Today I sent Senators Bingaman and Murkowski a letter to update them on our loan program. You can read it below.
April 5, 2012
Senator Jeff Bingaman
Committee on Energy and
Senator Lisa Murkowski
Committee on Energy and
Dear Senators Bingaman and Murkowski:
At a recent Senate Energy and Natural Resources Committee hearing, Secretary Chu was asked how the Department of Energy (DOE) planned to move forward on providing loans and loan guarantees for the deployment of new technologies. The Secretary has asked that I update you on the status of the loan program. I am pleased to provide an update at this time, in particular on the process for making loan guarantees under the 1703 loan program.
As you know, the §1703 loan program was adopted as part of the landmark, bipartisan Energy Policy Act of 2005 to provide loan guarantees to cutting edge clean energy projects that, because of the risks involved with newer technologies, are typically unable to obtain conventional bank financing. Last April’s budget agreement reached by U.S. House of Representatives Speaker Boehner and U.S. Senate Majority Leader Reid provided an additional $170 million in loan loss reserve funding to support §1703 loan guarantees that could not be funded under the expiring §1705 loan guarantee program that was funded by the Recovery Act. Separately, the bipartisan agreement provided the Department with $1.5 billion in additional loan guarantee authority for projects where the loan loss reserve is funded by the project sponsor.
The §1705 loan program included a September 30, 2011 deadline by which projects had to not only complete due diligence and close on their loans, but also start construction. Faced with a large volume of worthy projects, but a limited number able to meet this mandate, in May 2011 the Department sent letters to more than three dozen project sponsors, informing them that they would not qualify under §1705, but could be considered in the future for loan guarantees under the §1703 program. As the letter noted, this was not a statement of the quality or worthiness of those projects; it was simply a matter of timing.
Following the completion of the Independent Consultants Review by Mr. Herb Allison, the Department has worked to develop a process for considering pending applications for the §1703 funding. Today, the Department is sending a letter to project sponsors with pending applications that could not be considered for the Recovery Act-funded §1705 program due to eligibility requirements or time constraints around the September 30, 2011 deadline for that program. These projects are still being given the opportunity to be considered for a loan guarantee under the §1703 program.
The exact number of projects and the total dollar value of the loan guarantees in this §1703 pipeline will depend on the government’s assessment of the risk level of the projects selected. The Department expects to begin issuing conditional commitments over the next several months after completing a rigorous internal and external review of each application. This evaluation will build on the extensive work that had already begun last year prior to the applications being put on hold.
Consistent with the findings and recommendations of the Allison review, projects selected will be subject to a robust monitoring effort to ensure that taxpayers’ investments are protected. It is important to note that the Allison review found that the Department’s overall loan portfolio was strong and that expected losses would likely be less than the loan loss reserves Congress set aside for the §1705 loan program and the Advanced Technology Vehicles Manufacturing Loan Program.
I would also like to take this opportunity to update the Committee on the significant progress being made around the country on projects funded by the Department’s loan programs.
From solar energy to wind to biofuels and more, the global market for clean energy technologies reached $260 billion last year and is growing rapidly. Recognizing the enormous economic opportunities ahead, countries like China, Germany, and others around the world have established programs to provide government-backed financing for innovative technologies and companies. Such support is crucial because private lenders are often unwilling or unable to absorb the risks associated with financing truly innovative or advanced technology projects at scale until such projects have been proven in the marketplace.
By any measure, the Energy Department’s loan programs have helped the United States keep pace in the fierce global race for clean energy technologies. Over the past three years, the loan programs have invested in some of the world’s biggest, most innovative, and most ambitious clean energy projects to date, supporting a balanced portfolio of American clean energy projects that are creating tens of thousands of jobs nationwide and are expected to provide power to nearly three million U.S. households.
For example, NRG Solar’s Agua Caliente project in Yuma County, Arizona will be the world’s largest solar photovoltaic installation when it is finished later this year. The project is more than 70 percent complete with nearly three million solar panels already installed that span more than 2,300 acres – and the project has started delivering clean, renewable energy to the power grid. For the 600 workers on the site today, the project provides steady income, marketable skills, and the opportunity to contribute in shaping the nation’s energy economy.
In wind energy too, the Energy Department is supporting the world’s largest project. The Caithness Shepherds Flat wind farm in eastern Oregon features 338 turbines spread across two counties. With more than half of the turbines already installed, the project is operating and contributing clean wind power to the grid. It is supporting thousands of jobs beyond the 1,000 construction workers on site. The project will utilize 15 suppliers in nine states to fulfill orders for the 845 megawatt wind farm, including General Electric assembly facilities in Pensacola, Florida and Tehachapi, California. Logistics companies, indirect suppliers, and site contractors are also playing an important role in the project.
Several other completed projects are generating clean power and are repaying their loans. First Wind’s Kahuku Wind project in Oahu, Hawaii, for example, has been operating since March of last year, providing clean, renewable power to 6,000 homes. The economic benefits of the project are substantial – with wind turbines assembled in Iowa, an advanced energy storage system supplied by a Texas company, and a supply chain that extended to more than 100 businesses in 20 states.
Solar generation projects like California Valley Solar Ranch, Antelope Valley Solar Ranch, and Abengoa Solana are reinvigorating the local construction industry and contributing to a boom for American solar companies. New manufacturing facilities are opening across the country to support America’s renewable energy sector. In fact, according to the U.S. Solar Energy Industry Association, in 2010 and 2011, 41 new U.S. solar manufacturing facilities began operations across America, including in Arizona, Florida, Georgia, Michigan, Mississippi, Ohio, Pennsylvania, and Tennessee. These facilities have fostered new steel manufacturing facilities, glass producers, and tool dye manufacturing facilities for solar electronics and tracking equipment.
In part because of these cutting edge projects and the private sector investment enabled through the loan program, the United States has nearly doubled renewable energy generation since 2008, and last year U.S. solar installations grew by nearly 110 percent.
But given how intense the global competition is – China offered $30 billion in government-backed financing to solar companies in 2010 alone – we cannot afford to stop moving forward.
Our historic investment in clean energy is paying off, and it will come back to us many times over – in jobs, in clean energy for our communities, and in leadership in the technologies of the 21st century. Thank you for your continued partnership in this important endeavor.
David G. Frantz
Acting Executive Director
Loan Programs Office
U.S. Department of Energy