By L&W Energy Attorneys
On March 31, 2011 Jonathan Silver, the Executive Director of the U.S. Department of Energy’s (DOE) Loan Programs Office (LPO), testified in front of the House Energy and Water Development Appropriations Subcommittee to discuss the LPO’s recent accomplishments and its 2012 budget requests. Silver stressed that the deployment of commercially-ready clean energy technologies in the near term, as well as the longer term deployment of innovative clean energy technologies are critical to reaching the country’s long-term clean energy goals. Silver observed that the deployment of commercially-ready technologies has been slowed by cyclical and structural impediments, including reduced liquidity in the tax equity market, a principal source of equity for renewable energy projects. Silver further observed that there is a systemic shortage of debt financing for innovative clean energy technologies related to the so-called “valley-of-death”, between the pilot-facility stage and commercial maturity, because of greater technology and execution risks.
Silver summarized the three loan guarantee programs administered by the LPO – the Title XVII Section 1703 and Section 1705 programs, and the Advanced Technology Vehicle Manufacturing (ATVM) loan program. (For more information on these programs, see Latham’s Client Alerts.) Silver noted that, since March 2009, DOE has issued conditional commitments for loans or loan guarantees for 25 projects (15 of which have reached financial close) – four under the 1703 program (approximately $10.6 billion), 16 under the 1705 program (approximately $7.3 billion), and five under the ATVM program (approximately $8.3 billion). Silver further indicated that approximately 25 other projects are far enough along in the due diligence process that the LPO has issued them working draft term sheets, and they are in active negotiations. Silver also acknowledged that the LPO review process for loan guarantee applications, involving financial, legal and technical reviews, can be long and costly because the LPO must ensure that the loans supported by DOE meet the statutory requirement of having a “reasonable prospect of repayment.”
For fiscal year 2012 Silver went on to request up to an additional $36 billion in loan guarantee authority to support new nuclear reactors; $200 million in appropriated credit subsidy to support loan guarantees for the renewable energy system; $38 million to efficiently operate and manage the loan guarantee program; $6 million to support ongoing loan monitoring activities associated with producing advanced technology vehicles; and $100 million for loan guarantees to support cost effective technologies and measures to assist universities, schools, and hospitals save on energy usage and costs. Various industry trade press sources also report that Silver testified that the budget cuts to the 1703 and 1705 programs proposed in legislation passed by the House earlier this year, H.R.1, would be devastating to those programs (for more information on the DOE-related budget cuts proposed in H.R. 1, see earlier Clean Energy Law Report blog entry).