Politically allocated capital

[ronbuck]

thegwpf.org/opinion-pros-a-cons/2247-solar-power-eclipse.html

Solar Power Eclipse
Tuesday, 18 January 2011 09:06 The Wall Street Journal .Not long ago, Massachusetts Governor Deval Patrick was calling Evergreen Solar a "symbol" of his state's economic future. Symbolism would appear to be overrated. Evergreen announced last week that it is shutting its Massachusetts plant and will lay off 800 workers. That's the same plant Mr. Patrick had state taxpayers fund in 2007 to the tune of $58 million in grants, loans and land and tax incentives—one of the largest investments in a private company in Bay State history. Remind us not to let the Governor pick our stock portfolio.

The solar company started in 1994 and advertises a "string ribbon" technology that reduces the amount of silicon used in solar panels. Evergreen rode the green energy political bubble through a 2000 IPO, and through news in 2007 that it would build, with state aid, a flagship plant in Devens, Massachusetts.

A look at the company's finances shows it has lost a cumulative $685 million. The majority of this red ink was on the books prior to Mr. Patrick promising state aid. The company has produced little good news since, including warnings from Nasdaq that it could be delisted, an unproductive debt restructuring, and a string of money-losing quarters. None of this fazed Mr. Patrick, who touted Evergreen as a cornerstone of his strategy to turn Massachusetts into a hub of green energy innovation.

Evergreen blames its plant closing on competition from subsidized Chinese manufacturers. "Solar manufacturers in China have received considerable government and financial support, and together with their low manufacturing costs, have become price leaders within the industry," says Evergreen President Michael El-Hillow.

But Evergreen has also been subsidized in the multiple ways that federal and state governments favor solar power. Maybe the problem is Evergreen's business model, or perhaps its decision to locate a plant in a high-cost, union-labor state. Evergreen has long been aware of China's solar manufacturing advantage, waiting until it received the $58 million from Massachusetts to announce it would outsource jobs to a plant it continues to operate in China.

Bay State taxpayers are now stuck with the losses. Mr. Patrick says he intends to claw back some of that $58 million, but Evergreen says it doesn't owe more than $4 million. Taxpayers will also be thrilled to know the state is so worried about getting a new tenant for the manufacturing site that it may let Evergreen keep its sweetheart $1-a-year lease—allowing the company to sublet it at a profit.

All of this adds up to one more case study in the perils of politically allocated capital. Like President Obama, Mr. Patrick has advertised the illusion that governments can nurture new companies, even whole new industries, with targeted taxpayer "investments." This is the entire premise of the "clean energy" industry, most of which wouldn't exist without subsidies because it can't compete on a market basis.

Politicians always seem to show up for the green energy ribbon-cuttings but somehow they manage to miss the plant closings. Evergreen Solar is indeed a "symbol"—of the folly of taxpayer green subsidies.