April 5, 2011 - DOE loan guarantees

Tuesday, April 5, 2011

As Congress wrestles with the U.S. budget, one piece of energy policy that is under fire is the Department of Energy's Loan Guarantee Program.  A loan guarantee represents a commitment by the government to cover a borrower's debt to a commercial lender in the event that the borrower defaults.  Loan guarantees thus allow the government to function as a financial backstop to ensure lenders that their loans will be repaid.  In practice, this can result in a lower cost of money for project developers.  Since the Energy Policy Act of 2005, the U.S. Department of Energy has used loan guarantees to help energy projects get financed, committing over $26 billion to support 21 projects ranging from nuclear power to solar, wind to transmission, biofuels to energy efficiency.  For example, last year I wrote about a DOE loan guarantee for a trio of solar projects in the Mojave desert.  (I also noted President Obama's announcement of loan guarantees for a nuclear power plant in Georgia, touted at the time as part of the "nuclear renaissance".)

In recent years, DOE has operated three loan programs, two of which derive their names from the legislation enacting them.  First, DOE's 1703, loan guarantee program is used to support innovative clean energy technologies that can't find conventional private financing due to high technology risks.  These technologies must avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases, and must truly be innovative: technologies with more than three implementations that have been active for more than five years are not eligible.  Second, DOE's 1705 program was added through the 2009 stimulus legislation; the 1705 program backstops certain renewable energy systems, electric power transmission systems and leading edge biofuels projects that commence construction no later than September 30, 2011.  Third, DOE offers support through its Advanced Technology Vehicles Manufacturing (ATVM) Loan Program, which makes direct loans to support the development of advanced technology vehicles and associated components in the United States. 

As Congress continues to refine the federal budget, will DOE's loan guarantee programs make the cut?

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