Controversial U.S. energy loan program has wiped out losses | Hacker News Reader

Controversial U.S. energy loan program has wiped out losses

reuters.com

25 pointsdanso12 comments

People who want the accounting nitty-gritty should consult the most recent GAO report ont he program: http://www.gao.gov/assets/670/662944.pdf

It's worth remembering a few things in relation to this. One, while this profit is only nominal, interest income will continue and will thus generate a real net profit soon enough, like sometime next year. Total net income to the treasury is anticipated to be about $5bn, assuming no more defaults. Two, Congress originally expected to write off as much as $10 billion at the time it set up the program. The actual default rate has been only about 2.25%, which is very good. Three, the program is often mischaracterized as a giveaway to wind and solar manufacturers, it's also the backstop for a $6.5 bn investment in two new nuclear plants in Georgia that are currently under construction, the first additions to the US nuclear fleet in 30 years.

Bloomberg had a good analysis of the program's history last year, with many interesting facts (eg the administrative costs of the Loan Program Office are covered up front by applicant fees): http://www.bloomberg.com/news/2013-10-10/one-of-world-s-bigg...

This is good, I hope. Unfortunately, I fear that these loans are earning interest from companies whose revenues are also subsidized by other government programs, which wouldn't be much different from the status quo, where they inflate away their debt.

Interestingly, one plant (partially owned by Google) recently applied for a Treasury grant to pay off its DoE loan [1]. As far as I know it has not been approved, but I'd be interested to know whether any companies have successfully done this.

[1] http://online.wsj.com/articles/ivanpah-solar-project-owners-...

According to a report by the Department of Energy, interest payments to the government from projects funded by the Loan Programs Office were $810 million as of September - higher than the $780 million in losses from loans it sustained from startups including Fisker Automotive, Abound Solar and Solyndra....

Not sure I agree with that. Sure it has more money than when it started, but you need to take into account what that money would be worth if it had been invested at a risk-free rate during that time period.

If I lose $10 then get $10 back 5 years later, I'm still down $1.59 if you assume that $10 could have gotten a 3% return for each of those 5 years.

First off: Unlike a bank or lending institution, the government can easily make up profits elsewhere. It's probably more like a grocery store-lose money on one thing to get people in the door, make that money back somewhere else. Sure, there are people that will come in, buy the one thing on sale, and leave (solyndra), but you care about the average, not the outlier.

So, the economic impact that may have increased tax revenue for the government and overall strengthened the economy in addition to loan and interest receipts. While that's hard to calculate, at least one small point may be representative: Tesla replaced Oracle the NASDAQ 100 in 2013, making up almost .7% of the gains the NASDAQ 100 has had in the last 18 months. Would that have been possible without a DOE loan? Maybe, maybe not. Still, it's clear people are and will be profiting (both short and long term) off of Tesla's rise, paying in money to the government when that happens.

But really, does it matter? We are talking about a government program that was successful within a margin of error.

The goal of the programs wasn't to turn a profit, and although it wouldn't be politically expedient to say, I'm sure they assumed a high likelihood of loss on the loan program. The goal however, was to spur growth in clean energy industries without assuming too much financial risk by the government (i.e. by just giving away hand-outs).

The mere fact that the loans have been paid back does signify that those goals were likely met, as failing companies don't have much incentive to pay back loans, and successful companies (arguably) pay taxes

The reality that the news loves a whipping boy and incompetence in government and institutions. Solyndra was a gift in that regard. It's also evident that it was also a statistical outlier, but anecdotes will always reign supreme over statistics when it comes to the news.

If you take into account the indirect revenues to the economy that these investment generated, I would say that the US government overall is in a much better situation because of this investment.

No such thing as a risk free rate for a government. You'd have to use the borrowing cost of the treasury to find out how much it really cost. But treasury rates have been very low recently. It's probably not totally made up, but it's probably close.

But the difference between $810 and $780 is greater than 3%. So even using your 3% example they have still broken even.

Sticking with the hypothetical, you forgot to calculate 3% per year. That's $23.4 million per year ($70.2 million up to this point +/-).

Maybe but that also assumes they had all of the losses at the start of the 10th year and made all of the profits at the end of the 10th year.

Also what returns 3%/year? I could imagine 3%/10 years (or even 15 years).

Yes, they mention that:

The report's findings are more of a political victory than a financial one. It took the program three years to break even after Solyndra's failure, while during that same time the Standard & Poor's 500 index increased 67 percent.

This is a meaningless number, like the ones that say that the bailout was profitable. At least the article realizes this instead of just copying the press release: "The report's findings are more of a political victory than a financial one. It took the program three years to break even after Solyndra's failure, while during that same time the Standard & Poor's 500 index increased 67 percent."

1) Is this 810M nominal, or inflation adjusted?

2) What was the market rate for loans at the time, and what rate did the creditors get from the Treasury? The difference is a loss.

3) How much would insurance have cost for these loans in lieu of the government guarantees they were given? This was also a cost, and a subsidy to the private lenders involved with the program.

I want the government to be spending on research into renewables, and spending generously, but these bullshit press releases are what make Jonathan Gruber's remarks about voter stupidity (which largely boils down to innumeracy) and the need to fool them in order to get policies enacted seem like an overt, conscious policy regarding all of the financial services interventions (including ACA) that have happened during this administration.

You may not agree with Walter Lippmann, but he wasn't proposing a way to structure governance, he was describing how we're already being governed and the inherent hard problems in coming up with any alternative that doesn't either converge to the current form or destroy itself over time.

Reply on news.ycombinator.com