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Is Minnesota's subsidy of the solar industry a good investment — or a cautionary tale?

Silicon Energy solar panels on a Minnesota home.
Silicon Energy
Silicon Energy solar panels on a Minnesota home.

The warning, delivered during a legislative hearing this April, was dire: If the state ended a subsidy for a solar company’s economic development project on the Iron Range, the operation would go out of business, killing jobs in the struggling region.

After years of state help and millions of dollars in loans, however, Silicon Energy of Mountain Iron hasn’t come close to hitting the job creation targets it laid out four years ago. Today, the company has 11 employees, less than half the workforce it originally predicted.

Now, a bill that passed the House would curb the state subsidies and other perks for solar panels made by Silicon Energy and other state firms. The action is expected to face opposition in the Senate, where DFLers — many of whom have received campaign donations from the company’s California backers — have argued that the state’s support is good energy policy.

To others, though, Silicon Energy’s experience in Minnesota offers a cautionary tale, a lesson on the shortcomings of government economic development efforts tied to untested alternative energy projects.

“This was super high risk,” said Art Rolnick, a senior fellow at the Humphrey School of Public Affairs and former director of research at the Federal Reserve Bank of Minneapolis.  “Generally speaking, this is not good public policy.”

Pushing for preferences 

Five years ago, Silicon Energy was a leading voice in efforts at the Capitol to gain preferential treatment for solar panels produced in Minnesota. The push for a “Made in Minnesota” solar mandate got a boost from Iron Range legislators in 2010, when lawmakers from the region managed to secure state subsidies that were critical to Silicon Energy deciding to open its Mountain Iron plant in 2011.

Among other things, those perks included an indirect state subsidy for solar panel manufacturers, which reduced the rates that consumers would pay on electricity generated from panels made in Minnesota.

Silicon Energy also benefited from $5.1 million in loans from the Iron Range Resources and Rehabilitation Board (IRRRB), a state-sponsored agency that uses taconite taxes to fund job creation projects. At the time, the company said it hoped the project would create up to 25 jobs.

Things did not go smoothly. The company fell behind on one loan, requiring an extension in the fall of 2012. And its job targets proved elusive, even after the subsidy program was expanded in 2013 to require the state to buy Minnesota panels if possible when installing solar in government buildings. Then, in the spring of 2014, a defect in some of Silicon Energy’s newer solar panels forced a long production shutdown, leading to layoffs at the Mountain Iron factory.

In December of 2014, the company got another loan from the IRRRB — for $1.95 million — to produce a new line of solar panels.

At the state capitol, though, some legislators have had enough.

Rep. Pat Garofalo
Rep. Pat Garofalo

The latest effort to curb solar perks was advanced this spring by Rep. Pat Garofalo, R-Farmington, who argues that utilities should decide if other forms of alternative energy – such as wind power – are cheaper or otherwise better than solar. “The Made in Minnesota solar program is a very expensive way to reduce pollution and create jobs,” Garofalo said in an interview this week.

Silicon Energy president Gary Shaver blames competition from low-cost solar panels subsidized by the Chinese for torpedoing the Mountain Iron plant after it opened in 2011, saying the imports “destroyed the market for us.”

Shaver also said that without the preferences for the solar industry in Minnesota — which reduce the cost of solar panels for consumers, making them more affordable — “there’s no reason to stay in Minnesota … We moved to Minnesota entirely based on that.”

Campaign cash and the 'rules of the game'

The experience of Silicon Energy also illustrates how a company’s leaders will spend money on the campaigns of legislators whose support they need.

Southern California backers or associates of Silicon Energy and their relatives have given at least $24,000 in campaign contributions to Minnesota politicians in recent years, according to records of the state’s Campaign Finance and Public Disclosure Board. Nearly all of the money went to DFLers, much of it to lawmakers from the Iron Range. The DFL Senate Caucus got $5,000, and the DFL House Caucus received $1,450, while Gov. Mark Dayton got $3,000 from Jong Limb, president and founder of Newport Partners in Irvine, California, which owns Silicon Energy. Nearly half of all the contributions came during the runup to the November 2014 election.

