Colony Shale, The First Solyndra

September 29th, 2011 at 2:56 pm | 22 Comments |

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Solyndra is a lesson in how the substitution of wishful thinking for green eyeshades can stimulate the growth of costly energy carbuncles that emit malodorous political fumes.

Today it is Solyndra. Yesterday it was Colony Shale.

Don’t remember Colony Shale? Coloradans do. In the mesa country of northwestern Colorado, May 2, 1982 is still referred to as Black Sunday. That’s the day Exxon pulled the plug on a $5 billion extravaganza to excavate massive quantities of sedimentary rock, cook it in massive ovens to extract kerogen, a low-grade hydrocarbon within the rock, and produce an oil-like liquid suitable for refining into diesel and jet fuel. The operation would have consumed spectacular quantities of water in an arid region.

Colony Shale was a mushroom spawned by Jimmy Carter’s rain of federal subsidies aimed at developing kerogen, colloquially known as oil shale, as a made-in-America alternative to high-priced OPEC oil.

When oil prices took a dive, Exxon quickly figured that oil shale wouldn’t pay, shut down Colony, and vamoosed from the business. Money and political reputations weren’t the only things that were lost when the boom went bust. Jobs vanished. Homes went into foreclosure. Businesses crumpled. Marriages broke. Desperate breadwinners poached wild game to feed their families.

To this day, oil price volatility is a barrier to developing a viable oil shale business. Producers have to be sure that conventional crude prices will remain high enough long enough for oil shale to be competitive and yield a return on the hefty up-front investment required to stand up oil shale plants.

Same sort of thing happened with Solyndra, whose ill-fated plant was supposed to produce cylindrical photovoltaic modules based on CIGS (copper indium gallium diselenide) thin films, with which markets have less experience than conventional photovoltaics fabricated from silicon.

Obama administration officials apparently didn’t see or didn’t take seriously warning signs that the price of silicon was headed down. High silicon prices were an essential underpinning of Solyndra’s business model, which counted on competitors producing conventional silicon panels paying a high price for their feedstock.

An obvious lesson from the Solyndra and Colony Shale fiascos is this: Investments in cutting-edge technologies are inherently risky. When public dollars are used as risk capital and federal overseers don’t do their homework, there is a good chance that a flaming scandal will erupt. Predictably, headline-hunting politicians will make like Casablanca’s Captain Renault and pronounce themselves shocked, shocked that the government is gambling with taxpayers’ money.

Consequently, should the federal government stop using public dollars as risk capital for chancy technologies? Should the Department of Energy underwrite research, enforce energy efficiency standards, and let it go at that?

Given the briar patch of security risks, economic volatility, and environmental damage that are inseparable from oil dependence, a minimalist approach to energy policy is not sufficient.

Government largesse, however, cannot guarantee success. Fostering market conditions that will encourage the growth of cleaner energies made in America must be a central part of the game plan.

One way to put energy policy onto a sounder, market-oriented footing that attacks the status quo without risking the waste of taxpayer dollars on boondoggles would be folding energy into broad tax reform. Bulldoze the tax code and start afresh. Make a bonfire of credits, deductions, exclusions, inclusions, and other dangling whereases, take an ax to rates, and shift some taxation from things we like – e.g. work, savings, investment – to things we don’t – e.g. pollution.

Could “going big” on tax reform rationalize our energy policy in the bargain? It’s worth a serious debate.

Recent Posts by Jim DiPeso



22 Comments so far ↓

  • Graychin

    “Obama administration officials apparently didn’t see or didn’t take seriously warning signs that the price of silicon was headed down.”

    Another nice partisan swipe to polish some of the tarnish on your conservative cred? Again, the swipe spoils a valid point.

    What about the Bushie officials who had a hand in the fiasco?

    [b]January 2009: In an effort to show it has done something to support renewable energy, the Bush Administration tries to take Solyndra before a DOE credit review committee before President Obama is inaugurated. The committee, consisting of career civil servants with financial expertise, remands the loan back to DOE “without prejudice” because it wasn’t ready for conditional commitment.

    March 2009: The same credit committee approves the strengthened loan application. The deal passes on to DOE’s credit review board. Career staff (not political appointees) within the DOE issue a conditional commitment setting out terms for a guarantee.[/b]

    http://thinkprogress.org/romm/2011/09/13/317594/timeline-bush-administration-solyndra-loan-guarantee/

  • balconesfault

    Could “going big” on tax reform rationalize our energy policy in the bargain? It’s worth a serious debate.

    It certainly could.

    Now, while an environmentalist, I’m very sympathetic to energy intensive manufacturers and their complaint that high energy prices can drive their production overseas. Take your tax/energy policy, and wrap it up with trade policy, and we might really have a discussion that does something more than simply creating more tax arbitrage opportunities.

  • Florajo

    If we’re going to compete against China and India, we’ve got to spend some money and take some chances. We can’t be waiting breathlessly to punish failed attempts. The enthusiasm over all this is pretty sad.

  • sweatyb

    Really? You had to reach back to the 80s to find another example of a federal subsidy that went bad?

    The way I see it, these investments are hedges against a possible future. Solyndra’s technology would have been a world-beater if silicon prices had stayed elevated. Colony Shale would have been a life-saver had oil prices had remained high through the 80s.

    Looking back, you can say with confidence that shale oil was a waste of time, because you know that oil prices collapse through the 80s. But in the 70s the possibility that oil would stay high forever seemed just as likely.

