I've just posted the slides from a presentation I gave at the New America Foundation in December. The discussion provides some additional detail on why I am so critical of the Obama administration's push for massive loan guarantees to energy facilities.
Review of key federal policy trends in the energy sector, identifying the unprecendented scale of interventions, and the inadequate attention being paid to incentive alignment and assessment of leverage points.
Beginning on slide 6, the presentation provides a specific review of how the government's large scale loan guarantee programs (such as under Title XVII of the Energy Policy Act of 2005 and the proposed much larger federal "Clean Energy Deployment Administration") are not structured to achieve proper risk management or high success rates.
As government interventions in US energy markets grow by leaps and bounds, some of the core principles that made the US an economic superpower are being forgotten. These include using price signals to guide allocation of capital; aligning incentives such that promoters have enough "skin" in the game to weed out unproductive business plans and establish venture discipline in potentially viable ones; and focusing the role of government on establishing market-neutral rules of operations instead of trying to substitute government workers or appointees for entrepreneurs. There is much hype ab
Government involvement in financing large scale energy projects has a checkered past. Historical forays into loan guarantees for biofuels and syn-fuels have been expensive failures. Large hydroelectric dams and federally-owned uranium enrichment facilities were built and operated as government-owned entities, though not without substantial subsidies. Title XVII of the Energy Policy Act of 2005 initiated a new wave of multi-billion dollar federal loan guarantees to large scale, high risk, privately owned energy infrastructure.