by Raj Salhotra
“The consequences […] of failure to raise the debt ceiling would be Armageddon-like in terms of the economy,” explained White House Press Secretary Jay Carney, all the way back in April. Today, we’re a week away from the debt ceiling deadline and no agreement has been reached.
If the U.S. can’t pay its bills and a government shutdown ensues, the consequences for energy innovation would indeed be “Armageddon-like.” Without raising the debt ceiling, three of the government’s most important energy initiatives – the Section 1603 US Treasury cash grant program, ARPA-E, and the DOE Loan Guarantee Program – would be at risk.
The Treasury Grant
The US Treasury cash grant program provides an alternative to the investment tax credit that many firms were unable to use due to the recent financial crisis. Under the 1603 program, firms eligible for the investment tax credit can get a cash grant for the same value. The program has been immensely helpful in securing financing for project developers.
In 2009 and 2010 alone, the 1603 program supported thousands of projects and helped create over 40,000 jobs. In 2011, the success has continued as the Treasury continues to award around 240 grants per month. If the US fails to raise the debt ceiling, grant payments may be placed on hold, and the 240 companies expecting to receive payment in August could go unpaid. This would introduce tremendous uncertainty into the renewable energy development market, and could create a “chilling effect” in the financial sector. If the 1603 cash grant program is placed on hold, companies may consider withholding investments in renewable energy generation.
Advanced Research Projects Agency – Energy (ARPA-E)
ARPA-E is a government agency modeled on DARPA (well-known for developing the internet) that supports high-risk, high-reward research that would otherwise be unable to secure financing. The agency currently funds research projects such as longer-lasting batteries and more-efficient building cooling systems. If ARPA-E spending ceases because of Congress’ failure to raise the debt limit, many of these projects could be stopped and cutting edge technologies may go undiscovered. Simply put, ARPA-E supports breakthrough technologies that can revolutionize America’s energy future and halting the program would delay important innovations.
Department of Energy Loan Guarantees
The DOE Loan Guarantee Program supports energy projects that are ready to move from demonstration scale to market commercialization. The program, which provides financial support to investors if a company defaults on a loan, has guaranteed 42 projects, which have created or saved over 66,000 jobs across 38 states.
If the US does not raise the debt limit, projects that have already received a “conditional commitment” may not actually close on their guarantees. Even if they do close on the guarantee, that guarantee may be worthless to private lenders who would likely demand a higher interest rate. These companies made business decisions based on the loan guarantee; thus, if the loan is delayed, the firms could face significant problems in closing financing or starting a project.
Power plants or manufacturing facilities that are currently being processed may also be placed on hold and likely delayed. And without any chance for getting a loan guarantee, companies that have a scalable technology may have to abandon projects altogether. If this program is halted or canceled, the renewable energy industry will surely suffer as it continues on a path to true scale.
While a failure to raise the debt limit ceiling remains something politicians across the political spectrum say remains unaccepatable, there will be significant consequences if it is not raised. Clearly the problems could extend well beyond the financial sector, undermining America’s long-term competitiveness in key job-creating industries like clean energy.
— Raj Salhotra with Richard Caperton and Stephen Lacey