So we’re continuing our look into the green energy industry. (If you missed our earlier letters in this thread, you can read them here and here.)
Today I want to share another shortcoming of the industry.
Up till now, a large chunk of investment in green energy (both in terms of dollars as well as regulatory policies and tax credits) has come from the government.
It’s basically Washington making a big, huge bet on the success of the industry — with your tax dollars. And as we’ve seen in the past, the government shouldn’t be picking winners in anything…
Mainly because they don’t know what they’re doing.
A Prime Example…
Back in March of 2009, the Department of Energy announced that the first recipient of the Obama administration’s energy loan guarantee would be a company calle Solyndra. They made unique cylindrical solar cells and were awarded $535 million to go toward funding a new manufacturing plant.
(I won’t get into all the questionable details of how Solyndra happened to be chosen to receive this windfall. Suffice to say there were a lot of questions when the end came. And the end came quickly.)
Despite the government backing, in a matter of two years, the company had declared bankruptcy. But not before it renegotiated the terms of its government loan to ensure private investors in the company would be paid back before the government.
It turns out the investment in Solyndra wasn’t as sound as the administration let on…
“Solyndra,” as former hedge-fund manager Bruce Krasting concluded, was “an absolute complete disaster.” Its operating expenses, including supply costs, nearly doubled its revenue in 2009 — and that’s without factoring in capital expenditures and other costs in what, Krasting observes, is a “low margin” industry. The chance that Solyndra would ever become profitable was essentially nonexistent, particularly given that solar-panel competitors backed by China produce energy at drastically lower prices.”
And if that weren’t enough, there was some serious scandal involved too. It turned out that one of the private investors in Solyndra was a major Obama fundraising bundler named George Kaiser.
So What’s the Takeaway?
At one end of the spectrum, the Solyndra debacle was a massive waste of taxpayer money on a bet that actual financial professionals wouldn’t touch with a ten-foot pole.
At the other end it was outright fraud within the Obama administration.
Either way it says the government shouldn’t be in the business of picking winners in the market with your money.
But where Washington’s concerned, no lessons are ever learned…
It’s been 10 years since the Solyndra debacle, it should be noted that the government loan guarantee program that flushed over half a billion taxpayer dollars down the drain still exists today.
And now we have a progressive wing of Congress pushing to spend trillions more advancing green energy of all kinds in their Green New Deal.
Just because the government is on board, doesn’t make an investment a winner
The bottom line: The government can’t pick winners… only the market can.
And There’s One More (Important) Thing…
It’s true that a lot of businesses get some kind of favorable financial treatment from the government. But if a business in an industry needs that kind of government support simply to stay afloat, it’s not ready for prime time.
Look, I’m an unapologetic capitalist. And as far as I’m concerned, any business that requires subsidies from the government to sustain itself is a risky proposition. I’m sorry, but no industry is worth subsidizing.
Market props — i.e. government financial support designed to make markets viable — always fail in the end. They may hold the market up for a while, but remember the insiders are never on the inside when the end comes… small individual investors usually are!
So Here’s My Bottom Line Where Green Investments Go…
Today, green investing is a big winner if you’re positioned to profit from the investment… i.e. if you’re on the receiving end of the money — like the Al Gores of the world.
Most of us aren’t.
If you’re on the side that’s pumping money into these companies, then you should know that green energy, from a technological perspective, is really not ready for prime time.
Don’t get me wrong. There is a place for solar, wind, geo-thermal and the likes. Just not as a reliable, main source of energy. And not in the near future.
And there are areas of business where the government can insert itself (creating business friendly environments where taxes and regulations go comes to mind) but picking winners in the market ain’t one of them.
So green investing rule No. 1…
Do not fall victim to the political arguments that are being represented as the “science” of green energy. Approach green investment opportunities with strict objectivity and a healthy dose of skepticism.
They can tax and regulate fossil fuels into oblivion, but that won’t make green a success. Only the market can determine that.
Make the trend your friend,
Editor, Streetlight Daily