Another Bankruptcy Black Eye for the DOE

Oh, no! Alert the conspiracy theorists -- another company that received a Department of Energy loan guarantee has filed for bankruptcy. Beacon Power, a company hoping to make flywheels into energy-storage gold threw in the towel Sunday.

Of course, this follows the highly publicized bankruptcy of Solyndra, the solar manufacturer that built a gaudy manufacturing plant on an unstable business. Beacon's loss won't grab quite as much attention, but the government did throw in $24 million in federal stimulus grant money and $43 million in loan guarantees.

Next up: DOE loans on perpetual motion, cold fusion are in trouble
I've written extensively about the difference between manufacturing loan guarantees like this one and power plant generation loan guarantees that SunPower (Nasdaq: SPWRA  ) and First Solar (Nasdaq: FSLR  ) recently closed on. What's troubling to point out is the Department of Energy's incredible incompetence in picking manufacturers that had a chance at succeeding.

Solyndra's technology had very little chance when stacked against falling solar costs for LDK Solar (NYSE: LDK  ) , JA Solar (Nasdaq: JASO  ) , and a slew of other competitors. Beacon was trying to build a market in energy storage on technology I would say is suspect at best. And competitors in energy storage like Ener1 and A123 Systems (Nasdaq: AONE  ) don't provide a dangerous product that requires a vacuum chamber to make sure the flywheel doesn't explode, which it has in the past.

Who is next?
If we assume the DOE is great at investing in losers, who is next? Ener1 is an easy call and probably won't last much longer. A123 Systems might not be far behind unless demand picks up quickly for the company's batteries. And Tesla Motors (Nasdaq: TSLA  ) should at least get a mention, with losses expected to continue as production ramps up. Tesla isn't near bankruptcy yet and serves an affluent market that the others would dream of selling to, but the DOE ties are there -- and so are the losses.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On November 01, 2011, at 3:17 PM, DJDynamicNC wrote:

    I'm saddened by Beacon's bankruptcy, given the potential payoff of the technology. It was never a sure bet. But that's precisely what a government loan guarantee program is designed to foster - innovation and risk taking beyond what the short-term oriented market can support. If the flywheel storage device had panned out, it would have been a major step on the road to a proper smart grid. That's a risk worth investigating, and that's what the DOE program is designed to do.

    What your article ommitted, of course, was a list of the other companies that DOE invests in under the same program. You can find that list here: https://lpo.energy.gov/?page_id=45

    The implication that the government is investing solely in losing bets I find frustrating and empirically untenable.

    For example, you also cited Tesla, even though Tesla received its guarantees under a different DOE program than Beacon - a program which was also utilized by Ford. Are you similiarly bearish on Ford simply by virtue of its DOE investment?

    I'm not thrilled to be on the hook for bankrupt companies. But I'd be less thrilled to live in a country that only ever took sure bets. That's a tried and true method for falling behind.

  • Report this Comment On November 01, 2011, at 5:24 PM, MotleyFoolJoel wrote:

    Travis -

    Tesla is not worth a mention here. If Tesla goes bankrupt, Elon Musk personally guaranteed the DOE loan. So, you can delete the last sentence of this column:

    http://money.cnn.com/video/news/2011/10/31/n_tesla_elon_musk...

  • Report this Comment On November 02, 2011, at 4:25 PM, WhatsNextRyall wrote:

    Let's stick to the facts. Taken Directly from the CRS's (Congressional Research Service of the Congressional Library) 2008 totality assessment of energy industry subsidies....

    "Energy research and development (R&D) intended to advance technology played an important role in the successful outcome of World War II. In the post-war era, the federal government conducted R&D on fossil fuel and nuclear energy sources to support peacetime economic growth.

    The energy crises of the 1970s spurred the government to broaden the focus to include renewable energy and energy efficiency.

    Over the 30-year period from the Department of Energy’s inception at the beginning of fiscal Year (FY) 1978 through FY2007, federal spending for renewable energy R&D amounted to about

    16% of the energy R&D total, compared with 15% for energy efficiency, 25% for fossil, and 41% for nuclear. For the 60-year period from 1948 through 2007, nearly 11% went to renewables, compared with 9% for efficiency, 25% for fossil, and 54% for nuclear."

    The report goes onto clearly layout that energy subsidies are in the best interest of the nation at some level. This also reminds me that historical uses of subsidies as economy and security drivers are often under-valued and under-communicated if they become too intrensic with daily course of business.

  • Report this Comment On November 03, 2011, at 11:24 AM, rfaramir wrote:

    "incredible incompetence in picking manufacturers that had a chance at succeeding" is exactly what you expect from government.

    There is no profit motive or loss-avoidance motive to government programs. It is not the bureaucrat's money or job on the line, it is our tax dollars, and he doesn't care about those. In fact, the worse he does, the more he can petition for more to lose (should have spent more!) next fiscal year.

    The DOE needs to be ended completely. It is unconstitutional. In fact, the whole notion of taxes being confiscated and spent on infrastructure purposes was explicitly disallowed in several state constitutions at the time of the writing of our federal one.

    It doesn't require a conspiracy theorist to see this, just a love of Liberty and Private Property together with some common sense economics.

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