax breaks (except where I mention tax break or grant specifically). I actually specifically tried to mention loan as well, but you are right, I missed this one. Would me editing that statement to say loan instead of stimulus stop those crocodile tears?

b) No shit. I mentioned that in my original blog post (it's still there, btw).

c) Bzzt. Wrong. Reread the article you linked. Let's examine what was stated in the article, shall we?

"The loan was approved by the Obama administration, but unlike the situation with Solyndra that we have previously detailed, Fisker received its loan under the original Bush program. The announcement details how the first part of the loan, $169 million, would be used to work “with primarily U.S. suppliers to complete the company’s first vehicle, the Fisker Karma.” The second part of the loan, $359.36 million, will be used for “the manufacture of a plug-in hybrid in the U.S.”"

Note the first sentence. The loan was approved by the Obama Administration.

Note also this link: https://lpo.energy.gov/?p=888

Sorry to say, but the Bush Administration was long gone by September 22, 2009.

Now, the second part of that sentence states that the loan was received under the Bush Administration. When you first linked this article to me, I found that rather curious, so I investigated.

How could the Obama Administration approve the loan, in September of 2009, *after* the loan was already given?

It turns out that the Washington Post article was unclear.

You see, while Bush created the AVTM stimulus program in 2007 (which passed with a large Republican *and* Democrat majority) it was left up to the Obama Administration to choose the companies to receive various forms of stimulus.

My article doesn't accuse the Obama Administration of creating this program. Rather, I criticize the Obama Administration for choosing such lousy companies to give it to.

Jeffrey Stedfast said...

(d) As you correctly point out, there were 2 loans to Fisker. The first was, I thought, $169 million (but we can use $159 million if you wish). And as you point out, the US Government allowed Fisker to build the first round of cars in Finland, provided that a majority of the parts came from US factories.

Part 2, however, required that they build those cars in the US.

Seeing as how they received $193 million (at least $24 million into the second part of the loan), is it not fair to say that they did not live up to their end of the bargain?

Perhaps this is why the DOE cut off their credit?

They do not say, we can only speculate, but it seems a reasonable assumption to make, no?

(e) Actually, they *did* receive at least $24 million in loans from part 2. How else did they receive $193 in stimulus loans?

Unknown said...

Just curious, are there any green energy grant recepient companies that WERE successful?

Ian said...

You seem to be missing a big chunk in your research, and it is in the most interesting area. You do touch on it briefly, but from the title to most of the content you seem to be suggesting Obama should take personal responsibility for the investments.

Are you suggesting he is responsible for choosing the companies? That stimulating the green economy is a bad thing to do?

The part you're missing is who in government is actually responsible for choosing the companies that get invested in? Is it politicians that decide who gets the investment or unelected officials?

I would say that this kind of investment in your economy is good, but it's very suspicious just how many failures have happened and just how little background investigation into the companies that received the funding seems to have been done. It would be hard to do this badly if you invested randomly in X green energy companies taken from a pool.

So the real question is: why has these companies be so badly selected and who has done the selection? Is the "fail" merely bad luck or deliberate in order to derail the policy?

Jeffrey Stedfast said...

Ian,

I personally don't think Government should be involved in picking companies to invest in at all, but recognize that I am in the minority there, and trying to argue that point would be fruitless. However, I think we can all agree that this has been a disaster due to so many poorly chosen companies.

I've been saying "Obama Administration" because I don't know whop, exactly, is making the decision on which companies to give these loans, grants and tax breaks to.

As President, Obama elected Stephen Chu to head the Department of Energy in early 2009 which is the department providing these loans and grants (and Chu's name is on every single one of the announcements from the DoE about giving stimulus to these companies).

I agree that it is suspicious in how many of thee companies have failed. If the DoE was headed by a Republican, I might suspect "sabotage" as you suggested, but afaict, it's not.

That seems to suggest simple poor judgement on the part of whoever chose these companies.

