Government Should Not Meddle in the Energy Market

The Solyndra scandal is the scandal of government meddling in the marketplace. Federal intervention in private industry inevitably subordinates economic considerations to political ones. That is exactly what happened with Solyndra, and taxpayers are now footing the bill.

One of Solyndra’s chief investors, Obama bundler George Kaiser, visited the White House at least 16 times from March 2009 through July 2011. There is no evidence that Solyndra’s loan guarantee was part of a quid-pro-quo. But the company’s political connections speak to a universal truth: When government facilitates or provides investment, the companies that benefit are necessarily the ones with the largest political footprint – the ones who can be noticed in Washington and gain access to the city’s power brokers.

The Energy Department’s political approach to Solyndra was evident in its February 2011 restructuring of the loan guarantee. The White House Office of Management and Budget warned weeks before the restructuring that Solyndra’s failure would make for very bad “optics,” given it would likely coincide with the upcoming campaign.

OMB also concluded that a liquidation of Solyndra’s assets would return more money for taxpayers than a restructuring. But DOE was determined to pursue the latter course. It refinanced Solyndra’s loan in unprecedented fashion, putting privative investors – including Kaiser’s Argonaut Capital – at the front of the line to recoup their investment – treatment that was afforded no other company financed under DOE’s section 1705 loan guarantee authority.

DOE readily admitted that private investors needed priority, since no investor would ever consider sinking more money into Solyndra without receiving excessively favorable treatment. In other words, Solyndra was a miserably bad investment, but DOE was determined to keep it afloat, despite even the White House’s determination that there was a “good chance” it would go bankrupt even under the restructuring agreement, and that taxpayers would see a larger return upon liquidation of Solyndra’s assets.

All of this appears to have been an effort to avoid political embarrassment for the administration, which had made Solyndra a poster child for the stimulus package. That’s what Solyndra employees thought, at least, after numerous meetings with DOE officials throughout the restructuring process. “The DOE really thinks politically before it thinks economically,” one Solyndra board member said. “DOE is willing to accommodate Solyndra,” a company adviser told Kaiser, “but they appear to be concerned about ‘looking bad.’” Hence DOE “push[ing] very hard” to get Solyndra to delay announcing layoffs until after the 2010 midterms.

All companies succeed until they don’t. Solyndra made big bets on a new, very expensive solar panel design that didn’t pan out. The issue is not whether certain industries or companies are, at one point in time, doing well. The issue is whether politics or sound business practices guide the country’s economy. As Solyndra so clearly shows, when government is responsible for guiding investment decisions, political factors tend to override economic ones.

Renewables are hardly the only energy sector to receive preferential government treatment. But the massive financial success of the fossil fuel industry, for instance, makes government support for the industry no more justifiable. The Heritage Foundation supports an energy policy that does not favor certain industries or companies over others, and Solyndra perfectly illustrates why.

This piece was written jointly with the Heritage Foundation's energy policy expert Nick Loris.

Photo Credit: Wikimedia Commons