New plan emerges for renewable-energy loan guarantees

Source: John McArdle, E&E reporter • Posted: Friday, April 6, 2012

The Department of Energy released a new plan today for moving forward on renewable loan guarantees, seven months after the Solyndra bankruptcy pushed the loan program into a political firestorm and slammed the brakes on new commitments.

The statutory deadline for DOE to offer loans under the same Section 1705 program that provided the ill-fated Solyndra loan was Sept. 30, 2011 — just a month removed from the California solar energy company’s bankruptcy announcement.

After DOE made conditional commitments totaling nearly $5 billion in the days before that deadline, congressional Republicans blasted DOE for its “mad rush” to push loans out the door and over the next several months made the loan program the focus of a series of high-profile hearings.

But the pendulum has begun to swing back, and in recent weeks private-sector stakeholders and even some members of Congress have expressed frustration about the languid pace of DOE loan decisions(Greenwire, March 14).

DOE can still make loan guarantees through the Section 1703 program, which has existed longer than 1705 and also funds clean energy projects, albeit under less favorable loan terms. DOE can also offer direct loans through its Advanced Technology Vehicles Manufacturing (ATVM) program.

The Section 1703 loan guarantee program has $34 billion in loan authority and about $170 million in appropriated credit subsidy — which essentially acts as its loan-loss reserve — that was carried over from previous budget years. That total doesn’t include about $16 billion in available lending for the ATVM program.

A recent Government Accountability Office report found that, to date, DOE has committed just six loan guarantees under Section 1703 but has not closed any of them “or otherwise demonstrated that the program is fully functional.”

But in a letter today to the Senate Energy and Natural Resources Committee, David Frantz, the Loan Program Office’s acting director, said the 1703 program is ready to move forward.

Frantz said that more than three dozen project sponsors were unable to qualify for a 1705 loan because of the cutoff date but that the project sponsors have been informed they could be considered for a 1703 loan.

“The department expects to begin issuing conditional commitments over the next several months after completing a rigorous internal and external review of each application,” Frantz told the committee.

In letters to companies today, Frantz explained that given the limited resources DOE will be working with, it is unlikely DOE will be able to issue a loan guarantee for every project and that the agency will likely have to put a cap on the amount of credit subsidy made available for any single project. Any additional credit subsidy costs that the project requires would have to be paid for by the loan recipient.

As he laid out screening criteria that DOE will use in identifying projects for future loans, Frantz sounded a cautious note in the wake of the Solyndra debacle.

“Although the criteria described above will help to identify promising projects, DOE’s paramount responsibility remains its role as a steward of taxpayer funds,” he wrote. “Projects identified under the foregoing criteria will have to undergo DOE’s rigorous due diligence and loan underwriting review prior to issuance of any loan guarantee.”

Frantz asked companies that want to be considered under the 1703 program to notify DOE by April 27.