DOE Loans Doubtful After September for Renewable Generation, Transmission

by Warren Belmar, Capitol Counsel Group

As of June, the Department of Energy (DOE) had issued or conditionally committed to loans and loan guarantees for more than $22 billion to help fund 18 electricity generation and transmission projects.

Of this amount, some $5 billion has been awarded to fund one transmission project, two wind generation projects, two geothermal generation projects and three solar generation projects. The remaining $17 billion in potential funding consists of conditional commitments issued in support of one nuclear generation project, two wind generation projects and seven solar generation projects.

The details for these project finance transactions, including the name of each project sponsor and the amount awarded, may be found under the Our Projects heading at http://lpo.energy.gov, the website of the DOE’s Loan Programs Office. Because the authority and funding for 17 of the 18 projects referenced above expires Sept. 30 for all practical purposes, however, the opportunity for similar federal financial support for additional electricity generation and transmission projects is very much in doubt. A brief review of the statutory basis for the DOE programs will explain the current situation.

The authority for the DOE’s loan guarantee program is Title XVII of the Energy Policy Act of 2005. Pursuant to Section 1703, the DOE can support the development of renewable energy power generation and electric transmission facilities only if they employ new or significantly improved technologies that avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases.

In enacting this provision, Congress sought to address the difficulties these innovative high-technology-risk projects faced in securing conventional private-sector financing. Title XVII specified, however, that the DOE must receive either an appropriation, or full cash payment from the borrower at the time of closing, of the credit subsidy cost associated with the project. This payment is to cover the expected long-term liability to the federal government should a default occur and is finalized at the time of closing. To date, under Section 1703 the DOE has looked to the borrower for payment of the credit subsidy cost. As a result, only four conditional commitments have been issued under Section 1703 to date. The largest in these conditional commitments—$8.33 billion—is for the construction of a nuclear power plant.

The American Recovery and Reinvestment Act of 2009 (ARRA) amended Title XVII to add a new Section 1705 establishing a temporary loan guarantee program for, among other things, the development of wind, solar, geothermal and certain other renewable energy generation systems and the construction of electric power transmission systems. Because this provision was designed to address the difficult economic conditions at that time, Congress initially appropriated $6 billion to pay for the credit subsidy costs of those eligible projects approved by the DOE and further required eligible projects to commence construction no later than Sept. 30. To date, this has resulted in the funding of the credit subsidy costs for a variety of Section 1705-eligible projects, including the $5 billion in loans to the eight closed projects referenced. Similarly, the credit subsidy costs for the nine Section 1705 projects with conditional commitments for approximately $13 billion in loans also will be paid by appropriated dollars if those projects commence construction by Sept. 30 and the transactions close.

With the expiration of Section 1705, DOE loan guarantees to help finance electricity generation and transmission projects will be available only under the more restrictive, expensive provisions of Section1703. As a result, with the continued softness of the conventional private financing markets, securing financing for new generation and transmission projects will be difficult. Other DOE programs, however, as well as those at the Department of Agriculture, are still available.

One such program, to support the critical need for transmission infrastructure to facilitate the delivery of renewable energy to market, was authorized by ARRA’s Section 402. It granted the Western Area Power Administration and the Bonneville Power Administration—two of the DOE’s four power marketing administrations—the authority to borrow up to $3.25 billion each from the U.S. Treasury to finance, facilitate, plan, construct, operate and maintain or study the construction of new or upgraded transmission lines and related facilities within their service areas. This authority will go a long way toward achieving needed solutions to the congestion and constraint problems on the national transmission grid. For example, Western selected the Montana-Alberta Tie Limited Transmission Project as the first project to finance with its new borrowing authority, agreeing to provide up to $161 million toward the $213 million total cost of the project. By fully using this new borrowing authority, Western and Bonneville once again will prove themselves worthy of the transmission responsibilities they have performed so ably for more than half a century.

Author
Warren Belmar is managing director of Capitol Counsel Group and the former deputy general counsel for energy policy at the DOE. Reach him at wbelmar@att.net.


The Financing Force Behind U.S. Clean Energy Economy According to DOE Information

The Department of Energy’s Loan Programs enable the DOE to work with private companies and lenders to mitigate the financing risks associated with clean energy projects, thereby encouraging their development on a broader and much-needed scale. LPO is one of the largest and most productive energy project finance operations in the world and has committed nearly $31 billion to support 29 clean energy projects. These projects create or save more than 62,000 jobs across 21 states.

LPO has issued conditional commitments to 13 power generation projects with cumulative project costs of more than $27 billion. This represents a greater investment in clean energy generation projects than the entire private sector made in 2009 ($10.6 billion), and almost as much as was invested in such projects in 2008, the peak financing year to date ($22.6 billion).

In 2010 alone, LPO offered loans and conditional commitments for loan guarantees to 14 projects, including:

 

  • Abengoa Solar Inc. and BrightSource Energy Inc., two of the world’s largest solar thermal projects,
  • Georgia Power Co.’s Vogtle project, a 2,200-MW nuclear power plant—the nation’s first in three decades, and
  • Caithness Shepherds Flat, the world’s largest wind farm with generating capacity of 845 MW.

     

    Loan Programs Office Projects, According to DOE
    Current Totals
    Loans: $30.7 billion
    Jobs: 62,350

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