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Why Do Taxpayer-Subsidized Businesses So Often Fail?

by E. Calvin Beisner

May 11, 2016

Subsidize renewable energy? What a great idea!

If you like wasting money.

11702998186_3dcec5ec57_zSunEdison, which once described itself as the “largest global renewable energy development company” and was America’s fastest-growing renewable energy company, filed for bankruptcy April 21. It seems that $1.5 billion combined subsidies and loan guarantees (including $650 million in grants and tax credits—i.e., outright handouts) wasn’t enough to make up for the combination of hubris-driven over-expansion, mismanagement, and failure to come to grips with the falling energy prices—driven especially by breakthroughs in oil and gas drilling technologies that glutted the world market—that have punched energy companies of all kinds in the gut.

As Robert Bryce, author of Power Hungry: The Myths of “Green” Energy and the Real Fuels of the Future and Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong, an expert on energy technology and business, points out, lots of energy businesses have gone bankrupt recently as a consequence of falling energy prices. So the bankruptcy alone isn’t all that remarkable—though its $16.1 billion in debt makes it the biggest in the U.S. in over a year.

What makes it remarkable is that the failure comes despite huge taxpayer-financed subsidies and loan guarantees. As Bryce summarized it:

The biggest federal handouts — two of them totaling $200 million — were made in 2010 and 2011 to a subsidiary of SunEdison, First Wind, for the Milford Wind project in Utah. In addition to the federal subsidies, SunEdison got $30 million in subsidies from various state authorities, including $21 million from governmental entities in New York. On top of that, SunEdison also received $846 million in federal loans, loan guarantees, tax-exempt federal bonds, and federal insurance. The total government support for SunEdison comes out to $1.5 billion.

That’s a figure worth considering, given that on Friday [April 1], the market capitalization of SunEdison—that is, the value of all of its outstanding stock—was about $176 million. Thus, federal and state taxpayers have shelled out roughly eight times as much money in subsidies and loan guarantees as SunEdison is now worth.

Lots of Americans have heard of Solyndra, an earlier case of a heavily subsidized renewable energy company going bankrupt. Fewer have heard of battery companies A123 and Ener1. These and SunEdison join many others, including the huge Spain-based Abengoa, which filed for bankruptcy shortly before SunEdison, with $16.5 billion in debt despite $3.6 billion in federal and state grants, tax credits, loans, and loan guarantees.

These all are examples of the consequences of politicizing investment decisions. What sense does it make to trust politicians to determine where to invest money? They have all the wrong incentives: (1) They aren’t putting their own money at risk and so have less incentive to invest carefully. (2) They will always hear more, and more insistently, from special interests who stand to gain or lose much from a policy than they will hear from citizens in general. (3) They are mainly concerned about getting re-elected—which means raising money, which means being susceptible to “persuasion” by high donors. (4) Most relevant of all, politicians’ attention span is limited to the election cycle.

To cite Bryce again:

Critics of the federal government’s support for “clean energy” companies have repeatedly claimed that the government shouldn’t be “picking winners.” To that, I can only say that the evidence—from the failed solar company Solyndra and failed battery companies like Ener1 and A123 to SunEdison and Abengoa—proves that the government hasn’t in fact, been picking winners. Quite the opposite.

Dated: May 11, 2016

Tagged With: A123, Ener1, renewable energy, renewable energy bankruptcy, renewable subsidies, Robert Bryce, solar power, Solyndra, SunEdison
Filed Under: Bridging Humanity and the Environment, Environmental Economics, Funding and Incentives

About E. Calvin Beisner

Dr. Beisner is Founder and National Spokesman of The Cornwall Alliance; former Associate Professor of Historical Theology & Social Ethics, at Knox Theological Seminary, and of Interdisciplinary Studies, at Covenant College; and author of “Where Garden Meets Wilderness: Evangelical Entry into the Environmental Debate” and “Prospects for Growth: A Biblical View of Population, Resources, and the Future.”

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Future Speaking Engagements

May 23, 2025 – Grand Rapids, MI

GR.Church, 4525 Stauffer Avenue Southeast, Grand Rapids, MI 49508

Dr. E. Calvin Beisner, Cornwall Alliance President, and Steve Goreham, Cornwall Alliance Board Member, will hold a symposium on Sustainable Energy, Climate Change, and the costs to YOUR life.  For tickets and more information, click HERE.

June 18-21, 2025–Dallas, TX

Cornwall Alliance will be a host of the Association of Classical Christian Schools’ (ACCS) annual Repairing the Ruins conference in Dallas, TX, and will have an exhibit booth.

Details and registration can be found HERE.

September 19-20–Arlington, VA

Dr Beisner will represent the Cornwall Alliance at the fall meeting of the Philadelphia Society and will have a literature table.

Attendance is for Society members and invited guests only. To inquire about an invitation, email Dr. Cal Beisner: Calvin@cornwallalliance.org.

September 26-27– Lynchburg, VA

Dr. Beisner will be speaking at the Christian Education Initiative Annual Summit, “Advancing Christ’s Kingdom Through Biblical Worldview Education.” 

Details and registration can be found HERE.

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