Rolnick said such an influx of campaign cash “should bother our citizens” because it raises questions about legislators’ motives for supporting preferences for certain industries and companies. “They do a favor and then these companies owe these politicians something,” he said. “I don’t blame the politicians and I don’t blame the companies. It’s the rules of the game.”

State Rep. Jason Metsa
State Rep. Jason Metsa

Rep. Jason Metsa, DFL-Virginia, who represents Mountain Iron, got $2,500 in recent years from Silicon Energy interests. He said the contributions didn’t influence his decision to support the Made in Minnesota preferences. “I appreciate anyone who is willing to make a campaign donation,” he said. “But there shouldn’t be expectations on either side of what that means... I haven’t met one person on either side of the aisle in the House who I think $2,500 would influence in terms of, ‘We’re going to give you a donation, so now we want you to vote this way.’”

Metsa also said that ending the subsidies now would be unfair to Silicon Energy. “This has been something that company built its business model around,” he said. “It would be pretty devastating for them to have it go away.  They’re just getting a foothold.”

And subsidizing the company is a risk worth taking given the shortage of business alternatives on the Iron Range, said one specialist on regional economics. “It’s small, it’s promising,” said Ann Markusen, a professor emerita at the Humphrey School. She called the subsidies “an example of the kind of innovative bet that the state should take.

But Rolnick doesn’t think the state should be in the business of picking winners and losers when it comes to private companies.  “If it’s low risk, it probably would have happened anyway,” he says. “If it’s high risk, it probably shouldn’t happen.”

Pat Doyle is a longtime Twin Cities journalist.

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Comments (26)

With all due respect,Rolnick is wrong

I have tremendous respect for Art Rolnick, but his attack seems to be both short sighted and somewhat silly. Shortsighted in that while the anti-Obamites' favorite whipping boy,Solyndra, showed the risk of government investing in solar power, Tesla was part of the same deal, and look what it is done. Solar power is still is in its infancy, and thus it is a risk. But consider how many other risks the State takes, and how many other corporate subsidies the State pays for in order to attract businesses from other states or keep Minnesota businesses here. How is this worse than those?

Also, the notion that $24,000 spread amongst several political groups and legislators would have undue influence on the legislative process is silly. The notion that Gov. Dayton would alter his view of the project because of a $3000 donation is just nonsense. And I doubt that representative Mentsa comes that cheaply, too.

I know it's a philosophical issue as to whether this type of project on a get government subsidization, but a little perspective is in order when they consider making changes that surely will close the company and mean that the loans will never get paid back.

Loans will never be paid back

You really think we will ever see our money back? Experience tells us subsidies for these kind of projects are a ripoff for the taxpayer. Let's get out while we have a chance. The company has already violated their agreement. A private financier would have called this one in by now.

"Just nonsense"

But if you had to pick a side, would you rather choose the side that gave you money--or the other side? Our Congresspeople all complain about "big money" or "dark money", yet none of them will name names as to who is taking money for votes. Either money equals influence, or it doesn't. I say that it doesn't unless you name names. Still, as our representatives choose the side that gives them the most money, it does suggest that money might be buying influence.

Cost/kWh?

Jimmy Carter's Dept of Energy has been investing in wind & solar energy for 40 years. Yet wind is 2-2.5X more expensive than coal or nat gas and solar is 3X more expensive than coal or nat gas per kWh. We should subsidize wind or solar when they are much less expensive per kWh, e.g. 30-50% above coal or nat gas.

Costs are more than just dollars and cents

Is coal and oil really cheaper for the US than solar or wind? When you factor in costs like the BP oil spill and being beholden to Opec/Russian political swings, is it really worth paying less for that energy. I'd love for the US to energy independant. Solar and wind is one way for the US to insulate itself from the rest of the worlds shenanigans. Would you like to be western Europe? Having to placate Putin over natural gas supplies?

We need oil and coal for the foreseeable future. But it doesn't hurt us to start investing in other renewable energy sources now rather than later. The more energy we produce ourselves, the less we have to rely on outsiders.

