Government Races to Close Billions in Renewable Energy Loan Guarantees

Henry Waxman (D-CA), at a National Journal Power Breakfast on July 8, 2009.
National Journal
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Amy Harder
Sept. 15, 2011, 3:21 p.m.

The Obama ad­min­is­tra­tion is in a race against the clock to close by month’s end more than a dozen re­new­able-en­ergy loan guar­an­tees total­ing $9 bil­lion. Of that, just over $3 bil­lion would come dir­ectly from the fed­er­al gov­ern­ment’s cof­fers.

The ad­min­is­tra­tion now has two weeks to fi­nal­ize the pro­cess amid an es­cal­at­ing polit­ic­al battle over a fed­er­ally backed sol­ar com­pany spiral­ing in­to bank­ruptcy and fa­cing an FBI probe. Pres­id­ent Obama once praised the com­pany, Cali­for­nia-based Solyn­dra, as “the true en­gine of eco­nom­ic growth.”

At a House hear­ing Wed­nes­day, there was bi­par­tis­an con­cern about risk­ing more tax­pay­er dol­lars on re­new­able en­ergy pro­jects that ul­ti­mately fail. While Re­pub­lic­ans’ rhet­or­ic was more heated, Demo­crats agreed it is a crit­ic­al is­sue.

“Tax­pay­ers have over $500 mil­lion at risk as a res­ult of Solyn­dra’s bank­ruptcy,” said House En­ergy and Com­merce rank­ing mem­ber Henry Wax­man, D-Cal­if. “We need to un­der­stand what happened and how we can avoid fu­ture losses.”

In 2009, Solyn­dra was the first com­pany to re­ceive a fed­er­al clean-en­ergy loan guar­an­tee as part of the stim­u­lus pack­age. The Fre­mont, Cal­if.-based maker of sol­ar photo­vol­ta­ic sys­tems then re­ceived photo-op vis­its from Obama, Vice Pres­id­ent Joe Biden, and En­ergy Sec­ret­ary Steven Chu, all tout­ing the job-gen­er­at­ing po­ten­tial of sol­ar and oth­er re­new­able en­ergy in­dus­tries. But on Aug. 31, Solyn­dra shuttered op­er­a­tions, lay­ing off its 1,100 work­ers while seek­ing Chapter 11 bank­ruptcy pro­tec­tion.

Un­der the Re­cov­ery Act that Obama signed in­to law in Feb­ru­ary 2009, the En­ergy De­part­ment’s loan guar­an­tee of­fice was giv­en roughly $6 bil­lion to help cov­er the fin­an­cing of re­new­able en­ergy com­pan­ies ap­ply­ing for loans both with the Treas­ury De­part­ment’s Fed­er­al Fin­an­cing Bank and with private lenders, such as banks. Con­gress has since peeled away about half of that for oth­er pur­poses and left the de­part­ment with just $2.4 bil­lion for the re­new­able loan guar­an­tee pro­gram.

That $2.4 bil­lion al­loc­ated to the En­ergy De­part­ment pays for each re­new­able en­ergy pro­ject’s “cred­it sub­sidy,” a fee worth usu­ally around 10 per­cent of a loan and which helps de­fray costs if the loan fails. The En­ergy De­part­ment doesn’t dis­close the cred­it sub­sidy rate of loans the gov­ern­ment guar­an­tees, so it’s un­clear how much of that $2.4 bil­lion re­mains.

When the Re­cov­ery Act passed Con­gress, the En­ergy De­part­ment was giv­en a sun­set date of Sept. 30, 2011. That date is fast ap­proach­ing with 14 com­pan­ies’ loans still lis­ted as “con­di­tion­al” on the En­ergy De­part­ment’s web­site. In the next two weeks, the ad­min­is­tra­tion will try to fi­nal­ize those loans, whose amounts total $9 bil­lion. If the loans don’t close, the com­pan­ies won’t get any money.

Of the 14 pro­jects pending as “con­di­tion­al com­mit­ments” on the En­ergy De­part­ment’s web­site, half are bor­row­ing from the Treas­ury De­part­ment’s Fed­er­al Fin­an­cing Bank and half are bor­row­ing from private lenders, ac­cord­ing to DOE spokes­man Dami­en LaVera.

Ini­tial loans come either from the Treas­ury De­part­ment or private lenders, de­pend­ing on the loan guar­an­tee’s con­tract. In a worst-case scen­ario, tax­pay­ers could be on the hook for the whole $9 bil­lion — but only if the fed­er­al gov­ern­ment ap­proves all 14 re­main­ing pro­jects with con­di­tion­al loan guar­an­tees, and all 14 sub­sequently de­fault. 

The loans con­di­tion­ally com­mit­ted to com­pan­ies bor­row­ing from the gov­ern­ment total $3.18 bil­lion. The oth­er sev­en com­pan­ies bor­row­ing from private lenders totals roughly $5.8 bil­lion.

Most of the money Treas­ury has avail­able — if loans are closed by Sept. 30 — is tar­geted to sol­ar com­pan­ies. Of the sev­en com­pan­ies bor­row­ing from the gov­ern­ment, four of them are in the sol­ar in­dustry, two are in bio­fuels, and one is in the wind sec­tor, ac­cord­ing to DOE’s web­site.

Of the com­pan­ies seek­ing to bor­row from the Treas­ury De­part­ment, the biggest loan — worth $1.18 bil­lion — would go to Sun­Power Cor­por­a­tion Sys­tems to build a sol­ar farm in Cali­for­nia. An­oth­er loan of $737 mil­lion would go to Sol­ar­Re­serve to build a sol­ar farm in Nevada.

WATCH Jon Stew­art mocks the ad­min­is­tra­tion’s em­brace of Solyn­dra:


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