The U.S. Department of Energy sent out letters last week to several dozen renewable energy developers, saying their applications were on hold due to a lack of funds available in the 1705 loan guarantee program created under the stimulus package. Here’s what that means.
The program, which has provided billions of dollars in guarantees and helped companies raise almost $30 billion for projects, has been instrumental in helping grow large-scale, first-of-a-kind renewable energy projects around the country.
But the program has faced some major political challenges. The most recent was a House Continuing Resolution proposal in April which cut the 1705 program entirely, making renewable energy companies and advocates nervous about the status of their projects in the queue. Under that same proposal, the 1703 loan guarantee program – which, due to differences in how a developer pays back the “credit subsidy,” favors much larger nuclear projects – was not touched.
In political terms: The program that backed renewable energy developers was gutted to save money, while the program that favored nuclear energy was left alone.
In the final Continuing Resolution, however, the 1705 program was restored. The remaining funds were enough to provide loan guarantees to about 15 projects.
One of the projects on the “hold” list, Cape Wind, could potentially be America’s first offshore wind farm. However, without support from the loan guarantee program – which provides financiers with a backstop if a project fails – Cape Wind must turn to investors that may be skittish about backing a first-of-a-kind project that has faced significant legal opposition over the last decade.
The government is not saying that there is anything wrong with Cape Wind – only that the program does not have the necessary funds to provide a loan guarantee. Here’s an excerpt from the letter sent from Jonathan Silver, executive director of the Loan Programs Office, to Cape Wind:
“To be clear, your project is not being terminated; it is being put on hold. This is a statement not about the quality of your project, but simply its readiness to proceed at this time.”
With the 1705 loan guarantee program reaching the end of its life, clean energy advocates are stepping up the push for a Clean Energy Deployment Administration (CEDA) – a “green bank” that would work with the private sector to delegate investment in early-stage clean energy projects.
“This latest issue with loan guarantees shows yet again how important it is to develop an investment authority like CEDA that can provide long-term support to this industry,” says Richard Caperton, a senior policy analyst with the Center for American Progress.
The U.S. renewable energy industry faces a number of uncertainties this year. Along with the end of the loan guarantee program, the Treasury Grant Program may also lapse, thus limiting the number of projects that can secure financing. (The grant allows a developer or bank to take a cash payment in lieu of a tax credit. Because many financiers don’t owe enough in taxes to take advantage of those credits, the grant opens up the market to more investors.) In addition, the production tax credit is set to expire at the end of 2012, making it difficult for companies to plan larger projects that may enter the construction phase near the time when the credit expires.
— Stephen Lacey