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US Congress drains US$2 billion from renewable loan guarantees


Steve Barlas

As if the US renewable energy loan guarantee program hasn’t suffered problems enough, Congress contributed another headache in late July - just before recessing for the August break - when it reduced the budget of one of two loan guarantee programs by US$2 billion, reports Steve Barlas.

The money was transferred to the “Cash for Clunkers” program at the Department of Transportation, a program which provides American new car buyers with rebates of up to US$4,500 when they trade in old gas guzzlers.

The US$2 billion was taken out of a US$6 billion appropriation for the so-called section 1705 loan guarantee program, created by the American Recovery and Reinvestment Act of 2009, better known as the stimulus bill.

The primary purposes of 1705 are job preservation and job creation, infrastructure investment, energy efficiency and science, assistance to the unemployed, and state and local fiscal stabilisation. Bill Wicker, spokesman for Sen. Jeff Bingaman (D-N.M.), chairman of the Senate Energy Committee, calls the US$2 billion subtraction “a big hit.” He says his boss “was none too happy about the decision to raid this renewables loan guarantee program.”

Bingaman, according to Wicker, spoke personally to President Obama and to Rahm Emanuel about restoring this funding. “We haven’t been given the specifics or the details of that private conversation, beyond assurance that Bingaman is satisfied with what he was told,” reports Wicker.

A second, older loan program called section 1703 was created by the 2005 Energy Policy Act. It funds new or significantly improved technologies. The 1703 program has been plagued by bureaucratic problems. The first loan guarantee was offered on a “conditional” basis last March to Solyndra, Inc., a Fremont, California company, which builds proprietary photovoltaic (PV) systems for residential and commercial rooftops. But US Department of Energy (DOE) offers of guarantees have been few and far between, and the program (and Bush administration) has been roundly criticised by Democrats and Republicans alike.

Energy Secretary Steven Chu announced in early August the latest renewable loan guarantee solicitation, where US$8.5 billion in credit subsidies would support about US$30 billion in loan guarantees. In an effort to make it easier for DOE to approve applications, Chu made some changes to Bush era guidelines, such as deleting the requirement that the DOE hold a first priority lien on all project assets and allowing the secretary of DOE the determination of an appropriate collateral package, as well as intercreditor arrangements.

The renewable industry has been very nervous about the 1705 guarantees especially since they can only be awarded to renewable projects whose construction begins no later than 30 September 2011. The DOE is required to conduct a National Environmental Policy Act (NEPA) review before granting a loan guarantee. The NEPA review depends on work being done by the Bureau of Land Management (BLM), which typical owns the land on which many of the wind projects would be built on, or would use water from for purposes of cooling solar projects.

The BLM has moved very slowly to do its part of the NEPA reviews. Sean Gallagher, vice president of marketing and regulatory affairs, Tessera Solar, told the House Select Committee on Energy Independence and Global Warming on July 28 that the BLM must accelerate the NEPA process. “Based on previous reviews, we estimate that the NEPA review process will take 12-18 months,” he said. “The length of this process delays the length of time it takes to commence construction, and may cause us to miss important start dates to take advantage of financial incentives provided by the Recovery Act.”

Gallagher also implicitly criticised the DOE guarantee program, and its guidelines, which he implied are inconsistent with commercial banking practices and successful loan guarantee programs like the Export-Import Bank of the United States and the Overseas Private Investment Corporation (OPIC), which have both been successful from a risk management perspective. “Absent loan guarantees, our projects and others like them face an impossible task finding financing due to the battered credit markets, and the unwillingness of private lenders to take risks on new technologies,” Gallagher said.

Criticism of the loan guarantee rules has centered on a complaint about the rigidity of a requirement that DOE be in first lien position over all assets of the financed project.

Wicker of the Senate Energy Committee says Chairman Bingaman has not commented on Chu’s proposed changes to the loan guarantee program. Bingaman has sponsored a bill, backed by Republicans, which would essentially replace the current loan guarantee program by creating a Clean Energy Deployment Administration.
 

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