DoE Picking winners and losers; here we go again

ThinkToday

http://www.foxnews.com/politics/2012...est=latestnews

$400 million dollar loan guarantee from the Obama administration for yet anothor solar panel maker. Anyone else think the government doesn't make a very good entrepreneur. They had 180 full time employees.... that's 2.2 Million per job..... hmmm, just give me the money please. IMO, the government does a good job kickstarting technology. e.g. look at the things that came out of the space program. Seed money for startups shouldn't be the role of the government. IMO, that's what private venture capital is for, and they will probably watch their money better than the government watches our money.

azdavesoul

How many billions were lost by our current government in solar and other private companies? I feel that grants for basic research may be appropriate but with our ballooning debt the federal government should be more responsible with our money.

http://www.businessweek.com/news/201...ech-media-says

Abound Solar Inc., a U.S. solar manufacturer that was awarded a $400 million U.S. loan guarantee, will suspend operations and file for bankruptcy because its panels were too expensive to compete.

daveb

Do you have any idea of the costs for a startup? It pays for more than just salaries. It also pays for equipment, overhead, etc. In a high tech startup, the costs for the equipment are quite steep. In the company I work for (a high tech startup), the cost for the raw materials alone is almost 3 million per unit (it's a combination MRI/teletherapy device)

ThinkToday

No doubt about it. However, this wasn't to fund development of some new technology. It's just starting a business. That's what venture capital and banks are for. If you can't convince venture capital it's a good bet/investment, why is the government getting involved? Look at SpaceX, they are private and have government contracts to do real work. If memory services me, I think they get some NASA support for monitoring, etc., but it's otherwise private funds at risk and not tax dollars.

Dickfore

> Implying that the costs of a company are solely due to employee's wages.

ThinkToday

No. Implying the cost per job created isn't worth it. i.e. not a cost efficient job creator. e.g. may as well give each person $2.2M and let them retire.

Dickfore

But, in capitalistic societies, companies are not open to "create jobs". Companies are created to make profit by selling goods and services. The inputs in creating goods and services are Physical Capital (factories, machines, desks, computers, etc.), Raw Material (quarz, silicon), and Human Capital (physical and mental labor, the technical know-how of your employees).

As you can see, employees are one of the three main categories in the inputs that go into creating the good. The owner of the company treats their wages as costs of production when figuring out the price/quantity of goods produced. If the company works with net profit, it means that the salaries are already paid for by the employer, and then he/she earns the difference as a compensation for their entrepreneurial effort.

One of the costliest inputs is the Physical Capital. What is different than the other inputs, it is a fixed cost, i.e. you must make the factory, regardless of how many units of the good you produce. One usually borrows funds from investors to start-up a company. Then, one pays of the funds borrow plus an interest over a longer period of time. This also enters in the price of the goods sold. Thus, the investors, who lent the money to the company, will eventually get their investments repaid, plus some interest for the service they had provided.

So, in the long run, you had made a factory for solar panels which creates profit every year, the investors got their initial investment, plus some interest for their services, and many people got an opportunity to sell their labor for wages, a situation that would not have been possible, had it not been for the factory.

edward

The Chinese duplicated American thin film solar panel technology and the Chinese government had started manufacturing them while Americans were still trying to find investors.

http://www.reepedia.com/archives/tag/solar

Why is it that the far right seems to be thrilled that another enterprise has failed. What if we all did that? Do you want Obama to fail so badly that it is OK even if it takes the entire country down?

In the meantime the big boys on Wall Street who could have invested their money in American
Solar are either shorting solar or looking for new hedging oportunities.

http://www.dailyfinance.com/2012/04/...hedge-divorce/

mheslep

*One* point to the DoE's credit on this topic: they laid out milestones for Abound and cut them off after $70 million into the total $400 million on the table.

ThinkToday

I don't disagree with your analysis. But, the company went under and US tax dollars with it. My beef is with the use of US tax dollars to plow into a business that, if sound, should have been able to get going without them.

