By Roy L Hales
The Loan Program Office’s (LPO) success rate is impressive by any standard. Given that it works with businesses that find it difficult to obtain bank loans, it is nothing short of phenomenal. Tesla, America’s rapid deployment of utilities scale PV solar and the first US produced battery packs are among the LPO’s success stories.
There have also been losses, like $528 million lost on Solyndra or $139 million outstanding on Fisker. This is to be expected. Only 30% of new venture capitalist start-ups produce favourable returns.
Only, as Executive Director Peter Davidson points out, 87% of the LPO’s projects are in good standing. The remainder were discontinued because of termination of the loan or loan guarantee, bankruptcy protection filing, sale (or anticipated sale) of the guaranteed note or any of a number of reasons.
Though LPO’s projects are performing at almost three times the rate expected for a VC start-up, this statistic is distorted. A “discontinued” VPG loan of $50 million is really small compared to the nearly $6 billion “in good standing” that went to Ford. I am treating these projects equally in the graph below.
Another gage to measure their success is financial loss. This has only amounted to about 2% of LPO’s $30 billion portfolio. That is better than most banks! The failure rate in most financial institutions is currently 3% and many banks were as 11% a few years ago.
Davidson explained the success of one the LPO loan programs: “All of the eighteen large-scale renewable projects backed by DOE’s 1705 projects had secure payback streams, in the form of power purchase agreements for the energy they produced,” he noted. “While DOE’s loan program doesn’t require that all its projects have solid off-take agreements for the energy they’re meant to produce, ‘From our perspective as lenders, we have to make sure that if the generation is produced, there’s a buyer — and that the buyer will pay enough.”
Though the Section 1705 Loan Program expired in September 2011, LPO has continued to monitor all active loans.(If you are anything like me, the video above, about Abengoa’s Solana solar power plant, prompts a double reaction. Being able to store solar energy for 6 hours is an achievement that should be applauded, but why did they have to rip up 3 square miles of desert terrain to do this!)
Now they are ready to launch a new loan program, which is expected to make $2.5 billion available to renewable energy and energy efficiency projects that that avoid, reduce, or sequester greenhouse gases.
This is taken from their press release:
“Through our existing renewable energy loan guarantees, the Department’s Loan Programs Office helped launch the U.S. utility-scale solar industry and other clean energy technologies that are now contributing to our clean energy portfolio,” said Secretary Ernest Moniz. “We want to replicate that success by focusing on technologies that are on the edge of commercial-scale deployment today.”
The Renewable Energy and Efficient Energy Projects Loan Guarantee solicitation is intended to support technologies that are catalytic, replicable, and market ready. Within the draft solicitation, the Department has included a sample list illustrative of potential technologies for consideration. While any project that meets the eligibility requirements is eligible to apply, the Department has identified five key technology areas of interest: advanced grid integration and storage; drop-in biofuels; waste-to-energy; enhancement of existing facilities; and efficiency improvements.
The Department welcomes public comment on a range of issues and will consider public feedback in defining the scope of the final solicitation. In addition to initiating a 30-day public comment period, a schedule of public meetings will be posted on the Department’s website. The draft solicitation can be found online at http://lpo.energy.gov.
Once the solicitation is finalized, the Department’s Loan Programs Office (LPO) will be accepting applications in three areas, which also include the $8 billion Advanced Fossil Energy Projects Solicitation that was released in December 2013 and the $16 billion Advanced Technology Vehicle Manufacturing (ATVM) loan program.
Currently, the LPO supports a diverse portfolio of more than $30 billion in loans, loan guarantees, and commitments, supporting more than 30 projects nationwide. The projects that LPO has supported include one of the world’s largest wind farms; several of the world’s largest solar generation and thermal energy storage systems; and more than a dozen new or retooled auto manufacturing plants across the country.
(Image at top of page: LPO’s 2010 ideogram for Tesla Motors loan @ https://lpo.energy.gov/projects/tesla-motors/ )