$29 billion Vaporized
As is well-known, Spain is one of the countries in the euro area’s periphery that has been thoroughly bankrupted by its decision to join the euro area and enjoy an artificial credit expansion-induced boom as its interest rates initially collapsed. This was aided and abetted by the ECB, which sat idly by as the euro area’s true money supply exploded into the blue yonder with annualized growth rates ranging from 6% to 18% during the boom years.
Tower at Abengoa solar plant in Sanlúcar la Mayor, near Seville in Spain.
Photo credit: Marcelo Del Pozo / Reuters
And why not, the bizarre “inflation target” set by the bureaucrats was after all almost hit most of the time (HICP annualized growth actually fluctuated between 2% and 4% during the boom period, so they missed their target “slightly”). Currently the ECB is trying to make up for this faux-pas, by redistributing wealth from the region’s battered savers to its over-indebted governments and insolvent banks by means of expanding the money supply even more and suppressing interest rates well into total economic perversion territory.
This strategy will “buy time” and ensure that assorted bankruptcies will eventually turn out to be even more profound and devastating than they might have been otherwise. But who are we to criticize our well-versed central planning bien pensants? Haven’t they proved over and over again what geniuses they are?
In the meantime the fall-out from the preceding boom-bust sequence continues to make landfall, and not surprisingly, one of the capital-wasting boondoggles most beloved by Europe’s central planners, social engineers and wealth redistributors has just crashed and burned in Spain.
This lengthy intro was necessary to properly set out the background: since Spain’s government and banking system are de facto insolvent and their temporary rescue has been tied to conditions, Spain can no longer subsidize many of the pet projects of social engineers and the vast hordes of cronies they have hitherto kept in bread by enlisting the involuntary help of taxpayers. In a way, it is a case of socialism running out of people to loot.
Solar energy has surely come a long way in recent years, as technological progress has undoubtedly improved its economics. Evidently though, the improvement isn’t sufficient yet to make it actually viable. One would think that it makes sense to deploy it in places that are sunny most of the time (such as, well, Spain), but even there, it evidently depends on subsidies.
People often forget that it actually costs energy to produce solar panels. Whether they will in turn produce enough energy during their lifetime to make this investment viable remains questionable. It remains questionable precisely because so many companies in the sector depend both directly and indirectly on a vast variety of government subsidies (including the introduction of inane trade barriers to the detriment of consumers).
With the subsidization scam in Spain reaching its limit, it turns out that not even sunny climes can keep solar boondoggles afloat. In the current case, a cool $29 billion (€27.3 bn.) in liabilities have just been exposed to intense vaporization danger, as “green energy” company Abengoa has finally filed for bankruptcy.
It is the by far biggest bankruptcy in Spain’s history. 24,000 employees will have to look for a new job. The sovereign wealth fund of oil junkie Norway holds 2.7% of the company’s shares, an investment it will now have to write off. More than 200 banks are creditors of Abengoa, with total exposure of €20.2 billion. Abengoa’s business activities are described as “renewable electricity generation, converting biomass into biofuel and desalination of seawater” – practically a what’s what list of businesses that cannot possibly survive without subsidies.
Abengoa incidentally provides an excellent illustration of Austrian Business Cycle Theory, as more than 20 giant ongoing construction projects the company has initiated will remain incomplete. These empty shells are testament to the fact that there is a big difference between money and real capital. Banks and investors had no problem providing the company with money (much of it created from thin air), lending it huge sums. But the economy’s pool of real funding has proved unable to support the company’s investments.
Inconvenient Truths and Inconvenient Timing
Although Abengoa will be excluded from the IBEX-35 Index as of today – after losing 70% of its value since Wednesday alone (“survivor bias” strikes) – its management is apparently still “not giving up hope”, as the European press reports. How come the company’s managers remain hopeful?
It turns out that Abengoa is “tightly interwoven with politics and the political class in Spain”. What a surprise! Reportedly it is “primarily the ruling conservative Partido Popular of Mariano Rajoy for which the mega-insolvency comes at a highly inopportune time”.
This appears to be a case of poetic justice. As an aside, it also serves as a reminder that so-called “conservatives” in Europe (and not only there) are in reality socialists as well, only of a slightly different type, with a different redistribution focus; the entire system is socialistic in its basic outlook. And they are of course specialists in cronyism and running the consumer and taxpayer looting scheme widely referred to as the “state capitalist” system. The free market gets lip service at best.
Even Spain’s king was roped in. King Juan Carlos (fourth from left) walks with Abengoa Chairman Felipe Benjumea in front of solar panels during the inauguration of a solar tower in southern Spain.
