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Are DOE Loan Guarantees on the Chopping Block?

Fri, 04/01/2011 - 5:40am
JIM LANE, Editor & Publisher, Biofuels Digest

By JIM LANE, Editor & Publisher, Biofuels Digest

DOE Loan GuaranteeIn Washington, 34 clean-tech CEOs are trying to make sure the DOE doesn’t drop its Loan Guarantee Program despite threats of budget cuts from Congress. Signatories to the letter include Abengoa Bioenergy EVP Christopher G. Standlee, Frontier Renewable Resources CEO Steve Hicks, Rentech CEO Hunt Ramsbottom, KiOR CEO Fred Cannon, Fulcrum Bioenergy CEO Jim Macias and POET CEO Jeff Broin.

Here’s the complete text.

“This program has already proven its ability to deliver,” the CEOs write. “It has committed more than $26 billion in loans and loan guarantees to projects that represent $42 billion in investment in our still-struggling U.S. economy. These investments represent an estimated 58,000 direct and indirect jobs across 19 states.”

“The projects for which our companies have applied,” the letter continues, “all of which are ready to begin construction between now and September 30th of this year — represent over $13.3 billion of investment in 28 states, and will generate 15,600 construction jobs and 10,200 permanent operating jobs as well as thousands of additional jobs for equipment and services provided by suppliers.”

‘Any Man Who Falls Behind Is Left Behind’

In the letter, the CEOs raise the specter of the United States falling behind in clean energy investment and deployment, if the DOE Loan Guarantee program is defunded. Perhaps not coincidentally, a report arrived from PEW yesterday on clean energy sector investment.

PEW concludes that “China attracted a record $54.4 billion in clean energy investments in 2010 — a 39 percent increase over 2009 and equal to total global investment in 2004. Germany saw private investments double to $41.2 billion and was second in the G-20, up from third last year. The United States, which had maintained the top spot until 2008, fell another rung in 2010 to third with $34 billion in private clean energy investments.”

The CEOs write: “We are deeply concerned that eliminating funding for this critical program will not only destroy thousands of pending jobs and hinder the growth of critically needed U.S. domestic energy production, but also defeat America’s effort to compete with China, Germany and others in the clean technology marketplace.

Fixes Proposed to the DOE Loan Guarantee Program

The CEOs proposed a structural remedy for the program, the ability to transfer “viable Section 1705 project applications” into the Section 1703 program.

Why? Well, several reasons, but primarily because the Section 1705 program requires projects that receive loan guarantees under Section 1705 to commence construction before September 30, 2011. In addition, 1705 is aimed at support of “commercial technologies,” whereas Section 1703 is aimed at the support of projects that utilize “new or significantly improved technologies.”

The Spreading the Love Factor

The CEOs write that “each federal dollar of loan guarantees leverages $13 in private capital investment.” So why isn’t everyone in love with the DOE Loan Program, and why aren’t there more signatories on the latter to save the DOE Loan Guarantee program?

There’s that “haven’t invested much in advanced biofuels” factor. Though the DOE Loan Guarantee program has supported 23 projects since 2009, representing more than $26 billion in project cost and creating (or saving) 58,000 jobs across 19 states, the five-year-old Section 1705 program has not yet closed a loan guarantee in biofuels, advanced or otherwise.

The closest they have come yet is a conditional commitment for a $241 million loan guarantee for the 137 million gallon Diamond Green renewable diesel project in Louisiana. If that loan closes, it would represent just under 1 percent of the total clean energy loan guarantee financing.

Says the DOE: The projects are not financeable according to the program rules. Says the advanced biofuels industry: Something is wonky with the rules.

Slow Train Coming

Most of the criticism of the DOE Loan Guarantee program picks up on the slooooow progress, stringent conditions and the winner-picking that is inherent in the process. The fact that the Solyndra solar project has run into so many problems since picking up its $535 million loan guarantee (see Earth2tech’s coverage here) has dimmed confidence that the drawn-out review process, and the intense outlay of time and money by the applicants, has resulted in a material advancement in the quality of projects selected.

Sink, Sunk, Sank

Which brings us to a uniting factor for the signatories of the latter. “As part of our applications, our companies have already spent tens of millions of dollars to meet the government’s stringent requirements for a loan guarantee,” the CEOs write. “Our companies have hired engineers, acquired land, complied with environmental reviews, and negotiated power purchase or other off-take agreements. Eliminating funding at this late stage would literally pull out the rug from under our projects, just when we are about to break ground.”

Jerking Around the Business Community

Well, there’s a point. How are government programs going to engender confidence in the future if they get defunded after the applicants spend millions on the application process, but before the review is complete? That’s different than having projects rejected for reasons of quality. That has the ring of jerking the business community around and driving them to foreign shores.

Further Reading

We’ve had a lot of voices on this topic in the Digest since the beginning of the year. Mary Rosenthal, executive director, Algal Biomass Organization, wrote an excellent column on the topic and DOE Loan Guarantee chief Jonathan Silver wrote a guest column here.

Rosenthal wrote: “While the need for the nation to tighten its fiscal belt is real, it’s important we take the long view and recognize that federal investments in emerging forms of technology have driven innovation in countless industries over the last century. The ROI on these investments has been astounding, to say the least.”

Amen.

Copyright 2011; Biofuels Digest

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