Cleaning up the Cleantech Economy, Does Solyndra Belie the Sector?

Location: New York
Author: Ken Silverstein
Date: Monday, October 17, 2011

Does Solyndra’s bankruptcy belie the clean technology sector? Green energy has gotten a black eye but as pioneering tools exit the queue, it will rebound.

Before the era of ‘win-at-all-cost,’ public policy largely endorsed loans and other incentives targeted to all kinds of energy projects. The simple goal has been the creation of far-reaching technologies that will add value and boost economic growth while mitigating risks to the federal treasury.

“The reality is the Department of Energy’s loan guarantee program will likely result in minimal costs and large gains for taxpayers—just like many other federal lending efforts,” write Mark Muro and Jon Rothwell, both with the Brookings Institute, in the New Republic.

The two go on to say that the loan guarantee program has generated billions in loans that has trickled throughout the broader economy, creating jobs in factories and in electric utilities. They point to Xyratex, which built advanced machines for collapsed Solyndra: The firm is hiring people nationally.

Altogether, they say that the during the most recent recession, the loan program has generated $4 to $8 of private lending for every $1 of public investment. The U.S. government runs at least 70 loan guarantee programs, they add, which along with other lending plans, will put $3 billion in taxpayer money at risk. But those policies will return $46 billion to taxpayers in 2011.

That has helped scale up the nation’s clean energy program -- a far more useful gauge than looking at the size of the loan program in relation to how many immediate, permanent jobs it has created, they say. Using the latter, the U.S. Department of Energy is awarding $30 billion in loans to 40 alternative energy projects, which according to the administration have saved or created at least 60,000 jobs.

It’s one thing to look at the long-term ripple effect. But critics say that green energy has been improperly advertised as a short-term economic fix.

"Cleantech is an increasingly large disaster that people in Silicon Valley aren't even talking about anymore," says Peter Thiel, co-founder of PayPal at a recent forum that was covered by the San Jose Mercury News.
Economic Engine

That Mercury News cites statistics showing that venture capital investment fell from $2 billion in the second quarter of 2010 to $1.83 billion in the second quarter of 2011. However, the Cleantech Group put out a different spin: It says that cleantech investments grew by 12 percent from the second quarter to the third quarter of this year, which is at close to $2 billion.

Specifically, it says that energy storage is the top investment: $514 million was placed into 19 different deals. Solar, meanwhile, garnered $350 million in 33 separate transactions and energy efficiency earned $223 million for 34 projects. More than three-quarters of the money has gone into North American ventures while Asia accounted for 14 percent and Europe and Israel 10 percent.

“Cleantech is not a disaster,” says Vinod Khosla, founder of Khosla Ventures, in response to questions at the cleantech form in Silicon Valley. “Just in the last 12 months we've generated over a billion dollars in profits. I challenge anyone to claim that cleantech done right is a disaster.”

Cleantech enterprises are not just trying to woo risk takers like Khosla. They also want to persuade deep-pocketed utilities to get aboard. In the past, they provided anywhere between $1 million and $25 million in a single shot, although utilities have not chosen to own more than 20 percent for regulatory reasons.

Venture capital investing is a method by which utilities can learn about new business opportunities without having to risk unlimited capital. Such investments, while uncertain, are a means of investing in emerging technologies that could affect their core operations. In addition better returns that most companies hope to achieve over time, the outlays must expand the parent companies' markets for its products and services.
Private companies must answer to their boards and to their shareholders. But the U.S. government must guard the federal treasury. As such, cleantech projects have not proved to be a short-term prop but rather a longer-range foundation to ignite America’s economic engine -- the kind of scenario that should result in a bipartisan, balanced approach to policymaking.

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