A federal subsidy program with consistently poor marks on transparency and accountability has just announced its largest ever award: a $2.1 billion loan guarantee to a German-owned solar power company. The Solar Trust of America, the U.S.-based joint venture of two German companies, says the subsidized project will create 1,000 construction jobs and 220 permanent jobs in the desert where the new solar power plant will be built. Maybe so, but there are plenty of reasons to question the efficacy of this government job creation project -- including the fact that the key components of the plant will be built by robots.
The 2005 energy bill authorized the Department of Energy to guarantee private bank loans for "innovative energy technologies." President Obama's 2009 stimulus bill expanded the subsidies and removed the requirement that the beneficiary provide a "down payment" of sorts to cover the risk. But the program has consistently received harsh critiques from the Government Accountability Office and the DOE's inspector general.
Federal loan guarantees put the U.S. taxpayer on the hook if the borrower cannot repay the loan. When it comes to nascent technologies in economically dicey industries like energy, default is a serious concern.
"Ability to perform and repay the loan," was one of the important things DOE officers sometimes failed to examine, according to an IG report issued in late 2007. In July 2008, the GAO concluded that "the Department of Energy was not well positioned to manage the Program effectively and maintain accountability," according to one summary. In early 2009, another IG report noted improvements, but still found the program lacking "procedures necessary to estimate potential losses in the event of default." A July 2010 GAO report found the program treating applicants inconsistently.
The latest IG report, issued in March, found widespread shortcomings in documentation and transparency. None of the 18 loan guarantees issued under the program had been properly documented. The program officers "did not always record the results of analyses" of loan applications. Program officers told the IG things about risk management efforts that clashed with the agency's written records.
In short, while there's no hard evidence of clean-energy loan guarantees being given out haphazardly, the Department of Energy can't prove they're being approved with proper care, either.
In this context, the department approved a $2.1 billion guarantee for a solar power plant in the Mojave Desert.
Solar Trust of America is owned 70 percent by German company Solar Millennium and 30 percent by Ferrostaal, also of Germany. One of STA's finance partners is Deutsche Bank, which could end up being the lender. In that case, the guarantee would mean that if a German company fails to repay a German bank, U.S. taxpayers would foot the bill.
STA's Blythe Solar Power Project in California's desert will have no solar panels, but instead uses large parabola-shaped mirrors to focus the sun's energy on a pipe filled with a synthetic oil. The hot oil is piped to a nearby building where it boils water, generating steam, which spins a turbine, generating current.
In press releases, STA and the DOE declare this will create 1,000 construction jobs and 220 permanent jobs. In a 2009 regulatory filing, the company said construction would require an average of 604 jobs, "peaking at approximately 1,004 workers in Month 16 of construction." An STA spokesman said many of the jobs would be unskilled construction jobs, but there would also be "good union jobs: pipefitters, electricians, a lot of engineers."
For these workers, the loan guarantee is a boon, no doubt. But there's plenty of reason to doubt promises of new jobs from these guarantees. Solyndra, the first company to get one of these loan guarantees under the stimulus bill, ended up closing one of its plants and never creating the new jobs the company and the White House promised.
For Blythe Solar, automation might drag down job numbers: A 2011 report from an executive at Flagsol, which will make the mirrors for Blythe, stated: "Each subprocess, such as assembling, bolting and cementing, will be performed in the future by robots."
Former Energy Department official and John Kerry staffer David Leiter was one of STA's lobbyists working on "financial incentives for renewable energy, including protecting funding to DOE loan guarantee program," according to a lobbying disclosure form filed April 14.
The German innovators at Solar Millennium and Ferrostaal may prove to be the Thomas Edisons of their day. The Blythe project could be a huge economic boon. Given the history of this DOE program and the unpredictability of the energy industry, the project involves plenty of risk. Thanks to Congress, the taxpayer is the one bearing that risk.
Timothy P.Carney, The Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.
