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The American Recovery and Reinvestment Act was passed by Congress on February 13, 2009 and signed into law by President Obama just days later. The Act had three main objectives: to create jobs, spark economic activity for long-term investment and growth, and establish greater accountability and transparency in government spending. Yet three and half years and $787 billion dollars later Americans are still waiting for those goals to become reality. It doesn’t take long to find ways the Recovery Act has failed at achieving its goals, but finding reliable information is a much more difficult task—wait, wasn’t transparency and accountability a goal of the Act?
The Department of Energy (DOE) was awarded over $35 billion from the Recovery Act and has so far paid out over $26 billion to renewable energy companies in the forms of grants, loans, subsidies, entitlements, and contracts. There are various programs that renewable energy companies can access in order to receive money. The largest and most widely known is the 1705 Loan program from the DOE, which gave loan guarantees to 26 companies for wind, solar, or geothermal generation; these individual loan guarantees range from $43 million to $1.6 billion. There are also the 1703 and ATVM loan programs—DOE’s 1603 grant program—as well the Treasury Department’s programs.
The U.S. House of Representatives Committee on Oversight and Government Reform conducted a report of the DOE’s handling of their loan guarantee program and discovered disastrous outcomes. The Department of Energy was warned by advisors of the risk associated with making such large loans to one sector of the energy field, but they continued with the programs anyway. As a result there is little diversification in the DOE’s loan holdings, which leads to a high risk and default potential. Making the situation worse, simple economics of money and banking was ignored as well, when the government sought no profit or interest repayment on the loans, even if the company was high risk. Put simply, the companies had “little skin in the game.” Ultimately, when the time came that they would default on the loans, taxpayers were the ones on the hook for the bill.
The risk to taxpayers increased when DOE decided to ignore lending standards and eligibility requirements. Regulatory requirements set by the Energy Policy Act outline that loans must only be given for “new or significantly improved technologies,” for “one technology per project sponsor”. In at least two cases found in the report DOE officials either mischaracterized equivalent projects as different or labeled “proven technologies” as “innovative” (pages 28-29 of Oversight Report). These were all ways for them to favor the renewable energy companies who were unable to compete with the falling natural gas prices without government assistance. Former Assistant Secretary of the Treasury Allison Herbert under the Obama administration led a review of Solyndra that found other structural problems in the DOE loan programs (page 26 of Oversight Report).
Here’s a quick look at how some of the many now failing and or bankrupt DOE favored renewable energy companies wasted their taxpayer loans and grants.
Beacon Power: (1705 Loan) They paid three of their executives more than a quarter million in bonuses in 2010, even though they were in financial trouble. They had no collateral or net worth in the game, and in 2011 they went bankrupt—leaving taxpayers on the hook for their default.
BrightSource: Received 1.6 billion in loan guarantees for a solar generation project, but spent over $56 million of that money to relocate tortoises.
Solopower: Accepted $40 million in Oregon taxpayer money in addition to DOE loans for $197 million, even though Standard and Poor’s gave them a bad rating.
Abengoe: A Spanish based firm received $2.45 billion in loans and $818 million in Treasury grants.
The U.S. House Energy and Commerce Subcommittee has begun working on an Act to prevent this kind of unchecked spending and accountability. Read more about the ‘No More Solyndras Act’.