Government loan guarantees were designed to bridge the gap between basic technology research and venture capital that commercializes the technology. This gap, known among technologists as the “valley of death,” has been targeted twice in the past decade by policymakers from both parties, but with less than perfect results.
Authorized by the Energy Policy Act of 2005, the DOE loan guarantee program under the Bush administration originally had the borrowers pay subsidy costs for the guarantees to reduce risks to taxpayers. Under the Recovery and Reinvestment Act of 2009, financing increased seven-fold to $47 billion, and credit subsidy costs shifted to the government.
The expansion took place despite a 2008 Government Accountability Office assessment that the Department of Energy was not well positioned to manage the program. Solyndra was the program’s first finalized recipient.
Companies fail for numerous reasons, but a business failure does not mean the technology failed, nor does it disprove the importance of loan guarantees. Questions remain, however, on what are the best mechanisms for overcoming the “valley of death.”