Anonymous said...

Sorry for the off-topic, but this post (which is, BTW, really interesting) hit planet openSUSE more than a dozen times since yesterday. It seems there is something wrong with your rss or with how your rss is read by planet openSUSE...

Regards

Anonymous said...

Your post covers at most 2-3 billion worth of loans.

You claim that most of Obama's record has failed, while they have given 34B in loans. So your post scratched the surface of 10% and you managed to make some pretty serious mistakes every time the surface was scratched.

Now to create a million jobs, you need a lot of money going into the economy, a lot more than the private sector is investing in. The only source for these loans is the government.

Can Obama raise the loans from 34 billion to 340 billion? No, he can not.

The GOP has made its life mission to stop the debt ceiling from being raised, to make Obama fail. You can save yourself some typing about fiscal responsibility, we know the talking point. This was an attack on Americans for the sake of political gain.

Then you say "If the US Government was a Venture Capital firm, it would have been considered a failure."

Wrong:

http://www.quora.com/What-is-the-average-success-vs-fail-rate-for-venture-capital-investments

You are comparing apples and oranges. These were loans, that must be repaid. VC funds work by taking an equity in the company.

And it is not "taboo to measure Obama's success with investing in Green Energy companies using the same yardstick". But as soon as you come up with a system that can compare equity vs infrastructure investment and one that can compare 10 year VC fund maturity with 4-year government loans you should apply for a patent and sell the technology to Wall Street. You will heralded as the the Einstein of the financial industry.

Until then, you are just another blogger comparing Apples and Oranges.

Anonymous said...

Ian,

Jeff set out himself to find that "Government is Bad", so he went to find things that have failed. This is his new found religion. The problem is that he is angry, so he shoots without learning to aim.

Consider his statement on a power plant that received a loan for 1.6 billion dollars: "this deal stinks to high heaven". You might ask yourself, why does this deal stink of high heaven?

Well, Jeff advances two bits of conspiracy: (i) that each job created costs a million dollars and (ii) tries to use guilt by association.

Let us look at the cost: What Jeff might not know is that building an array of solar cells in the middle of the desert to produce 960 MW actually takes a lot of money. The price for building the plant for that capacity is merely within the boundaries of every other solar plant in the world.

Of course, Jeff did not bother looking any of this.

Based on US rates for electricity the plant will bring between 1 to 3 billion dollars in revenue per year (depending on how it ends up being priced). It takes money to make money they say.

Now, if this was some pinko plot, the government would own the businesses and operate them. Alas, it is not operating these businesses. The govt is loaning money to get these initiatives bootstrapped.

Then we got the Kennedy connection. Exactly how it is fishy, Jeff does not tell us. He just knows a fish when he sees one, just like he knows the price of solar panels when he sees one.

So a long rant of poorly sourced material.

Jeffrey Stedfast said...

> Consider his statement on a power plant that received a loan for 1.6 billion dollars: "this deal stinks to high heaven". You might ask yourself, why does this deal stink of high heaven?

How about because BrightSource was already $1.8 billion in debt? Or how about because the loan was given to finish a project that another Green Energy company was paid by the DOE to complete, but didn't because it went bankrupt first?

Jeffrey Stedfast said...

by the way, "debunkerofrants", care to respond to my rebuttal of your Washington Post link? Or have you decided to need to shoot the messenger now that I've debunked your previous attack vector?

I see you are trying to make this personal, and then go and hide behind an anonymous account. Very brave of you.

Joe "Rotund" Tennies said...

So, I'm going to disagree with the Tesla comment. I think you are expecting the Model S to compete against the Volt and Leaf. The Volt and Leaf are squarely aimed at the "everyday commuter" market. So they are competing against the Focus and Fit and are ~3x more expensive upfront. The Model S is a luxury car and is competing against Audi and Lexus (which is around the middle of each of those markets). Perhaps they'll eventually get to the market you are looking at, but I don't think that's the market they're aiming for.

