US government lending could support $250bn of renewables projects

www.environmental-finance.com
25 June

With the distressed capital markets currently reluctant to provide extensive funds for renewable energy projects, the US Department of Energy (DOE) is committed to temporarily providing financial support for mature technologies, officials said. Over the next 18 months, the federal government will make a series of loans to mature technologies because the capital markets are not providing such funding, said Matt Rogers, senior advisor overseeing DOE investments from the economic stimulus package.

But the government does not plan to serve in that capacity indefinitely because its long-term role is to underwrite advanced technologies and fill funding gaps for projects such as energy efficiency that the markets do not handle well, he said.

"Our intent is to step in specifically where market failures exist and to solve that particular problem," Rogers said at the Renewable Energy Finance Forum in New York this week. "But the federal government is not and should not be a long-term substitute for the capital markets." The government can potentially provide enough funds to support nearly $250 billion worth of renewable energy projects, a meaningful, but insufficient investment in the sector, he said. "This is about making a down payment," he said.

An upcoming report from the DOE will establish long-term renewable energy goals, such as fulfilling 15% of US electricity demand from wind, 6% from solar by 2030 and at least 9-12% from hydropower by 2030, said Kristina Johnson, undersecretary of energy at the DOE. While there are numerous barriers to expanding the US renewable energy sector, a sizeable amount of increased production can be achieved by improving efficiency and expanding capacity at existing sites, she said.

In 2008, the DOE's loan guarantee programme received 46 applications for renewable projects and provided $10 billion out of the $14.3 billion sought by developers. The programme will soon reopen with an additional $8.5 billion for renewable projects starting in July, said David Frantz, director of the DOE's loan programme. The stimulus package provides for an additional $48.6 billion for renewable energy projects through September 2011. The law requires the agency to set terms and conditions in a manner designed to ensure loan repayment and to be a self-supporting entity, DOE officials said.

"We are clearly senior lenders," Frantz said. "We behave as a senior lender as you would expect. We're very careful and diligent in all of our underwriting activities and I think this probably explains, in some part, the delay in getting specific projects out." The DOE is working quickly to issue guidance for its loan guarantee programme and streamline the process by taking steps such as enlisting lenders interested in participating to assist the agency in the underwriting process, he said.

The guidance, likely to be released in July, must answer critical questions about the interaction between loan guarantees and grants, including whether projects can be eligible to receive both sources of government funding, said Neil Auerbach, managing partner for Hudson Clean Energy Partners.

Bills currently being debated in the Senate and House of Representatives would reform the existing DOE loan guarantee programme, create a new clean energy investment fund to allow funds to be used to support technology deployment and a new administration within the DOE to implement the programme, called the Clean Energy Deployment Administration (CEDA). The DOE does not have a formal policy on CEDA, but Rogers said there are several key issues to consider, namely that the bill establishes the programme without providing funds.

"Authorisation without appropriation is actually going to make all of us crazy," he said. "One of the challenges we had at the Department of Energy loan programme over a long period of time is that it was authorised but not appropriated. It's really hard to make a programme work if you don't have resources." In addition, Rogers expressed concern that the provisions of the current bill could allow for the bypassing of the Federal Credit Reform Act, which was established to better control and manage the government's direct and guaranteed loan programmes. "If we make a set of bad loans, this industry or whichever industry receives those bad loans will suffer from it for 20 years and we can't afford to do that because this is a long-term game," he said.