Cleantech Loan Guarantees: A Tangled Tale

The saga of the stimulus-spawned phase of the U.S. Department of Energy (DOE) loan guarantee program for renewable energy turned toward a conclusion recently. The DOE told some of the companies in the process that their applications were likely to succeed, while other companies were notified that their bids for government-backed financing were being shelved.

Loan Programs Office Director Jonathan Silver didn’t specify at the time which companies got good news and which got bad news. Nor did he give an iron-clad assurance that those applications that were moving forward would result in loans before the “Section 1705” program winds down at the end of the current fiscal year. “Given the rigorous technical, legal, and financial requirements, it is possible that not all of these projects will succeed by September 30th,” Silver wrote on the DOE’s blog, “but each of them will have a chance to compete for the remaining funding.”

Solar Panel Array

image via General Electric

Appointed by Energy Secretary Steven Chu in November 2009, Silver has presided over a program that supporters say has helped create jobs and sustain renewable energy development through tough times. But even they concede that bureaucratic challenges, missteps and budget rescissions served to create confusion about its purpose, goals and effectiveness.

“It’s a poorly understood program,” said backer Robert Pollin, co-director of the Political Economy Research Institute at the University of Massachusetts-Amherst. “People see billion dollar figures thrown around and think it amounts to massive government spending, when actually it can be an extremely cost-effective way to spur job creation and clean-energy development.”

At their most basic, the loan guarantees are a promise by the federal government to make good on loans when companies fail. With a government backstop in place, companies can theoretically get financing that’s cheaper than other options. But the DOE loan guarantees have a tangled history that makes them more complicated and controversial than that simple description might suggest.

The loan guarantees actually comprise several programs born of the Energy Policy Act of 2005, legislation that passed Congress with bipartisan support – including a yes vote from a freshman Democratic Senator from Illinois, one Barack Obama – and was signed into law by President George W. Bush.

The sprawling bill, dubbed a “piñata of perks” by the Washington Post, seemingly had something for everyone in the energy game. Among other things it provided a big boost for ethanol production (politicians from corn-producing states, like Illinois, loved that); subsidized so-called clean-coal initiatives; and tried to bring a moribund U.S. nuclear-power industry back to life. New nuke plants and other innovative, not yet commercially viable technologies were a focus of the loan-guarantee section of the bill, but not a single loan was approved before President Bush left office.

Pete Danko is a writer and editor based in Portland, Oregon. His work has appeared in Breaking Energy, National Geographic's Energy Blog, The New York Times, San Francisco Chronicle and elsewhere.

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