Remember when the Prius came out? It was quite expensive and now look at it. I see the Prius C is under 20K

On the other hand, I'm looking at the Arcimoto, which gives up more comforts to keep the cost down. They expect you'll have a second vehicle and this isn't your only one.

sri said...

Well done, Jeff.. love seeing people doing research on this stuff. As an Obamaphile, it is sometimes hard not to be knee jerk about these kind fo things, but I agree that Obama and by extension the DoE can do much better.

Giving money to companies is always dicey since the govt tends to be lousy venture capitalists. We tend to be a lot more generous than VCs are.

Anonymous said...

The idea is that there are companies which are probably going to be successful regardless, and which will easily find private capital to be invested in them.

Then, there are companies starting off with a higher risk for success (like all the green energy companies), and they are less likely to get any private funding because of that risk. However, their goals are to bring benefits for the farther-away future.

And these are exactly the companies that governments should invest in (if they should be investing in anything that's not going to become public knowledge, that is: i.e. no patents or such). So, it's expected to have a lower success rate than a regular VC. How bad it can be is another discussion, of course.

Jeffrey Stedfast said...

Joe,

You may very well be right, only the future will tell.

Jeffrey Stedfast said...

Thanks, sri!

Jeffrey Stedfast said...

danilo,

Perhaps, but as a counter to that argument, private investors are funding a space mining company.

That, to me, sounds even more risky than Green Energy. The existing non-Green Energy companies surely must be aware that drilling for oil, fraking, etc are becoming more and more expensive because of having to find these resources (getting harder and harder) and extracting them (also becoming harder).

At least one of these bankrupt Green Energy companies has been bought out by a Big Oil company (Total).

Democrats love to attack Big Oil companies for their wealth, power and greed. In many ways, I agree with them.

Most of these Green Energy start-ups will be so deep in debt by the time they are successful that the Big Oil companies will buy them up cheap and add to their existing wealth, power and greed. As we've seen, some of these Green Energy companies will be bought out as they go bankrupt - unable to pay back the Government loans that they took.

US Government funds all the R&D, Green Energy does all of the work but fails just short of being wildly successful, Big Oil company comes along and buys them up cheap because they've gone bankrupt and gets the benefit of having the technology, leaving the tax payer on the hook for paying back the Government's investment losses.

If we're *lucky*, the assets of the bankrupted Green Energy companies will cover the loan debt, but that hasn't panned out in my research so far.

Anonymous said...

debunkerofrants: " These were loans, that must be repaid."

Well, in the expected course of things, yes. But if the company goes broke, it doesn't pay back the loan; it can't, it doesn't have the money any more. That's what going broke _is_. Given the circumstances around the bankruptcy of a lot of the companies Jeff lists, it seems unlikely that they were able to repay much of the money they were loaned. It's only a good investment to loan money to a company if the company survives and makes enough profit to pay you back...

Steve said...

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scottg1958 said...

the road to hell can be paved with good intentions! the complaint is government intervention in what use to be the free market system...if whatever company is a good idea it seems that investors from all over would invest! when government is the one who decides who is to be successful then it is bound to fail! let the free market make those decisions----uncle sam spends like it's found money--that'll never work!

Green Apple Energy USA said...

Its true, its a straight up shame of something that could have potentially saved our country and provided America with a lot more jobs, but instead it sinks horribly. We'll find a green way, someday. Hopefully?

-Green Apple Energy USA
Solar Installer Boston

Terrence Flendersen said...

Well, in the expected course of things, yes. But if the company goes broke, it doesn't pay back the loan; it can't, it doesn't have the money any more. That's what going broke _is_. Given the circumstances around the bankruptcy of a lot of the companies Jeff lists, it seems unlikely that they were able to repay much of the money they were loaned. It's only a good investment to loan money to a company if the company survives and makes enough profit to pay you back...
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