A billion-dollar private-public investment partnership for carbon sequestration, a $102 million in loan guarantees for a geothermal power plant, $29 million for weatherization programs. One by one over the last several months the Department of Energy (DOE) has announced energy projects it is supporting thanks to funding made available from last year’s mammoth economic stimulus package.
DOE is in charge of an enormous arsenal of financial firepower. For starters, it is responsible for doling out $32.7 billion in grants made available by the Recovery Act. Then, thanks to $4 billion in additional appropriations, it can leverage $32 billion worth of loan guarantees. There’s also the advanced technology vehicle manufacturing program, backed by another $7.5 billion in cash meant to guarantee another $25 billion in loans.
But how have funds actually affected cleantech? Which sectors and companies have been the big winners? Did the funds just keep things moving slowly along, or have they made a real difference?
“Initially the stimulus announcements had a sort of unintended consequence,” said Maurice Gunderson, a senior partner at CMEA Capital. “About a year ago these programs were announced but they weren’t quite running yet, so VCs [venture capitalists] were waiting to see who would get money and who wouldn’t—so there was the unintended consequence of slowing down private investment for awhile.
That slow-down has extended the wait-and-see mindset of private investors longer than most in the cleantech space would like. In February, smart grid trade group Gridwise Alliance sent formal complaint letters to Secretary of the Treasury Timothy Geithner and DOE General Counsel Scott Harris, stating: “A significant amount of time has passed without substantive progress being made towards the start of projects and the intended creation of jobs.”
The agency appears to have heard and responded to complaints—as of June 4, nearly 90 percent of the $32.7 billion in grant funds had been awarded, which has helped unlock more private capital as well.
“Awards have largely been made and the processes are understood now, so that has freed up a lot of capital from various sources,” Gunderson said.
Grants in Categories
By June 4th, 87 percent of the authorized grant money had been awarded, but still less than 15 percent of the funds (about $4.4 billion) had actually made their way into the hands of grantees.
The loan guarantee program is even further behind. Although announcements seem to be picking up some speed, since the program was launched in 2008, only 10 awards have been made, representing about $11 billion in loan guarantees, $10.3 billion of which is for three nuclear power plants.
DOE spokespeople have blamed growing pains. Since January 2009 the number of people working on the agency’s loan guarantee program has gone from 15 to 120. IRS issues have also intruded, like the question of whether or not to tax smart grid grants to municipal utilities. The decision was made in March that the funds should be tax-free. While the agency insists the kinks have been worked out, companies are still waiting for their checks.
The DOE funding breaks down like this: $16.7 billion for energy efficiency, renewable energy, and transportation; $6 billion for nuclear waste clean-up; $4.5 billion for electric grid modernization (smart grid); $3.4 billion for carbon capture and sequestration; and $2 billion for scientific innovation.
Most cleantech sectors lie within the largest $16.7 billion piece of the pie, which DOE further divides into 23 different investment areas. It contains everything from geothermal technology to fuel cells to wind energy, with the largest amount of funding—$5 billion —earmarked for weatherization programs. The first weatherization funding announcement was made last week and included awards to 34 projects in 27 states, totaling just $29 million.
Weatherization programs were awarded so much because it’s an area that has historically been underfunded. It’s also an area where funding and growth translate to green jobs. The $29 million in funds announced June 4 will help expand eight weatherization training centers and establish 26 new training centers, tripling the number of DOE-funded weatherization training centers.
"A well-trained workforce will be a crucial part of America’s clean energy economy in the years ahead," Deputy Secretary of Energy Daniel Poneman said in a statement about the weatherization funding. "These investments in efficiency training programs will help build a foundation for long-term growth in America. Energy efficiency improves the competitiveness of our economy, benefits the environment, and puts Americans back to work."
Other typically underfunded industries that won big with the stimulus include geothermal, batteries, energy efficiency and biomass. Rather than calling out electric vehicles specifically, the agency divided its funding of electric vehicles into two categories: “advanced battery manufacturing grants” and “transportation electrification,” for a grand total of $2.4 billion.
Loan Guarantees for Wind and Solar
Wind energy projects, on the other hand, received just $93 million in grant funding, while solar technologies snagged $115 million. Because the solar and wind industries are mature relative to other sectors, and because they benefit from investment tax credits, they can instead apply for hundreds of millions of dollars in loan guarantees. DOE’s loan guarantee program eliminates the risk associated with loans for these capital intensive industries.
Loan guarantees from the government work essentially like getting a rich relative to co-sign on a car—the government agrees to cover the loan if the company can’t, enabling the company to get better terms and a lower interest loan.
Thin film solar company Solyndra was the first to benefit from the loan guarantee, scoring $535 million back in May 2009 to build its Fremont, Calif. factory. Some have called that loan an early DOE mistake, because Solyndra’s manufacturing costs are said to be much higher than those of competitors like Miasole and Nanosolar. Until the factory is fully functioning, it will be tough to tell.
The loan guarantee program has come under fire for launching with a bang and then struggling to seal deals, but now that former venture capitalist Jonathan Silver has settled into the job of running the programs, transactions are closing quickly. The DOE announced four loan guarantees and according to Silver the agency plans to announce three to four more deals in June. As of June 10th only one loan guarantee had been announced.
Bottom of the Barrel
The sectors receiving less attention from the DOE are essentially the same sectors that have seen a drop-off in private investment over the years—because the technology has not lived up to its potential. The government’s clear financial preference for electric vehicles over biofuels is in keeping with where private investors and automotive companies are heading, although it’s difficult to tell who influenced whom.
The one notable exception in the smaller grants realm is the Scientific Innovation section of the department’s funding strategy, which amounts to $2 billion, divided between 11 key areas. One of those areas, ARPA-E, was created to do for energy what ARPA did for information technologies (it eventually brought us the Internet).
“They haven’t just borrowed the name, they’ve borrowed the concept from ARPA as well—it was a place where really-out-there, revolutionary ideas could be seeded,” said Gundersen. “Wind wouldn’t qualify but a lot of battery technologies have.”
“It’s great that they’re funding that now,” Gundersen continues, “because for years there was no government money for revolutionary tech in the energy space.”