The Wall Street Journal recently set a question before two energy experts, and ended up with divergent views: “Should the U.S. finance alternative-energy startups?”
The experts—Richard Capperton, managing director of energy at the Center for American Progress, and Douglas Holz-Eakin, president of the American Action Forum—offered opposing views on funding, the government’s track record so far, and how the example and abundance of natural gas should inform policy going forward.
Ability to Raise Funding Without Government Support
The debaters disagreed fundamentally on whether widely recognized alternative-energy success stories would have been able to raise the necessary funding by relying on market forced alone.
Capperton allowed that the companies may have been able to raise the money without government assistance, but added that “the money almost certainly would have been unaffordable. Loans from the government are significantly cheaper than private-sector financing for innovative projects.”
But Holz-Eakin disagrees, pointing out that “most of the energy companies in the government’s loan portfolio were generally low-risk. That means many of the companies that got loan guarantees from the government may not have needed them in the first place.”
He offers the examples of SolarCity Corp., which was denied a loan guarantee from the government and went on the find a funder in Bank of America. “Tesla Motors Inc., meanwhile, paid back its loan nine years early, indicating strong balance sheets that likely could have attracted private capital on their own,” he says.
What We Should Learn From Natural Gas
Both of the editorials in the point-counterpoint use natural gas to make their point:
Holtz-Eakin: “If the government wants to promote cheap, abundant energy with a lower emissions profile, we’ve already solved the problem. The U.S. boom in natural-gas production has lowered energy costs for consumers and put the nation well on its way to meeting targets for reducing greenhouse-gas emissions.”
But Capperton says that the lesser-discussed side of natural gas is the help it received from the government: “The truth is that government research and tax credits led to new drilling techniques that are at the heart of today’s natural-gas boom.”
The U.S. Government’s Track Record
Copperton argues that the government has demonstrated a great record of success in choosing the right alternative-energy companies to support; Holz-Eakin refers to commonly referenced failures Solyndra and Fisker:
“Contrary to popular belief, the government actually has a remarkable track record of investing in specific companies,” says Copperon. “The Department of Energy’s Loan Programs Office invests in specific companies based on a careful evaluation of financials, technologies, management and other key variables. While opponents of clean energy hold up Solyndra LLC as proof of a problem, only about 2% of the Department of Energy’s loan portfolio has defaulted.”
But Holz-Eakin says the government will never be a good venture capitalist: “The government has essentially no management expertise and cannot discipline losers. It lost hundreds of millions of dollars backing companies such as the failed solar-panel maker Solyndra LLC and electric-car maker Fisker Automotive Inc., which stopped production last year.”
Capperton: “Investing in clean energy is a government success story. Rather than debating whether to make more such investments, we should focus on moving more money through these programs.”
Holz-Eakin: “The best path for the government would be to wipe clean the messy slate of subsidies and equalize costs across different energy sources. Then, and only then, it would make sense to implement a broad, demand-based price incentive to tilt the balance toward alternative sources… Markets may not be perfect, but they are fairer, more transparent, and know how to cut losses.”