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Inside DOE, One of World's Biggest Clean Energy Finance Shops Is Back in Business

At the often misunderstood DOE Loan Programs Office, 200 staffers work to fill a critical financing hole for new energy technologies in the United States.

Oct 9, 2013
Energy Secretary Ernest Moniz

At the U.S. Department of Energy's Washington, D.C. headquarters, the fourth floor feels like any other nondescript outpost of the federal bureaucracy. But the no-frills landscape of desks and cubicles belies the immensity of the job at hand.

Each day nearly 200 staffers scour loan applications, track billion-dollar debts and manage borrowers' credit risk as part of the department's Loan Programs Office—one of the biggest clean energy finance shops in the world.

You may think you've never heard of the LPO—after all, its $34.4 billion loan portfolio for renewable energy, nuclear and fuel-efficient technologies pales in comparison to, say, annual federal student loans (roughly $1 trillion) or even the $68 billion Congress used to rescue just one troubled insurance company, AIG.

But chances are that you know of the program because of one very large and very notorious loan.

In 2009, the LPO gave an infamous $535 million loan guarantee to a California solar module maker called Solyndra, which went bankrupt two years later. Many Republicans in Congress who had never embraced innovative energy programs to begin with seized on the Solyndra debacle and made the name synonymous in conservative circles with an "out-of-control" Obama administration.

The embattled loan program went into silence mode. Flying under the radar of Republican budget deficit zealots became the program's unspoken motto, and for two years after Solyndra's collapse the LPO never issued a new loan or loan guarantee. But now, with the appointment of a new executive director this past May—the same month electric car maker Tesla repaid a $452 million LPO loan nine years early—the eight-year-old program is experiencing a dramatic revival as part of President Obama's recent push to tackle climate change.

Peter Davidson, the program's first permanent leader in 18 months, wasted little time in re-energizing the office by announcing a plan to move $8 billion of the program's remaining loan money into technologies that reduce emissions from extracting and burning fossil fuels. In a recent profile by InsideClimate News, Davidson said that his mission as the program's new leader is to let energy companies and policymakers know that the loan office is "back open for business." (The LPO is one of several DOE sub-agencies that has shuttered its doors during the government shutdown.)

(MORE: Embattled DOE Loan Program Restarts Under New Management)

He's not surprised that most Americans are unfamiliar with the loan program—even he didn't know much about it until early last year. "If you're not inside the world of getting large-scale energy projects financed, you aren't as aware of this program as you should be," he said.

Fans of the LPO applaud Davidson's attempt to relaunch the program, but they recognize the steep uphill battle he faces politically. Today, "there is no political willingness to take on risk," says Richard Caperton, the managing director of energy at the Center for American Progress, a liberal policy group. "We think that anything that goes bad is a total disaster."

Filling a Critical Financing Hole

Congress created the Loan Programs Office during the George W. Bush administration as part of a sweeping 2005 energy law to develop "secure, affordable and reliable energy." One of the LPO's primary tasks is to simply address the chicken-or-egg dilemma that plagues new, unproven energy technologies. Energy entrepreneurs need massive bank loans to build effective large-scale projects. But the banks generally won't lend to unproven technology.

Congress sought to lower the risk for private banks by issuing federal loan guarantees to companies. That way, if a company defaults on its bank loan, the government will cover the losses. 

"We are the only ones filling that [financing] hole" for new U.S. energy technologies, Davidson said. On top of that, the loan office charges significantly lower interest rates than private banks.

Under the energy loan program, Davidson says, projects must meet three basic requirements to be considered eligible. First, technologies must be innovative, meaning that they aren't already deployed on a large scale in the United States. Second, projects must lead to a significant reduction in greenhouse gas emissions. And third, developers must have a reasonable prospect of paying back their loans. 

At each step of the way, a slew of engineers, scientists, lawyers and financial experts are there to scrutinize prospective projects. Before Davidson took the helm, the application process was painstakingly slow. Companies had to print out voluminous applications and turn in the stack of paper by hand. If an applicant forgot to check a box, the whole process was repeated. Now, forms are filed electronically and errors are fixed in real time. "Our initial response time," says Davidson, "has dropped down from months to a matter of weeks."

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