“This project is exactly the type of initiative we need to ensure Nevada creates good-paying jobs,” Senate Majority Leader Harry Reid (D-NV) said of a geothermal plant to be built in his home state. A year and a half and $145 million in taxpayer financing later, and the company that built the plant is in dire financial straits.
A recent audit by Deloitte & Touche expressed “significant doubt” about Nevada Geothermal Power’s “ability to continue as a going concern.” The company’s vital signs are not looking good: it “has incurred net losses over the past several years, has an accumulated deficit of $44.0 million and an anticipated inability to retire its long-term liabilities,” the audit concluded.
Nevada Geothermal enjoyed significant backing from the federal government. It received a $79 million loan guarantee from the same Energy Department program that helped finance the failed solar company Solyndra. It also got $66 million in federal grants from the Treasury Department.
Reid was instrumental in securing that financing for Nevada Geothermal, the New York Times reported on Monday. “Mr. Reid has taken the nascent geothermal industry under his wing,” the Times noted, “pressuring the Department of Interior to move more quickly on applications to build clean energy projects on federally owned land and urging other member of Congress to expand federal tax incentives to help build geothermal plants, benefits that Nevada Geothermal has taken advantage of.”
The Times noted some similarities to Solyndra, which also received financing thorough the Treasury and DOE, but missed the essential political takeaway: the Nevada Geothermal case speaks less to cronyism or corruption in the federal government, and more to the inadvisability of government intervention in the market.
“The parallels between [Nevada Geothermal and Solyndra] illustrate the risk inherent in building the clean energy marketplace in the United States, government officials and industry experts say,” the Times wrote. “Indeed, the loan guarantee program exists precisely because none of these ventures are a sure bet.”
That is correct, but the fact underscores a point Heritage’s Nick Loris has made: “This is precisely why the Department of Energy should not be engaged in loan guarantees or any other sort of private capital allocation. It is not a financial institution. Its leadership is political, by design, and it has no experience in assessing financial risk as it relates to commercial projects.”
As the Times notes, government financing mechanisms are set up because the ventures they fund are too risky for private investors. As fewer projects are weeded out by the natural risk-reward calculations, the inevitable result is more Solyndras and more Nevada Geothermals.
A Reid spokesman quoted by the Times made a similar point: “If projects like this did not contain a certain level of risk, alongside their enormous potential for creating jobs and generating clean energy, there would be no need for the bipartisan loan guarantee program,” the spokesman said.
Of course if anticipated returns were high enough to outweigh that risk, there would also be no need for the program. Government intervention in the market, by its nature, distorts the risk-reward calculations that guide private investors. When taxpayers assume some of the risk for these green energy projects, investors are easier to come by – but the risk itself is not diminished, it’s just shifted onto taxpayers.
As for green energy’s “enormous potential for creating jobs,” DOE’s latest batch of loan guarantees will create 283 jobs in the renewable energy sector – at $23 million apiece.
Hence, it is telling how the administration has chosen to define success for the Nevada Geothermal plant: “The Blue Mountain power plant is up and running, generating clean, renewable power and has been consistently making its loan payments on time and in full,” a DOE spokesperson said. There’s nothing in there about employment. Success is defined by green energy generation, not job creation.