Since its creation in 2005, the $34 billion lending program has provided 33 companies with government financing for alternative energy projects. The program has had some high-profile successes. It's helped set up 13 solar energy firms that are actively selling power into the grid.

But failed start-ups—namely Solyndra, Fisker Automotive and First Solar, which all received funds from the green lending program—have left taxpayers in the red.


In response to questions from CNBC.com, an energy department spokesman said expected losses on funding to VPG, Solyndra and others "only represent about 2 percent of our overall loan program portfolio of approximately $34 billion, and less than 10 percent of the loan loss reserve Congress set aside for the program."

Why did Solyndra fail? Because Obama was foolish enough to believe that venture capitalists were the real deal, the real innovators, the sung heroes of capitalism. He believed in that nonsense and all the other myths radiating from Silicon Valley. But as the economist Mariana Mazzucato points out in Entrepreneurial State (I have made my notes and clippings of this book public over here), it was not the state but venture capitalists who abandoned Solyndra as soon the road ahead looked rough...

The example of Solyndra illustrates how the sudden exit of VC [venture capitalists] can also ruin the prospects of companies developing innovative technologies that had also been supported by taxpayers. Solyndra was a one-time darling among clean-tech companies and first to obtain a loan guarantee as part of the US ARRA’s $37 billion loan guarantee programme. The programme was administered by the Department of Energy (DoE) under the executive director of the Loan Programs Office Jonathan Silver, who had joined the DoE in 2009 and was himself a former VC and hedge fund manager.

Solyndra had hoped that its CIGS solar PV technology would provide a significant cost advantage following an explosion in the price of raw silicon around 2008, the primary ingredient in market-dominating crystalline silicon (C-Si) solar panels. Shifts in global solar markets prevented Solyndra from capitalizing on its investments. Before Solyndra could exploit the economies of scale provided by its increased manufacturing capacity, the cost of raw silicon collapsed. The cost of competing C-Si solar PV technology also fell even more drastically than predicted as a result of Chinese development and investment in the technology.

Solyndra’s key business backers were venture capitalists (VC), and, like all VCs, they eagerly awaited an initial public offering (IPO), merger or acquisition to provide an ‘exit’ from their investments. Any of these ‘exits’ allows them to monetize the shares of stock they receive in exchange for investing in a given firm. The best-case scenario is obtaining massive financial returns reaped through capital gains created by the sale of stock as opposed to a return on investment created by cash flow from operations. But a successful ‘exit’ is not always possible in uncertain markets, as Solyndra proved. When Solyndra’s key investors abandoned their $1.1 billion investment, 1,000 jobs were lost, and a $535 million government-guaranteed loan was wasted. Rather than staying the course, in other words, Solyndra’s investors jumped ship.

Venture capitalists have lots of capital but none of it is patient capital. As a consequence, they only appear on the scene when a new product is close to completion and exit when it enters the market. You will not make new products this way. Real innovation needs the kind of capital (which, in a sense, is not even capital) that only the state can provide.