    The point is that we want our government to make speculative investments in energy as a hedge against future calamity. Having and not needing is wasteful, but needing and not having is a calamity.

  • dugfromthearth

    Strangely I don’t see pseudo-conservatives complaining about government investing in risky technology when it is hundreds of billions of dollars of new weapon research. It is not the amount of money or the new technology that is the issue. As usual, helping people is bad, killing people is good.

  • Polifan

    Is investment bad?

    I keep hearing about the rough figure of $500,000 million+
    for Solyndra but what about the cost of not letting the Bush tax cuts expire and funding wars?

    Let’s look at the math, both parties are not doing so well with balancing the budget if we are to be honest.

    • TerryF98

      The Bush wars cost 3.7 Trillion. So half a billion on energy research is peanuts.

      • Elvis Elvisberg

        SCANDAL!

        • paul_gs

          Irrelevant!

        • Demosthenes

          Why? Because the VTOL variant of the F-35 is inherently worth billions of dollars to develop, but the capacity to compete against China in the manufacture of solar panels isn’t?

        • sweatyb

          I love this comment. It’s so perfectly right-wing. Facts are irrelevant! Your opinion is irrelevant! Putting things into their proper context is irrelevant!

        • paul_gs

          No sweaty, it’s the unrelated comparison that is irrelevant.

        • mannie

          These do tend to amount to drops in the bucket. If your goal is to take a serious bite out of spending, dont be wasting much of your time on Solyndra. And the funny thing is about Colony Shale is, if the govt had hung on, like Canada did, they would now be fully operational and spewing out oil.

  • paul_gs

    Invest in alternative energy sure, but the Obama administration kept dumping hundreds of millions of dollars into Solyndra when it was apparent it was going under.

    • balconesfault

      Huh?

      You mean, the government went ahead and paid off on their loan guarantees, rather than defaulting on them?

      • paul_gs

        If the Obama government had paid attention to the finance people, they could have cut the government losses at about $200 million. Instead they went full speed ahead over the cliff.

        • Polifan

          That is a good point but compare that to $200 or $500 billion, your figure is muffin money.

          If you’re in the group that wants the Bush tax cuts to be permanent. Complaining about those high priced muffins and “investments” seems to be counterproductive? Good thing they didn’t order imported bottles of wine. Pt 2. http://www.thedailyshow.com/

          Personally, I am concerned about the USA continuing to lose its competitive edge, but that is another topic. If we focus on government waste, both parties miss the mark. Fair enough?

        • paul_gs

          Solyndra is likely to be the first of many failed energy “investments”.

  • jakester

    Jeez, this Solyndra thing is really being blown out of proportion. I heard rw talker Hedgecock say this is far worse than Watergate last night

  • Demosthenes

    Given the briar patch of security risks, economic volatility, and environmental damage that are inseparable from oil dependence, a minimalist approach to energy policy is not sufficient. Government largesse, however, cannot guarantee success.

    While I do think Mr. DiPeso is right about tax reform, as well as some level of loan guarantees or other support for proven technologies, I also feel that the best contribution the federal government can make to the development of energy technology is via grants to the NSF and other basic research institutions. Often this is the level of research at which the most important breakthroughs are made, and it is also one that the private sector is neither particularly interested in nor particularly successful at. There is no need to break the bank, but the federal government has proven surprisingly effective at funding basic research in past decades.

    The interesting thing about this point of view is that it would likely be attacked in certain quarters as “liberalism” or “socialism.” The problem is how to communicate that a coherent national energy policy is absolutely essential both economically and in terms of national security. We have largely been coasting on an irregular patchwork of grids since the 1970s, and the negative consequences of our continued reliance on foreign oil have been noted by every President since Nixon including George W. Bush. It may be that the Tea Party delegation to Congress will have to suffer massive electoral defeat before any such coherent national energy policy is able to be articulated.

    As far as that energy policy is concerned, however, there are good reasons for both the domestic and the export economy to continue to develop solar and wind technology, while of course not ignoring the petrocarbons industry. We may not have a “hundred billion barrels of oil” six feet below the surface, but we do have natural gas reserves and the oil economy is not going to disappear overnight.

    Solar and wind power possess some inherent drawbacks, the most important from an industrial perspective being their unreliability. There is also the fact that photovoltaic technology is wedded to battery technology, and although much progress has been made with for example Lithium ion batteries, as a whole the technology is not yet scalable for industrial applications.

    To quote Fred Bauer from yesterday: nuclear is the most sustainable and massively scalable non-fossil fuel energy source we yet have in place. balconesfault noted on a separate thread that nuclear energy is water-intensive. That is true, but it glosses over the fact that nuclear plants release water steam — not carbon dioxide — as exhaust. Also, modern plant designs overwhelmingly employ “light water” reactors, and can use ordinary fresh- and seawater. I would not necessarily advocate building a massive nuclear power plant in a remote desert at a place like, say, Los Alamos, but water usage constraints are eminently solvable for places with access to navigable waters.

  • balconesfault

    Everyone should note that the political right was applauding Obama’s loan guarantees for nuclear power plants, despite the reason that by and large the free market won’t build nukes themselves these days – there is a serious concern that 10-15 years out development in renewables (including system reliability) might actually progress to the point where O&M costs for power generated from renewables might be a fraction of those from nukes … and the massive investments in a nuclear plant might be stranded.

    Thus, corporate America looks to big Government for loan guarantees to protect them from failed investments. So this isn’t really about whether or not Government should be involved at this scale, but rather over simply a chance to attack Obama and green power advocates.