Wednesday, October 12, 2011

Why it's better to fund solar energy with venture capital than with government loans

A compelling argument by Megan McArdle.

The whole post is worth reading, but here's a sample:

A number of people have claimed that the government had to make these loans because they're "too risky" or "too big" for the private sector, forcing the government to act as a VC firm. That riskiness means that yes, a non-insubstantial number of the loans will fail.

But this doesn't really make any sense. The private sector doesn't have any trouble dealing with risky ventures; it simply prices the capital accordingly, demanding high interest rates, or a larger equity chunk, in exchange for money. . . .

[A]t the company level, there's no difference between an optimal market outcome, and an optimal social outcome (from the DOE's point of view); both investors and society benefit if more solar cells are sold. If the solar cells are unlikely to be sold to many people, than the loan guarantee is not a good idea — it will not foster much environmental benefit. If the solar cells are likely to be sold to many people, than the loan guarantee should not be needed; private investors should be easily found to back the manufacturing.

1 comments:

chickenlittle said...

I worked for a Bay Area start up in the 90s on an energy related project--converting natural gas to liquid fuels. The project was funded by private capital. A big difference was accountablity: Government funded work, to which I was accustomed, had softer targets and less day-to-day management of goals. The venture capital funded work had more targeted goals, deadlines, etc. Everybody moaned and groaned. It was like the strict-parent/easy parent scenario. I think everyone agreed that a little discipline was good all around.

There just isn't a Robert Oppenheimer (let alone a Leslie Groves) for every big Government funded science project.