Loan Guarantees Drive Commercialization of Clean Energy Technologies
The global clean energy race is underway, and America needs a sustained commitment to clean energy investment.
Unfortunately, there are both cyclical and structural impediments to the rapid deployment of innovative technologies in the United States. The recent economic crisis slowed the pace of investment in clean energy projects. Traditional lenders pared back their appetite for risk, resulting in reduced liquidity in the market. The market for equity investments in renewable energy projects based on tax credit incentives – one of the principal sources of equity for renewables projects – shrank, as well.
There is also ongoing, systemic shortage of debt financing for certain types of innovative clean energy projects, stemming from the relatively high completion risks associated with such projects – principally technology risk and execution risk. Private sector lenders have limited capacity or appetite to underwrite such risks on their own, particularly because commercial-scale clean energy projects are capital-intensive and often require loans with unusually long tenors. Thus, there is a “valley-of-death” in the clean energy technology development cycle, between the pilot-facility stage and commercial maturity, where companies find it difficult to obtain the financing needed to deploy their technologies at commercial scale – the very point at which they begin to have a meaningful impact on jobs and the environment.
The U.S. Department of Energy’s Loan Programs Office (LPO) was designed to address these impediments and fill this financing gap by issuing loans and loan guarantees that lower the cost of capital for projects utilizing innovative technologies. Innovative projects backed by loan guarantees are more competitive with conventional technologies, and thus more attractive to lenders and equity investors. With the support from the Loan Programs Office, companies can cross the “valley of death” in the clean energy technology development cycle, between the pilot-facility stage and commercial maturity, where companies find it difficult to obtain the financing needed to deploy their technologies at commercial scale – the very point at which they begin to have a meaningful impact on jobs and the environment. So far, the progress we have made has been tremendous.
In 2010, the Loan Programs Office was one of the world’s largest financiers of renewable energy projects, outside of China. To date, we have committed or closed financing totaling nearly $30 billion in loans, loan guarantees and conditional commitments for projects that support 27 clean energy projects across 21 states. Our projects include the world’s largest wind-farm; four of the world’s largest solar projects; the first nuclear power plant in the last three decades; a biodiesel refinery that will triple the amount of biodiesel in the United States; and the nation’s first purpose-built wheelchair-accessible vehicle that will run on compressed natural gas.
The Loan Programs Office makes investments across three separate loan programs: (1) the Section 1703 program, which supports the deployment of innovative technologies that avoid, reduce or sequester greenhouse gas emissions, (2) the Section 1705 program, which was created by the American Reinvestment and Recovery Act of 2009 to support both innovative and conventional renewable energy projects that have difficulty securing financing in tight credit markets; and (3) the Advanced Technology Vehicles Manufacturing Program, which provides direct loans to facilitate the development of advanced vehicle technologies.
The investments we make significantly increase renewable energy generation and reduce greenhouse gas emissions. Our 11 generation projects, for example, will produce over 24 million megawatt hours of electricity, enough to power over 2 million homes or approximately the same as the number of households in the state of Louisiana. Our 27 projects combined will avoid nearly 19 million tons of carbon dioxide, equivalent to the emissions of over 3.5 million cars, or almost all the number of registered vehicles in Kentucky.
In addition to these benefits, the projects we support will have a long term impact on our nation’s ability to innovate. Much of the public discussion around clean energy focuses on research and development, which is crucial to reaching our long-term national energy goals. But our nation must also focus on the near-term deployment of innovative, commercially-ready technologies at utility scale. Deploying such technologies at scale drives down unit costs – as it creates new supplier companies – and actually incentivizes future research and development efforts. Innovation drives commercialization but commercialization also drives innovation; it is a virtuous circle.
By continuing to support clean energy investments and drive emerging technologies towards utility scale deployment, the Loan Programs Office has a meaningful role in strengthening our economy and ensuring our global competitiveness for many years to come.
Jonathan Silver is Executive Director of the Loan Programs Office, US Department of Energy.