Photo credit: AP Photo
Citi Group has been greatly embarrassed as well. It has been the lead underwriter raising fresh capital for Abengoa at €2.80/share in July – a mere four months ago. As the Guardian reports:
“Days after the Citi-led share sale in the summer, the Spanish company revealed it was seeking to raise €650m of capital and dispose of €500m of assets. Then it alerted the market that its free cash flow for the year would be as much as €800m lower than previously forecast.”
Whoa! This actually sounds like fraud to us, but one must keep in mind that this approach to ripping off investors seems to be par for the course in Spain, as demonstrated by various sagas that emerged during the banking crisis (Bankia and its callous capital raising activities robbing widows and orphans – most of them its own clients – being a prime example). As one industry observer drily commented:
“One banker said on Wednesday that Citi had made a “big, big mistake”, promoting the share sale without having more information on problems that lay ahead.”
No kidding baby.
US taxpayers are on the hook as well in this “Spanish Solyndra”. According to the US media:
“When the Free Beacon interviewed a pair of former Abengoa managers last year, one predicted that the company would go under. “This company eventually will go bankrupt. The question is at what expense to the United States people and government,” said Mike Alhalabi, formerly the senior lead mechanical engineer at Abener, a subsidiary of Abengoa.
The cost to U.S. taxpayers could be enormous. Abengoa has received nearly $3 billion in loan guarantees from the Department of Energy, as well as more than $100 million in federal grants.
Both the Department of Labor and U.S. Immigration and Customs Service have been tight lipped about the investigations, but Alhalabi and other former Abengoa employees have alleged extensive violations of U.S. labor and immigration laws and the terms of their stimulus loan guarantees that required them to give priority to American job applicants.”
A great opportunity for young entrepreneurs …
That assorted bureaucrats are “tight-lipped” about the investigations should be no surprise. They first need to make 100% sure that their behinds are covered. After all, “green energy” is a major pet project of the zombie faction currently running Washington. A wise bureaucrat will avoid drawing its ire and seek ways to use the boondoggle’s discovery to increase his bureaucracy’s power and funding.
Reaping great reward is after all the usual outcome of bureaucratic failure, as inter alia consistently demonstrated by the “national security” apparatus and the monetary authority. More on the consequences of Abengoa’s insolvency for US tax serfs can be read at “watchdog.org”.
Businesses that cannot possibly survive without subsidies are ipso facto not economically viable. In spite of all the high-minded pronouncements about the “need to save the planet” and how this valiant effort can allegedly be “combined with economic growth”, their existence serves primarily one function: to distribute money looted from taxpayers and consumers to assorted cronies of the political class, who in turn provide the latter with kickbacks. That is all there is to it.
How it works, in one picture.
Surely no-one is so naïve as to believe that modern-day politicians, whose horizon and time preferences never stretch beyond the next election date, are really concerned about what might happen to the planet a century hence (not to mention that the entire “climate change” religion seems to be little more than an elaborate hoax). With Abengoa’s bankruptcy we are once again presented with a bill that serves as a stark reminder how much scarce capital has been wasted on such schemes.
Ultimately it is little more than a modern form of highway robbery, clad in highly effective propaganda. Many people feel guilty about “consumerism”, believing that it must be true that prosperity and progress are somehow sinful. In reality, environmentalism has long become the home of a great many authoritarian leftists after they lost their former sugar daddy in Moscow in 1990.
They are trying – very successfully it saddens us to admit – to undermine free market capitalism by appealing to people’s sense of guilt and their innate need to receive absolution for their sins. And they have of course found out that their new sugar daddy is much better than their old one, as there is far more wealth ready to be looted and everybody involved is quite happy to get a cut. Occasionally reality has a habit of interfering, but that won’t stop them, at least not yet.
It is high time that the victims wake up to these scams and begin opposing them.
Charts by: ECB, BigCharts
Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
3 Responses to “Giant “Green Energy” Boondoggle Flops in Spain”
Most read in the last 20 days:
- Fresh Mainstream Nonsense on Gold Demand
They Will Never Get It... We and many others have made a valiant effort over the years to explain what actually moves the gold market (as examples see e.g. our article “Misconceptions About Gold”, or Robert Blumen's excellent essay “Misunderstanding Gold Demand”). Sometimes it is a bit frustrating when we realize it has probably all been for naught. Gold wants to know what it has done now... Photo credit: Ajay Verma / Reuters This was brought home to...
