Crony Capitalism Alert

by Pejman Yousefzadeh on November 14, 2011

Eric Lipton and Clifford Krauss sound the alarm:

Halfway between Los Angeles and San Francisco, on a former cattle ranch and gypsum mine, NRG Energy is building an engineering marvel: a compound of nearly a million solar panels that will produce enough electricity to power about 100,000 homes.

The project is also a marvel in another, less obvious way: Taxpayers and ratepayers are providing subsidies worth almost as much as the entire $1.6 billion cost of the project. Similar subsidy packages have been given to 15 other solar- and wind-power electric plants since 2009.

The government support — which includes loan guarantees, cash grants and contracts that require electric customers to pay higher rates — largely eliminated the risk to the private investors and almost guaranteed them large profits for years to come. The beneficiaries include financial firms like Goldman Sachs and Morgan Stanley, conglomerates like General Electric, utilities like Exelon and NRG — even Google.

A great deal of attention has been focused on Solyndra, a start-up that received $528 million in federal loans to develop cutting-edge solar technology before it went bankrupt, but nearly 90 percent of the $16 billion in clean-energy loans guaranteed by the federal government since 2009 went to subsidize these lower-risk power plants, which in many cases were backed by big companies with vast resources.

When the Obama administration and Congress expanded the clean-energy incentives in 2009, a gold-rush mentality took over.

So, the government is in the business of picking winners amongst energy industries (thus shielding the winners it picks from the market pressures other industries not subsidized by the government are regularly subject to), enriching Wall Street firms in the process (does the Occupy movement know about this?), and imposing higher rates on energy customers in the process. Oh, and “[g]old rush mentalit[ies]” cause heartburn amongst the sober-headed, you know:

Obama administration officials said the subsidies were intended to help renewable-energy plants that were jumbo-sized or used innovative technology, both potential obstacles to getting private financing. But even proponents of the subsidies say the administration may have gone overboard.

Concerns that the government was being too generous reached all the way to President Obama. In an October 2010 memo prepared for the president, Lawrence H. Summers, then his top economic adviser; Carol M. Browner, then his adviser on energy matters; and Ronald A. Klain, then the vice president’s chief of staff, expressed discomfort with the “double dipping” that was starting to take place. They said investors had little “skin in the game.”

There were efforts to address this concern, as the story notes, but that hasn’t stopped the subsidy programs from massively enriching the companies involved.

Recall that Paul Krugman told us that the Solyndra scandal was nothing to worry about. It turns out that Solyndra–and the crony capitalism that made it possible–was just the tip of the iceberg.

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