It has to do with a “green energy” company called BrightSource Energy Inc., which develops solar energy products (or intends to someday, anyway). In 2010, BrightSource was in deep trouble. It was $1.8 billion in debt and was losing money hand over fist–a $71.6 million loss on a mere $13.5 million in revenue. A company destined to go down the drain, one would think. But no! The Obama administration bailed out BrightSource to the tune of a cool $1.4 billion in loan guarantees.
How could that possibly have happened? Well, start with the fact that the principal investor in BrightSource is VantagePoint Partners. Robert F. Kennedy, Jr. is a Venture Partner in VantagePoint. But BrightSource had an even more valuable contact than that:
Sanjay Wagle…was one of the principals in Kennedy’s firm who raised money for Barack Obama’s 2008 presidential campaign. When Obama won the White House, Wagle was installed at the Department of Energy (DOE), advising on energy grants.
Well, that was convenient! So BrightSource got its $1.4 billion. BrightSource isn’t out of business yet, but how promising was the Obama administration’s investment? Check out the registration statement for the company’s IPO. This is from the discussion of risk factors:
This offering involves a high degree of risk. … We have generated substantial net losses and negative operating cash flows since our inception and expect to continue to do so for the foreseeable future as part of the development and construction of solar thermal energy projects using our systems.
We have generated substantial net losses and negative cash flows from operating activities since we commenced operations. We have incurred losses of approximately $204.1 million from our inception through March 31, 2011. For the year ended December 31, 2010 and three months ended March 31, 2011, we incurred a net loss of $71.6 million and $26.8 million, respectively, and our operating activities used cash of $64.1 million and $28.8 million, respectively.
We expect that our net losses and our negative operating cash flows will continue for the foreseeable future, as we increase our development activities and construct solar thermal energy projects. …
Our proprietary technology has a limited history and may perform below expectations when implemented on utility-scale projects.
We use proprietary technology that has not been previously implemented on utility-scale projects of the size and complexity of the Ivanpah Solar Electric Generating System, or Ivanpah, and Ivanpah may experience technological problems that neither we nor any of the third-party independent engineers that have reviewed our projects are able to foresee. The systems that we will implement on utility-scale projects include a solar field with heliostats controlled by advanced software systems that concentrate sunlight onto a receiver to produce high-temperature steam. If the implementation of our proprietary technology is unsuccessful, it could negatively impact the successful operation of projects using our systems and may result in additional payments, deductions or defaults under key project documents, including our PPAs or other financing arrangements.
Ivanpah is being primarily financed by a U.S. Department of Energy, or DOE, guaranteed loan facility, which requires the project companies to remain in compliance with numerous financial, construction and operational covenants to draw funds under the loan facility, compliance with which are within the control of NRG Solar, the majority equity owner and operator of Ivanpah….
Furthermore, adoption of our systems for use in solar-to-steam applications, such as thermal EOR, depends on successful implementation of the 29 MWth EOR project for Chevron in Coalinga, California that is expected to begin operations in the second half of 2011. We have recently experienced significant cost overruns related to the project. If the Coalinga Solar-to-Steam for EOR project does not meet expectations, our ability to sell additional thermal EOR systems may be negatively impacted.
How on Earth does a company like this survive for 15 minutes? Crony capitalism. This risk disclosure conveys a sense of how deep the rot runs:
We depend heavily on government policies that support renewable energy and enhance the economic feasibility of developing solar energy projects. Renewable energy sources currently benefit from various federal, state and local governmental incentives such as investment tax credits, or ITCs, cash grants in lieu of ITCs, loan guarantees, renewables portfolio standard programs, or RPS programs, modified accelerated cost-recovery system of depreciation and bonus depreciation. For example, the Internal Revenue Code of 1986, as amended, or the Code, provides an ITC of 30% of the cost-basis of an eligible resource, including solar thermal energy projects placed in service prior to the end of 2016. Additionally, many states have adopted RPS programs mandating that a specified percentage of electricity sales come from eligible sources of renewable energy.
Companies like BrightSource can survive only as long as governments continue to pursue foolish “green energy” policies. If the voters ever wise up, they are finished:
However, the regulations that govern the RPS programs, including pricing incentives for renewable energy, or reasonableness guidelines for pricing that increase valuation above conventional power (such as a projected value for carbon reduction), may change. If the RPS requirements are reduced or eliminated, we could sustain fewer future power contracts or receive lower prices for the sale of power in future power contracts, which could have a material adverse effect on us and our project development plans. Such material adverse effects may result from decreased revenues, reduced economic returns on certain project company investments, increased financing costs, and/or difficulty obtaining financing. Furthermore, the American Recovery and Reinvestment Act of 2009, or ARRA, included over $80 billion in incentives to encourage investment in the renewable energy sector, such as cash grants in lieu of ITCs, bonus depreciation and expansion of the DOE loan guarantee program. Although the ARRA expanded the DOE loan guarantee program, this program faces challenges and may not continue past the projects already financed such as Ivanpah. In addition, the cash grant in lieu of ITCs program only applies to projects that commence construction prior to December 31, 2011.
Notice how the stimulus act makes an appearance. BrightSource isn’t a scandal like Solyndra yet, but give it time.