One of the most disastrous policy areas for the Obama Administration has been its propensity toward “leveling the playing field” by picking winners (good guys) and losers (villains), and then rewarding the winners with government largess. Unfortunately, many of the winning ideas chosen by the Obama Administration are concepts that have consistently proven to be inefficient, very costly, and incapable of living up to their promises. The most prominent of these failed ideas is ‘green energy’.
Today, Evergreen Solar, a Massachusetts-based company that received millions in government grants for green energy development and production, officially filed for Chapter 11 bankruptcy protection. This action follows a large-scale downsizing earlier this year in which a significant portion of the company’s manufacturing capabilities were relocated overseas, to China.
This comes just a few days after President Obama visited another ‘green energy’ company, Johnson Controls, Inc. of Holland, Michigan, which received $300 million in Stimulus funds to aid in the development of a solar cell battery manufacturing facility. That facility now employs 150 people — a “success” at $2 million in Federal money per job created.
And it looks like ‘green energy’ companies are about to face an even tougher road ahead: Venture Capitalists Back Away From Clean Energy:
Venture capitalists have traditionally focused on companies with low capital requirements that can quickly get bought up or go public. Many Internet startups fall into this category. But in recent years, many venture capitalists have been enticed to risk longer-term, high-capital energy investments in clean energy, thanks to generous government subsidies in renewable energy markets. In particular, they spent hundreds of millions of dollars on solar-cell startups that need to build expensive equipment and factories to prove their technologies, and can take many years to generate a return on investment.
Now many venture-capital firms are going back to their roots. Dozens recently stopped making initial investments in clean technology companies, according to Dow Jones Venture Source. Many that continue to invest in clean technology are shifting to areas such as energy efficiency, which includes low-capital projects such as software for monitoring and reducing energy consumption, according to an analysis by the Cleantech Group.
The money that still goes to the solar industry is now directed to companies with small capital requirements. Rooftop solar panel installers are one example. (In June, Solar City got $280 million from Google to fund solar installations.) There’s still some funding for solar-cell companies, such as for 1366 Technologies and Alta Devices, that are developing technology that the companies say can compete with fossil fuels. But “it’s a harder place to raise funds for new ventures,” says Sheeraz Haji, CEO of Cleantech Group.
This really shouldn’t be surprising, given that 1) venture capital companies are very picky and generally limit their funding only to startups with abnormally high potential for very aggressive growth; and 2) green energy products and services have a very poor track record of producing the ratio of high profits vs. short time frame that venture capital investors usually demand. And in reality, green energy has a very poor track record of producing any kind of profit at all. In most cases, green energy programs have to be continuously subsidized, because they cannot generate enough cashflow to pay for themselves.
This is not to say that we should stop research into wind or solar energy technologies. But such research should be limited to private organizations willing to invest their own resources in green energy development. However, in order to do this, private energy companies need to be permitted to earn healthy profits from the production of traditional energy sources like fossil fuels, which will result in more cash at hand to spend on research and development. Private companies funding their own research is a far more efficient and cost-effective way to accomplish green energy development, when compared to government taking money away from traditional energy companies through taxation, then burning a significant amount of that money on bureaucratic and administrative costs, then finally awarding subsidies to companies that otherwise would not be able to stay in business for themselves.
Of course such a policy shift would require common sense, something that seems to be an increasingly scarce commodity in Washington DC these days.