The Great Deformation (111 page)

Indeed, the Obama green energy boondoggle seems to have been flung out of some ideological time warp. It's as if Amory Lovins had come back to the White House to see if Jimmy Carter was still wearing his cardigan sweater and took the opportunity to peddle the virtues of solar power to the new incumbent he found there. In the interim, however, there occurred the saga of First Solar Corporation and dozens like it. These stories are dispositive; they both prove Lovins was a prophet in 1979 and also that the Department of Energy has been a sinkhole of waste ever since.

First Solar was started in the late 1980s by entrepreneurs focused not on exotic science, but on the practical problem of relentlessly driving down the delivered cost of solar power to the point where it would attain so-called “grid parity” and thereby become competitive with conventional fuels. The company's pioneering inventor, Harold McMaster, believed this could not be achieved with the expensive crystalline silicon wafer technology of the day, and so he experimented with various thin-film photovoltaic processes, settling on a cadmium telluride (CdTe) coating on a glass substrate.

By the late 1990s, the venture capital arm of the (Wal-Mart) Walton family became convinced that McMaster was on the right track. So the Waltons bought the company and funded an aggressive plan toward commercialization, launching production in 2002 and reaching a respectable 25 megawatts (MW) of capacity by 2005.

More crucially, First Solar made consistent, impressive strides driving down the cost per watt to below $2 by 2003, and then to $1.20 by 2007, below the $1 barrier in 2011, and to around $.70 at the present time. It is this cost-reduction riff that is the pathway to alternative energy commercialization. First Solar's success with the relatively exotic second-generation technology, cadmium telluride coating, powerfully demonstrates that real entrepreneurs do not need a K Street lobbyist to locate grants for their science or capital for their plants.

Owing to these cost breakthroughs First Solar's thin-film technology took off like a rocket, permitting the company to launch an IPO in late 2006 at a market cap of nearly $2 billion. But then came the dramatic proof that the financial markets are crawling with punters. This reality obliterates the case for a Department of Energy nanny, whether the power-hungry Dr. James
Schlesinger back in 1979 or the befuddled Professor Steven Chu today. To wit, during its first sixteen months as a public company, First Solar's market cap soared from $2 billion to $22 billion.

That amounted to an eleven times gain in almost as many months, and meant that the company would never again be wanting for capital. Nor would it need to lean on taxpayers to build plants and develop and launch products, as have the serial scams which emerged from the Obama stimulus. Indeed, First Solar's manufacturing capacity went parabolic from its 25 MW in 2005, reaching 300 MW in 2007 and 2,400 MW by 2011; that is, a hundred times expansion in seven years. Today, the company has eight thousand employees, $2.8 billion of revenue, and a $6 billion globe-spanning asset base.

Even more telling, its stock price has dropped by nearly 90 percent from its 2008 peak, meaning that the world is so full of punters and speculators that even out-and-out barn-burner successes frequently attract way too much capital and investor confidence. In this case, the Waltons made a killing from their perspicacity as venture capitalists. Yet the market is so rife with speculative capital that short sellers, too, made a fortune on the retraction of First Solar's stock price to an earthbound valuation.

It borders on the criminal to saddle future taxpayers with tens of billions of new debt in order to fund First Solar imitators. In the latter case, even the short sellers made fortunes the honest way—by being at risk. But under the Obama stimulus, the fundamental deal is that insiders get to short the US treasury without taking any risk at all.

That's the lesson of Solyndra which ended up a spectacular $850 million waste of taxpayer dollars (including tax benefits). In fact, however, Solyndra was not that different from First Solar: it had also been developing what it hoped would be an alternative to crystalline silicon cells using an even more exotic copper-indium-gallium-selenide (CIGS) coating and also tubular rather than flat-panel collectors.

The short story is that it did not scramble down the cost curve far enough or fast enough, and was left high and dry in 2011 when Chinese solar producers flooded the market with what had become dramatically cheaper conventional silicon panels. Yet whereas First Solar achieved dramatic cost reductions first, and then built up manufacturing capacity incrementally with several dozen conventional fabrication sites around the world, Solyndra made a huge role of the dice. Even before its manufacturing process had been proven, it constructed a single giant manufacturing works to produce its exotic thin-film coatings and fabricate its tubular panels.

