Chu Revs Up DOE Loan Process That Was Slow, Costly Under Bush

The Energy Policy Act of 2005 authorized the secretary of energy to make loan guarantees to qualified renewable energy and energy efficiency projects. It was supposed to add a much needed public boost to the development of U.S. renewable energy and energy efficiency technologies, as well as the economy.

Instead, the Department of Energy sat on billions of dollars in loan potential. Companies applying for the loans spent as much as $10 million on the process and waited as long as three years for a loan guarantee without a single one being granted by the Bush administration.

No longer.

Energy Secretary Steven Chu pledged to speed up action on the loan guarantees earlier this year when Congress expanded the program from $38.5 billion to $100 billion in the recent stimulus package, and he seems to be making good on that promise.

Three loans have been granted in the last seven months and several more are moving forward.

I spoke to Issa Arnita, investor relations director at geothermal developer Raser Technologies, about Raser's experience with the DOE. The company applied for a loan in late February and was approved in June to move to the due diligence phase, considerably faster than previous applicants experienced. The loan guarantee will back $152 million financing, 80% of the cost of a geothermal plant to be built in Utah that will produce 42 megawatts of power.

Arnita says the company is expecting a final answer by the end of this month. The cost was far less than others experienced in the past, too.

“We’re actually going to be below $1 million, more like several hundred thousand dollars,” says Arnita. “The money that we’re applying for with this loan guarantee is under the former administration program, the Bush administration, but the process has been sped up considerably as the Obama administration took over.”

This is on par with other DOE loan programs such as the Advanced Technology Vehicles Manufacturing Loan Program (ATVM) that is part of the Energy Independence and Security Act of 2007.

Along with Ford and Nissan, Tesla Motors received approval for two loans last month under that program. Tesla’s loans totaled $465 million. The process was quick was but still rigorous. “The government and private sector consultants did a tremendous job of due diligence,” says Tesla spokeswoman Rachel Konrad.

Electric vehicle company Fisker Automotive, which has been waiting on a response for its loan guarantee request under the ATVM program, agrees that the process is rigorous, but not unduly difficult or costly. “There’s certainly lots of paperwork. The DOE are not just handing money out left and right,” says Fisker’s Russell Datz.

In comparison to these experiences, take the example of Beacon Power, an energy storage company reporting annual revenues of $68,000. The company spent two years in the active submission process - plus a year before that waiting for the DOE to set up the submission guidelines - and $1 million in legal fees and due diligence costs to secure a $43 million DOE loan guarantee under the Energy Policy Act of 2005, which was granted in the beginning of July.

“We were in the first wave of loan guarantees,” says Gene Hunt of Beacon Power Corporation. “There were only 16 companies selected to apply initially and five of them dropped out along the way.”

“The DOE was still trying to figure out how to do this,” Hunt adds, “but with the arrival of Secretary Chu, who has lit a fire under the program, things are moving more quickly so everyone that follows has benefited from the work that we did.”

Solar start-up Solyndra, the first company to receive a loan under the program, had an even more costly experience. The company spent $10 million over three years to secure a $535 million loan guarantee from the DOE in the beginning of 2009, costs included hiring Goldman-Sachs to advise on the loan application, Business Insider reports.