Back in Black: DOE Clean Tech Loan Program Weathers the Political Storm, for Now

On November 12, the Department of Energy (DOE) announced that its controversial clean energy loan program has turned a profit.  DOE has received $810 million in interest payments since the program’s inception in 2005, offsetting program losses by $30 million.  Overall, the DOE expects to collect $5 to $6 billion in interest from the $34 billion loan program. The Obama administration drew fierce criticism for a few high profile bankruptcies, such as the 2012 failure of solar panel company Solyndra.  In biomass and biofuels, the program has issued two loan guarantees to date, to Abengoa Bioenergy and to POET, LLC.

Overall, the DOE loan program seeks to fund projects that “finance the first commercial deployments of innovative technologies in the U.S.”  Originally authorized by Congress under President Bush as Section 1703 of the Energy Policy Act of 2005, it was created to invest in commercial scale technologies that reduce, avoid, or sequester carbon dioxide (CO2). The program fills a need in the clean tech space, funding projects that private investors deem too risky, that were that could also provide societal benefits.  The funding model is not new -- fracking, the internet, and the human genome were all projects deemed too risky by private investors but seeded by the Federal Government. According to Peter Davidson, executive director of the Loan Programs Office, the DOE loan program is seen as a ‘last resort’ by project developers, only tapped when conventional financing options aren’t an option due to project risk.

Despite the huge successes, and need, for federal investment in ‘big picture’ ideas, exposing taxpayer money to the risk is too much for some lawmakers.  Representatives Shimkus (R-IL), Issa (R-CA), and Upton (R-MI) held several Congressional hearings on the DOE loan program.  Some lawmakers were not mollified by Wednesday’s news that the DOE program is expected to be a success, with Rep. Blackburn (R-TN) commenting, “what we have seen [with the DOE loan program] is incredible mismanagement, and it’s become the poster child for crony capitalism.”  Instead, Rep. Blackburn would rather see a tax credit for such projects.  Shimkus responded that “no matter how positive today’s projections may be, billions of taxpayer dollars are still at risk” by the DOE loan program.   

Biofuels and biomass facilities have been a smaller portion of the loan program relative to other renewable technologies.  So far, only Abengoa Bioenergy and Poet, LLC have received loans under Sect. 1703. POET, LLC ultimately withdrew from the loan program, instead opting for private financing it had secured.  Several loan solicitations were announced for biofuels and biomass earlier this year at DOE under Sect. 1703, including a $4 billion solicitation in July that included grid integration and energy storage, drop-in biofuels, waste-to-energy facilities, existing facilities improvements and energy efficiency.  Several other biofuels or biodiesel loan applications are also under review at DOE.

As with any lending portfolio, losses are expected and the DOE expects to lose about 3 percent of the total loan portfolio, or $780 million.  For comparison, the oil and gas sector, a mature industry, receives $4.8 billion per year in taxpayer-funded subsidies. Despite these expected losses, the interest payments are expected to make the program a net positive for federal revenue – as well as create positive investment in the growing low-carbon economy.  

For more information see:

Solyndra Program Vilified By Republicans Turns a Profit, Bloomberg Finance

Energy Department’s Loan Portfolio Continues Strong Performance While Deploying Innovation, DOE