I may be wrong here, but

I may be wrong here, but didn't BP pay more than $40 billion in fines and to clean up the Gulf and pay compensation for personal and financial injuries?

I'm all for alternative energy sources, but it's pretty clear that wind and solar technologies are not ready yet.

With all due respect

Mr. Downing you need to do some research before making statements that may of been true ten to fifteen years ago, but you have to keep up. Clean energy costs have changed dramatically but you have to be willing to go to independent sources and really work on this. I don't want to do your work for you but one point to consider is whether you are comparing the cost of new wind energy to the cost from an old coal plant. If you were to look at what the cost of building a new coal plant was and the cost of that energy your tune would change. But you need to find that our for yourself.

Metsa: "They’re just getting a foothold."

And exactly where is that "foothold," Mr Metsa.

Silicon Energy president Gary Shaver is a hypocrite

Interesting how Mr Shaver criticizes his Chinese competition which he says is subsidized, while his company engages in the very same behavior by seeking handouts from Minnesota taxpayers.

It also sounds like he's ready to call for protectionism. But it should be pointed out that Minnesota also benefits from Chinese production. Minnesota-based Despatch Industries built a lot of the advanced process control equipment which was exported to China for their solar cell production (creating *real* jobs in the state without taxpayer subsidies). We can't expect to have exports, then try to restrict imports. Free trade is a two-way street. Protectionism is not the answer.

Instead of complaining about his competition or begging for more corporate welfare, Mr Shaver needs to roll up his sleeves and get to work finding ways to innovate and become more efficient, so he can wean his company off the government teat. If he cannot do that, the few jobs his company creates are not worth the overall cost to all statewide taxpayers who are propping up this malinvestment. If Mr Shaver really moved to Minnesota just for the corporate welfare, then it's better that he leave and go sponge off taxpayers somewhere else.

I live up here on the Range

I live up here on the Range and it is typical iRRRB business. For the IRRRB to give 7M to a company that doesn't perform is standard practice. The DFL run Range doesn't even bat an eye at projects like this. Hell, the DFL'ers on the board of IRRRB awarded $700,000 to the Meyers group to open call center in Eveleth who's job it was to get DFL folks elected. 90% of the people up here thought that it was ok to use tax dollars to set up a call center to get the folks who granted the money re-elected.

Career politicians have little to no business sense. They should be out of the picking what businesses can/will work and stick to making policies that help create an environment that is conducive for small and large business success. This goes for both parties, State and Federal elected officials. Set policies that help businesses not pick and choose what business they approve.

Sounds like you're saying gov't. should be run like a business

It's a standard Republican meme. Unfortunately, when practiced it's been a disaster. We've had 2 businessmen become president. Bush and Hoover. How'd that turn out for the country(and world)?

I'm saying they should set

I'm saying they should set policy not give tax dollars to businesses. Crony capitalism is hurting everyone, the only folks who are doing well are politicians and those who can "pay to play".

Other examples?

It would be nice to have a story with a bit larger focus and understand the other participants in the Made in Minnesota program. Sure, you can go 'all Solyndra' on Silicon Energy but just like the fed load program that had a few lemons like Solyndra, there are other companies trying to make Minnesota the center of solar manufacturing in the Midwest, their story needs to be told. And just because it's Friday I have to point out how fast the millions of dollars flowed to the turkey industry to help with the avian flu. I am betting no one from the solar industry begrudged those farmers for receiving that help with no one crying fowl. Have a good weekend.

Read this Critically People

JOB CREATION isn't always just inside the walls of a business. It's also creating jobs for people who are crucial to the industry. Take solar for instance as this article points out. Silicon Energy promised job growth but they "only" have 11 employees. The author doesn't ask how many new installers they have working with them. How many more electricians are working. And it ignores the way in which it puts electricity generation in local control, and in the hands of the people, rather than in the pockets of the CEO of energy companies. One-sided arguments supporting big business and energy monopolies are bad for our communities, cities, and state.

Energy

The true cost of any energy source is the total cost. We must factor health issues as well as the cost to mitigate climate change into coal and oil and other energy sources. That is why wind and solar seem so expensive compared to dirty fuels.
Those who are against clean energy are simply fattening the pocketbooks of big oil, which gets government subsidies, by the way.

