Congress Allocates Credit Subsidy Funding For Section 1703

Mark Del Franco
Written by Mark Del Franco
on August 18, 2011 No Comments
Categories : Policy Watch

8431_sticky8.18 Congress Allocates Credit Subsidy Funding For Section 1703 As part of a continuing resolution, Congress has allocated $170 million in credit subsidy funding to the U.S. Department of Energy's (DOE) Section 1703 loan-guarantee program.

According to Matthew Winters, a senior adviser in the DOE's Loan Programs Office, the continuing resolution approved by Congress last March provided – for the first time – credit subsidy funding for the 1703 program.

The DOE estimates that the $170 million is enough to provide approximately $1 billion to $1.7 billion in loan guarantees to projects, depending on the average credit subsidy score. However, it is unclear how many of those projects are wind-related.

Credit subsidy cost is a reserve established by the U.S. government to cover the risk of estimated shortfalls in loan repayments. According to the DOE website, credit subsidies are mandated by the Federal Credit Reform Act of 1990 and represent the net present value of the estimated long-term cost to the U.S. government of the loan guarantee.

Credit subsidy cost is primarily influenced by two key variables: the probability of default and the recovery after default. The variables are used to ‘risk adjust’ the borrower's principal and interest payments to the government and provide an estimate of payment shortfalls.

The Section 1705 loan-guarantee program – established as part of the American Recovery and Reinvestment Act – has typically funded credit subsidy; however, the program expires Sept. 30.

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