Needless to say, even the great Wall Street speculators were unwilling to pony up $500 million for a vast green field plant based on what was still a
speculative technology. But the earnest Professor Steven Chu raised the taxpayers' hand for that honor, and a perfectly useless factory was built that has never even opened. Worse still, this never-started factory had cranked up its supply chain full tilt before it had orders or shipments. Accordingly, its subsequent bankruptcy filing showed it had purchased more than one million glass tubes from a lucky firm in Germany called Schott Rohrglas.

It thus turns out that a goodly portion of the half billion dollars of taxpayer money had actually helped to build the German trade surplus: the massive glass tube inventory shipped by Schott Rohrglas to the Solyndra plant in California would have stretched six hundred miles end to end. All of this high-purity glass was now useless, however, and was ordered destroyed by the bankruptcy court to avoid storage costs. In a final insult to injury, the court's disposal order undoubtedly also bolstered China's trade surplus: the fleet of lift trucks used to move these mountains of glass to the dump were made in China.

Still, the full rancid odor of crony capitalism did not materialize until the aftermath. Throwing good money after bad, Professor Chu agreed to subordinate the government's $535 million loan to $75 million of “rescue” money provided by affiliates of George Kaiser, the oil billionaire and Obama fund-raiser who controlled Solyndra. Coming from the oil patch, Kaiser obviously knew a thing or two about tax dodges and operating loss carry-forward schemes.

It now turns out that Kaiser and his cronies were more than happy to have the factory dismantled because as the senior creditor they ended up with the tax NOLs (net operating losses). The latter are worth about $350 million and can be used in one of Kaiser's profitable businesses, perhaps shielding oil production profits. In other words, by essentially “shorting” Uncle Sam, George Kaiser stands to harvest a 4.6 times return on his sham investment to “rescue” the company.

The obvious point is that the punters who bid up First Solar's market cap to $22 billion had no clue about whether the correct route to thin-film solar was CdTe or CIGS. Professor Chu apparently knew all about that topic. But his knowledge was irrelevant because the issue was the pace of manufacturing cost reduction per watt, not the science of photovoltaics.

Likewise, the firm's outlook for profitable survival was embedded in the quarterly path of orders, shipments, margins, and working capital ratios—the very thing that financial markets, even speculative ones, are designed to assess. By contrast, the Department of Energy apparently failed to notice that something was radically amiss with a 500,000-square-foot factory which had no output, shipments, or even orders, but was stacked with six
hundred miles' worth of glass tube inventory. It is no wonder the CEO of Solyndra referred to the company's White House sponsors as “the Bank of Washington.”

The case of First Solar versus Solyndra makes clear why the whole green energy program is a pointless waste. Each had a thin-film route to grid parity, but the entrepreneur behind the former attracted gobs of speculative capital, while the promoter behind the latter bagged White House staffers looking for ways to quickly spend down the vicar's $800 billion. Indeed, given that the CdTe route had already been a resounding marketplace success, having the taxpayers put up $850 million for its first cousin, CIGS, amounts to grand larceny, crony capitalist style.

FISKER AND TESLA: GREEN VANITIES OF THE BILLIONAIRES

The solar boondoggles are modest compared to the crony capitalist capers in the electric vehicle (EV) sector. Here the Obama administration has guaranteed loans of $530 million for Fisker Automotive and $465 million for Tesla Motors and provided $270 million in stimulus money for a company called A123 that makes electric vehicle batteries. The first two of these are essentially failing vanity projects of Silicon Valley billionaires that are now being bailed out by the taxpayers for no discernible reason. The third has already filed for bankruptcy, taking the taxpayers down the drain with them.

The US treasury was put in harm's way in all three of these cases not simply to boost the debatable concept of electric-battery vehicles. The global automotive industry is already rife with efforts in that direction by incumbent car companies including the Toyota Prius, the Nissan Leaf, the Chevy Volt, the upcoming (2013) Ford Escape electric vehicle, and countless more.

