SunEdison goes bankrupt in spite of (or because of?) $1.5 billion in federal backing

There are a lot of things liberals get wrong about business, but here are three important ones:

1. Businesses who do what liberals like but consumers don’t want will do fine if only taxpayers subsidize them long enough to allow demand for their services to “mature.”
2. Businesses would be more successful if only they could get more access to credit than private lenders want to give them.
3. Free money makes you more likely to succeed.

And this brings us to the sad tale of SunEdison, which filed bankruptcy last week after 13 years of fast growth and generate federal support to the tune of $1.5 billion in taxpayer money – which included a combination of loans, grants and tax credits. As its name suggests, SunEdison is in the business of solar energy, which remains an intriguing concept that has developed neither the technology nor the market demand to justify it as a major player in the energy market. 

But politicians wanted it to be a major player, as did its executives. So SunEdison accepted lots of federal largesse and borrowed a whole lot more, using it to buy up other companies and grow enormous. What didn’t become enormous was its ability to generate revenue, at least not sufficiently enormous to pay back its creditors. The company heads into Chapter 11 with $20.7 billion in liabilities and only $16.1 billion in assets. It’s going to get $300 million in debtor-in-possession financing to keep operating during bankruptcy, but that’s just the latest example of how SunEdison couldn’t survive without extraordinary outside help.

The problem here is not that SunEdison deals in solar energy. There’s nothing wrong with solar energy per se. If we can get a clean, renewable energy source from the sun that we never run out of, that’s obviously something we want to do.

The problem is that politicians once again decided to put their agendas ahead of markets and technology. Right now there is not a cost-effective, reliable technology that makes it possible for solar energy to provide major capacity to the energy grid. Can it make a contribution? Yes. But not enough to justify the kind of capital investments, acquisitions or overhead that SunEdison took upon itself.

The market isn’t there because consumers and utilities know they can only expect so much from solar. There’s nothing wrong with being a small player in a big market, which is what solar should be. But because they are much more advanced and capable, it’s fossil fuels, coal, natural gas and nuclear who need to be the big players.

That’s not what politicians want, though. They want to attack the big players while propping up more favored players like solar and wind, even though solar and wind can’t make their business models work even with federal subsidies.

Or maybe it’s because of the federal subsidies that they get in so much trouble. Do you think SunEdison would have gone on such an acquisition binge if it had to do so solely with its own earnings? I don’t know their executives, but I bet not. You’re a lot more circumspect about blowing your wads of cash when you’re working hard every day to bring it in and you realize the tenuous nature of the markets where you’re operating.

Foolish business practices get corrected a lot more quickly when the consequences are felt quickly. When you don’t feel the consequences because the taxpayers are subsidizing your folly, why not continue the folly? At least you can easily be tempted to think that way. Taxpayers, shareholders and creditors are going to pay a heavy price for SunEdison’s delusions. If the company hadn’t had so much access to free money and borrowed money – all in the pursuit of markets that didn’t really exist no matter how badly their political patrons may have wanted them to – the company today might be smaller, healthier and much more prosperous.

The next time you hear a liberal talk about how we have to use the power of government to influence markets, let the SunEdison bankruptcy serve as a reminder of why smart people who know business think that’s a terrible idea.

Get your copy of Herman Cain’s new book, The Right Problems, here!

http://www.caintv.com/sunedison-goes-bankrupt-in-spi