Unless you have avoided the news over the past two years, you have likely heard of Solyndra—the now bankrupt California-based solar panel maker—that received $535 million in loan guarantees from the Department of Energy’s (DOE) Loan Program Office (LPO). Since Solyndra’ s bankruptcy in 2011, some politicians have used it as a rallying cry against government tinkering in the free market and, to a certain extent, what they view as crony capitalism. This public backlash caused the administration to halt the DOE’s issuance of new loan guarantees under the LPO—until now. Now that the Solyndra experience has cooled a bit, and Congress is focused on other big-ticket items like the Affordable Care Act, it was announced in late-September that the DOE’s controversial program will be revived.
As Bloomberg News has reported, the LPO is going to be committing $8 billion of its $34.4 billion loan portfolio to renewable technologies that reduce emissions from extracting and burning fossil fuels; a huge boon to the industry and potential recipients. The timing of the revival of the program does not just coincide with a shift in Congress’s attention, but also a number of other key factors that have taken place this year: the appointment of Dr. Ernest Moniz as DOE secretary; the appointment of a new executive director for the LPO, Peter Davidson; the repayment by Tesla, perhaps the most well-known cleantech success story in the past eight months, of a $452 million dollar loan from the DOE; and the U.S. Environmental Protection Agency’s September 2013 announcement under the president’s Climate Action Plan to reduce carbon pollution from power plants. My colleague’s recent piece on the Climate Action Plan announcement can be found here. With key institutional changes in place to minimize Congress’s criticisms and some good news to flaunt, the Obama administration is keeping with its promise of making further development of the renewable energy sector a key priority.
For those not aware, the LPO was created in 2005 under President George W. Bush as a means of incentivizing private banks to fund startups and developing energy companies. The LPO oversees three programs:
- Section 1703 loan guarantees. This program provides loan guarantees for projects that “employ new or significantly improved energy technologies and avoid, reduce, or sequester air pollutants or greenhouse gases.”
- Section 1705 loan guarantees. This program provided loan guarantees for certain clean energy projects that commenced construction on or before September 30, 2011. The program is now expired, but the LPO is still responsible for monitoring companies that previously received funding under this program.
- Advanced Technology Vehicles Manufacturing (ATVM) program. This program can provide up to $25 billion in direct loans to finance advanced vehicle technologies. The LPO has highlighted two investments it has provided to Ford and Nissan to raise fuel efficiency and the creation of more efficient batteries, which it notes on its website.
The proposed $8 billion in new guarantees will be provided under the Section 1703 program. There is an entire process built into the review and final acceptance of a company by the LPO, which ultimately requires the secretary of the DOE’s sign-off. Companies going through the application process are required to pay fees to the DOE, which are expected to cover all the underlying expenses for the loan program in the upcoming fiscal year, further helping to minimize Congressional ire.
Whether the program is able to help push the Obama administration’s goal with regards to cleantech development or ends up a redux of Solyndra is yet to be seen. We’ll be keeping our eyes on this program as things continue to develop.
Michael Hecker is a senior associate in the Environment & Energy Practice at Hodgson Russ LLP. You can reach him at firstname.lastname@example.org.