We Taxpayers Have ALREADY Paid a Great Deal

to clean up the energy messes of the dinosaur energy companies,...

amounts which, though sometimes pulled from funds provided by those companies,...

are NEVER counted as part of the "cost" of dinosaur energy.

We will soon be in a time when global disruption of climatic systems will cost us all far more than we yet imagine,...

(although the Pentagon is making contingency plans),...

a time when the areas where it's possible to grow our food will shift,...

and likely shrink,...

when taxpayers in local cities will be stuck paying the bill for massive infrastructure projects as the ocean begins to encroach on their low-lying areas,...

and invade their fresh water aquifers,...

when very large populations living in coastal areas in third-world countries will be forced to move away from their flooded former homes,...

leading to global unrest of unprecedented proportions (at least in our collective memories),...

and hurricanes and typhoons of unprecedented strength will begin to hit areas not accustomed to such weather (which already happened in the past year in Australia).

Rising ocean temperatures and changes in ocean currents are ALREADY causing major shifts in fish populations as well as causing major die offs of fish species rendering formerly productive fisheries nearly as barren of edible species as a desert.

Within a decade or two, it will become clear that waste water from fracking, laden as it is with toxic chemicals, is NOT going to stay where we put it, but will gradually spread into an pollute fresh water aquifers rendering them undrinkable,...

leaving vast swathes of areas which are being fracked without local sources of potable water,...

and that's not to mention the damage to roads, buildings, and bridges caused by continuous, moderate-level earthquakes in fracked areas.

ALL of these are unacknowledged and uncounted "costs" of our past and continuing use of dinosaur energy sources.

Even if solar and wind cost double what they now cost, they would not come even remotely close to equaling what dinosaur energy is costing us now,...

and WILL continue to cost us and our children and grandchildren in the VERY NEAR future,...

MOST of which will end up being paid by taxpayers either personally or through our state and local governments.

You need to get REAL, Mr. Doyle.

The events of the not-too-distant future are going to intellectually pound you and ALL dinosaur energy defenders into the figurative ground. You will hang your heads in shame as all the things you deluded yourselves into believing would never happen (or never happen in your lifetimes) begin to come to pass.

Heard the same warnings of

Heard the same warnings of dinosaur energy in the 1970's. Over 40 yrs later coal, gas and oil are still the cheapest forms of energy we have.

Only important

If takes the worldview that cheapest is always best. Tell me Joe, do you shop exclusively at thrift stores for your consumer needs, or do you purchase based on quality. To those who are of the opinion that reliance on fossil fuels for energy needs will lead to catastrophic environmental consequences your arguments hold no merit. We would glady spend more to limit the damage as much as is possible.

As I stated oil, gas and coal

As I stated oil, gas and coal are the best sources of energy we have going today. I am old enough to remember the hysteria from the 70's over our dependence on foreign oil and how wind/solar was going to be our main source of energy within 25 yrs. We'll, it is over 40 yrs and I'm hearing the same BS. We can produce enough natural gas and oil here in the USA to be done with our depending on a volatile Mid-East. Let's do it!

Dinosaur Energy Is ONLY Cheap

if you ignore the costs all the environmental (current and future) damage being done.

Just because it seems cheap at the pump and at the outlet, now, if you ignore what it's going to cost you and me and the rest of us to clean up the mess,...

some of which involves permanent damage that cannot be cleaned up.

Using dinosaur energy is akin to buying very inexpensive clothes,...

which became inexpensive because it was revealed that they're made out of fabric loaded with toxic fibers and stain treatments that will burn you skin and give you cancer,...

or buying a refrigerator that's inexpensive because something in it's plastic liner leeches into the food you store in it,...

and makes you deathly ill.

But there are always a few people who will buy such things (to prove how tough they are?),...

and others who have no choice because they have no resources.

I've also heard those same

I've also heard those same environmental concerns in the 70's and if we're to believe the experts back then we would be living on an earth with no ice caps and average temps 5-10 degrees hotter than normal by 2010. Take a look at the claims back then, they are the same as today. One good thing about being old you can look back 60 yrs and see what has worked/ happened and what has not. That is the only good thing about getting old by the way.

