Uncertainty Over Loan Program Could Spur Political Action

by Terrence Murray - April 27, 2011

With the Department of Energy Loan Guarantee program possibly ending in less than six months, some green energy project developers are concerned that their projects may not even receive a review, let alone approval, before the program winds down in September.

Although a Republican-led Congress approved the Loan Guarantee program in 2005, the popular funding source really took off under the Obama administration, which vowed to speed up the award of loan guarantees supporting renewable energy and nuclear projects. Now, with the political power dynamic in Washington favoring small government, there are growing doubts that the program will be renewed. The possible end of the governmental loan guarantees has frustrated many project developers, some of whom have spent millions of dollars in legal and consultancy fees just to file their application with the DOE.

The DOE Loan Guarantee office is already taking steps to manage developers’ expectations while simultaneously green-lighting as many loans as possible. Last week Jonathan Silver, who oversees the program, told G.E.R. he expected renewable energy companies with term-sheets in hand to get federal funding before the program’s demise. “We need to get these loans closed by September,” he told us.

However, the prospects for companies without term-sheets appear much less clear. A veteran project finance attorney tells us that he’s been advising clients seeking DOE backing to take a wait and see approach. “Given the backlog, if you’re just now submitting an application, I don’t think you have a chance of even being reviewed,” he says.

Developers who have submitted an application but do not yet have a term-sheet now find their project’s in limbo. A project finance banker who is arranging financing for a New England wind farm notes that the glut of applications is injecting an unwelcome amount of uncertainty into the process. “Based on the backlog, I couldn’t tell you when (getting a DOE loan guarantee for my project) will happen,” he says.

Since taking over the loan guarantee program in early 2009, Silver has brought on 200 project finance professionals to handle the flood of applications, and in the past two years the DOE has conditionally approved or closed on about $30 billion in guarantees. Most recently BrightSource Energy closed on a $1.6 billion government loan supporting the construction of its 392-megawatt Ivanpah Concentrated Solar Power (CSP) project.

However, despite some notable successes, there are still dozens of ambitious renewable energy projects waiting for federal help. Chadbourne & Parke Washington Partner Keith Hansen estimates that about 85 renewable energy projects are currently being reviewed by DOE staffers. While Silver has beefed up his workforce, the shear numbers of projects looking for financing suggests many companies will miss out on federal money if the loan guarantee program is not extended.

“All of these projects are spending serious dollars to get these loans,” says Hanson. Companies that are still plowing resources into their applications find themselves hoping for an extension of the program.

Last September green energy lobbyists led a successful charge to extend the popular 1603 direct cash grants for another year. However, so far it does not seem industry lobbyists are prepping a similar effort to extend the cash grants.

However, some insiders are not counting the program out just yet. Hansen predicts that as the September deadline approaches project developers seeking DOE loan guarantees could increase the pressure on Congress to extend the program.

 

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