Instead, the big bucks from Washington are being used to prop up billion-dollar bids by venture capitalists to create totally new car companies. Yet unless you believe in tin-foil hat theories about Detroit buying up all the patents on magic carburetors which get a hundred miles per gallon, the last industry that needs start-up companies fostered by government is autos. In fact, the global automobile industry is hungry for new product markets owing to its vast overcapacity and is endowed with all of the engineering and manufacturing competence that could ever be needed to bring electric cars to market—that is, if consumers wanted to buy them.

Since gasoline still sells at 1973 prices in real terms, however, there remains only a tiny market for hybrid and electric vehicles. Thus, notwithstanding approximately $1.2 billion of venture capital funding, mainly from Kleiner Perkins Caufield & Byers, Fisker Automotive is literally going
down in flames: in addition to massive financial losses, many of the five hundred gasoline-electric hybrid cars it has actually sold have ended in fiery destruction in their owners' driveways. Indeed, the folly of Washington's Fisker caper could not have been more poignant than when Hurricane Sandy hit the New Jersey docks with its vast storm surge; more than a dozen Fisker cars ignited and burned to rubble when washed over by sea-water.

Given the $100,000 price tag for these vehicles, however, the story is not really about any hardship suffered by the credulous buyers of the Fisker Karma. The actual hardship will soon fall on the taxpayers because the underlying deal stinks to high heaven. It seems that Silicon Valley's leading venture capital firm had a failing auto start-up and Vice President Joe Biden had a failed GM auto plant in his home state of Delaware. Kleiner Perkins's chief green energy maven and major Obama fund-raiser, John Doerr, therefore arranged a deal.

In return for the aforementioned $530 million from Uncle Sam, Doerr and his purportedly Republican partner Ray Lane would present a new business plan to Henrik Fisker, the intrepid designer-entrepreneur behind their start-up auto company. Flush with vast new money from Washington, the struggling Fisker Automotive would develop a second version of its electric vehicle—a “people's car” that could retail for a mere $50,000—and build it in Joe Biden's empty auto plant.

While the vice president thought this was a swell solution and duly cut the ribbon at the plant's reopening, Fisker was not the most likely man for the job of building a people's car in Newark, Delaware. In fact, before becoming an electric vehicle tycoon, he had been a famous designer of ultra-luxury vehicles including the 2005 Aston Martin DB9 Volante. The latter carried a price tag of $250,000 and was built by hand in what is essentially an automotive museum in the United Kingdom.

Nevertheless, pending the development of a people's car to be called the Atlantic, Fisker got a $170 million installment from the Department of Energy to complete the design, engineering, tooling, and manufacturing launch of the $100,000 per copy Karma. After repeated delays, the first Karma was delivered to the company's launch customer (and investor) Leonardo DiCaprio, but it is surely the case that the green crusader–actor had not calculated the full carbon footprint of the Karma when it arrived at his Beverly Hills estate.

In fact, the vehicle had been assembled in Finland based on an aluminum frame that was manufactured in Norway and an interior cabin that was made by automotive giant Magna International of Canada, and sent to Finland for final assembly. Moreover, the heart of the vehicle, the electric
battery power train, was also shipped back to Finland after it was made by A123, based in Waltham, Massachusetts.

The latter was both an investor in Fisker and also a recipient of $260 million of Obama stimulus money. A few months after DiCaprio got his car, A123 filed for bankruptcy under a cloud, some of which emanated from the fiery demise of batteries it had installed in the five hundred or so Karmas which had been actually delivered to customers.

So the carbon footprint from its far-flung supply chain is considerable, given that all of these components are shuttled to Finland and back. But that's not the half of the Karma's severely challenged claims to being green. One of the great truths of the modern economy is that central-station electric power is grossly inefficient as a thermal matter, with less than 30 percent of the BTUs delivered to plant boilers actually ending up as useful work in homes and factories. Therefore, the fuel efficiency of electric-battery cars can only be fairly measured on a so-called “wells-to-wheels” basis, thereby taking account of the vast thermal losses at power plants and distribution grids from the hydrocarbon fuels originally consumed.