Goal to Gut All Renewable Energy

Garofalo's goal is to gut all renewable energy (RE) in MN, solidify monopolistic control of electrical energy by the oil, gas and coal industries, block competition, freedom of choice, and free enterprise in the electrical energy field, and end freedom of choice of MN citizens on how and who should be their electrical energy suppliers.

RE, particularly solar, is the best realistic option of citizens, and on their own dollar, for truly clean energy, to free themselves from the strangle-hold of state supported monopolistic energy, which through rate regulation guarantees them a profit regardless of their inefficiencies, adverse impact on the environment, and source of serious health problems for people. It is disingenuous to complain of subsidies for solar when electrical utilities are guaranteed rates by the state which insure profits.

Couple thoughts

1. Rep. Garofalo, do you really think it is a wise idea to ask a Monopoly what is best choice for the consumer? By definition their mission is to crush competition.
" Rep. Pat Garofalo, R-Farmington, who argues that utilities should decide if other forms of alternative energy – such as wind power – are cheaper or otherwise better than solar."
2. Per some posts: The government (City, State, federal, county etc) supports private enterprise in all types of ways, yes some of it is very risky. Some you win some you lose, the trick is to be good at picking the right ones.
3. Iron range: Option 1 bring jobs to the range, option 2, bring the range to the jobs. The MN house of representatives have been screaming about helping out state, now we seem to have efforts to help out state and screaming that it is the wrong type. Dem type vs. republican type?
4. Solar is an extremely competitive industry: What wasn't explained in the article, was:
The solar industry in China is not only highly subsidized, but, was actually selling below cost of production. The effort appeared targeted at gaining a monopoly position of the world market.
5. Investment in more efficient cars, did not pay off immediately either, today there are big returns 30-40 years later.
6. Don't forget to add in the environmental impact of fossil fuels. Yes we all understand there are jobs on both sides of the deal. Coal minors vs, solar manufacturers. Perhaps the coal companies should invest more of their assets into clean burning technology like the auto companies did?
No easy answers, no matter how you look at it.

16% less = "2-2.5X more"?

"wind is 2-2.5X more expensive than coal"

cf.

Levelized Cost of Electricity (2012$/MWh)

95.6: Conventional Coal
80.3: Wind

http://www.eia.gov/forecasts/aeo/electricity_generation.cfm

Picking winners

Government does not pick winners when it helps start up companies- it allows people to compete. After the state invested in the Vikings - a losing proposition if there ever has been one, but one that is making some out of state millionaires and players even richer, and it invested heavily in Northwest Air (remember them), it should have learned to put investments into operations that will bring permanent jobs. In case you hadn't notice, Minnesota generates little power from in-state fuel sources, which makes us energy dependent on others. To the degree we develop solar and biofuels, we become less energy dependent, as to the degree we develop clean nuclear power, buy energy efficient appliances, use solar heating and drive electric vehicles, we are less dependent on coal and petroleum. What we do have is water and we don't want to be put in a position that large population states with unmet water needs start asking us to subsidize them via low cost water or paying for their desalinization plants. Looking 50 years out, it isn't inconceivable that like nation states like Great Britian and the old Soviet Union, the United States will no longer be united. We need to look out for ourselves and reduce our state trade imbalance with other states. Getting more energy independent will help us achieve that, and is worth the investment.

Yes and no

Government investment in computer technology and research paid off huge even though it wasn't loans per se. Honeywell, oil and gas, and the timber mining industries as well as the major American auto companies all get subsidies or loans. I don't think you can break good policy down to simple picks of winners and losers and no matter what some money will always be better spent than other money. Government subsidies of alternative energy are probably necessary if it's ever going to get off the ground. That's how our oil and gas, and railways, and steel industries got off the ground.

As a citizen my concern is that my government spending is transparent accessible. My problem is when you have stupid government spending and no way to hold anyone accountable, like the Vikings stadium. That whole thing from the funding to the revenue streams has completely blown up and no one is accountable in any meaningful way.