ThinkToday

Very true. However, they weren't investing hundreds of millions in some cutting edge technology development. It's manufacturing solar panels. So why did the US government feel the need to step in to fund it with our tax dollars? Did the banks and venture capital folks not see the prospects...... or perhaps they did...... lol

ThinkToday

That's way over the top. First, the free market system is at the heart of conservatives. When the government gets involved and starts picking winners (those that get cheap easy government money - our tax dollars) and losers (those that have to depend on selling their ideas, marketing strategy, technology to bankers and venture capital folks) it interferes with the survival of the fittest mentality behind capitalism. Companies fail all the time in that environment, and that's nothing new. http://www.fastcompany.com/1841038/t...happens-to-you

Far from your assertion. Conservatives don't like companies to fail, but they make no bones about when the government gets involved in private enterprise and it fails. It is kind of an “I told you so”. Government involvement in something like fusion research is necessary, IMO, because the risk of failure is so high no venture investor would touch it. Things like that, yes, the government has a roll.

Dickfore

The problem is that some enterprises do not show net (accounting) profit over the period of several years, provided that the enterpreneur borrows money from a private financial institution at the current situation of the economy.

By this, I mean that the current interest rate for borrowing is sufficiently high, and the price of substitute goods (in this case, electricity generated by fossil fuels or nuclear reactions) is sufficiently low that it is unfavorable for any enterpreneur to go to the private market for opening a business with renewable energy.

Here comes the view of the current government. Spurred by non-market derived motives, they might decide that it would be preferrable to develop renewable energy industry for the long-run welfare of the society. It is a gamble, but so is every other enterprise. Since they are currently in power, it is ultimately their decision and they take the gamble. They rely on the assumption that in the future, the relative cost of fossil fuel energy compared to the renewable energy would be much higher than it is today, so that the business would start being profitable. Furthermore, since it was a pioneer in the field, it would exert some kind of market power on the world market, and the U.S. would be a world leader in the field (similar to Boeing in the aeroplane manufacturing business).

Furthermore, the dwvelopment of this industry will exert a possitive externality on the problem of reduction of greenhouse gases.

Under such a speculative cost-benefit analysis, the government decides to enter as a no-interest financeer for the private enterprise (in the lack of private financial institutions willing to invest at the current market conditions), by essentially giving a subsidy.

Notice that distributing the money of the investment between the populace would not count towards the chunk known as government spending in the GDP, since it is a form of an in-kind transfer. In the way we described above, however, it would count as a public investment. And any investment, no matter if public or private, would ultimately accelerate the long-term growth of the economy.

ParticleGrl

This isn't the DoE picking winners and losers- its the DoE giving out business loans. Its not government taking control of business. As the expression is usually used 'picking winners' is just direct subsidy of an enterprise- enough to keep it afloat regardless of economic conditions.

If the government wants to encourage development of green energy it can directly subsidize the industry, or create these sorts of loan programs- which is the more free market approach?

Now, maybe you think the government shouldn't be encouraging the development of green energy- but thats a different conversation.

BobG

Nothing new under the Sun? (pun intended)

One could say our solar energy subsidies work no better than our nuclear energy subsidies. (After 50 Years, Nuclear Power is Still Not Viable without Subsidies, New Report Finds).

So, yeah, it is a "here we go again" situation that's no different than the things we've been doing for at least 50 years.

On the other hand, we do need to eventually solve our energy problem before the oil starts running out.

rootX

I have yet to read the article carefully. Few concerns just looking at it:
1) Economic analysis is coming from Environmental group.
2) They don't seem to compare nuclear to other energy sources
3) "Carbon price" is kind of full of BS
All this makes me really weary to give any serious consideration to this article.

Dickfore

From the article you had linked:
I wonder, since they add up the subsidies from all the stages, if there is some other use of these cycles beyond energy production? Did they account for this added benefit as well?

Also, please explain how nuclear energy is renewable.