- Switzerland About to Vote on “Free Lunch” for Everyone
Will the Swiss Guarantee CHF 75,000 for Every Family? In early June the Swiss will be called upon to make a historic decision. Switzerland is the first country worldwide to put the idea of an Unconditional Basic Income to a vote and the outcome of this referendum will set a strong precedent and establish a landmark in the evolution of this debate. The Swiss Basic Income Initiative in a demonstration in front of parliament. As we have previously reported (see “Swiss...
- Drowning the Fir
Presidential Duties Our editor recently stumbled upon an image in one of the more obscure corners of the intertubes which we felt we had to share with our readers. It provides us with a nice metaphor for the meaningfulness of government activity. First, here is a look at the picture – just quietly contemplate it for while and let it work its magic on you: Yes, these two gentlemen are actually watering a tree in the middle of a downpour... Photo via...
- Gold – The Commitments of Traders
Commercial and Non-Commercial Market Participants The commitments of traders in gold futures are beginning to look a bit concerning these days – we will explain further below why this is so. Some readers may well be wondering why an explanation is even needed. Isn't it obvious? Superficially, it sure looks that way. As the following chart of the net position of commercial hedgers illustrates, their position is currently at quite an extended...
- Heretical Thoughts and Doing the Unthinkable
Heresy! NORMANDY, France – The Dow rose 222 points on Tuesday – or just over 1%. But we agree with hedge-fund manager Stanley Druckenmiller: This is not a good time to be a U.S. stock market bull. Legendary former hedge fund manager Stanley Druckenmiller at the Ira Sohn conference – not an optimist at present, to put it mildly. Photo credit: David A. Grogan / CNBC Speaking at an investment conference in New York last week, George Soros’ former partner...
- Staying Home on Election Day
Pretenses and Conceits The markets are eerily quiet… like an angry man with something on his mind and a shotgun in his hand. We will leave them to brood… and return to the spectacle of the U.S. presidential primaries. On display are all the pretenses, conceits, and absurdities of modern government. And now, the race narrows to the two most widely distrusted and loathed candidates. US election circus: Deep State Rep vs. Rage Channeller The first, a loose...
- How the Deep State’s Cronies Steal From You
Expanding in Ireland DUNMORE EAST, Ireland – We came down the coast from Dublin to check on our new office building. For this visit, we wanted to stay somewhere different than we normally do. So we chose a small hotel on the coast, called the Strand Inn. Irish landscape with alien landing pads. Even the guys from Rigel II have heard about Ireland's corporate tax rate. Photo credit: Tourism Ireland It is an excellent place for seafood and soda bread on a...
- The World's 100 Most Influential Hacks, Yahoos and Monkey Shiners
Hacks and Has-Beens NORMANDY, France – What has happened to TIME magazine? Henry Luce, who started TIME – the first weekly news magazine in the U.S. – would be appalled to see what it has become. Time cover featuring the sunburned mummy heading the globalist IMF bureaucracy (which inter alia advocates that governments should confiscate a portion of the wealth of their citizens overnight, even while its own employees don't have to pay a single cent in taxes). Once you...
- The Japanese Popsicle Affair
Policy-Induced Contrition in Japan As we keep saying, there really is no point in trying to make people richer by making them poorer – which is what Shinzo Abe and Haruhiko Kuroda have been trying to do for the past several years. Not surprisingly, they have so to speak only succeeded in achieving the second part of the equation: they have certainly managed to impoverish their fellow Japanese citizens. Shinzo Abe and Haruhiko Kuroda, professional yen assassins Photo credit:...
- Kuroda-San in the Mouth of Madness
Deluded Central Planners Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”. BoJ governor Haruhiko Kuroda Photo credit:...
- Revolution at the Ranch
Alarming News BALTIMORE, Maryland – An alarming email came on Tuesday from our ranch in Argentina: “Bad things going on… We thought we had the originarios problem settled. Not at all. They just invaded the ranch.” Originarios on the march... Photo credit: cta.org.ar To bring new readers fully into the picture, Northwest Argentina, where we have our ranch, has a revolution going on. Some of the indigenous people – that is, people with Native...
- The Long-Buried Secret of Napoleon Bonaparte
Family Secrets DUBLIN – The smart money is getting out while the gettin’ is still good. That’s the message we get from reading the recent headlines. Here’s the Financial Times: Redemptions from stock funds have hit nearly $90 billion this year as portfolio managers and hedge funds struggle to navigate a market that no longer seems driven by radical central bank policy. S&P 500 Index: causing navigational problems - click to...