The latest announcement from the Department of Energy (DOE) provides up to $750 million in funding from the American Recovery and Reinvestment Act (ARRA) to help accelerate the development of conventional renewable energy generation projects, including wind and solar. This funding will cover the cost of loan guarantees, which could support as much as $4 billion to $8 billion in lending to eligible projects.
Policy watchers say the allotted $750 million turns a program designed to infuse capital into renewable energy projects into a lottery.
‘It would be nice to win, but you certainly can't base a business model around it,’ says Ken Hansen, partner at the Washington, D.C., office of Chadbourne & Parke LLC.
The DOE hopes the program, intended for projects with simple financing structures with a BB credit rating or better, will get projects moving. Hansen equates the commercial DOE guidelines to those of a supermarket express checkout lane.
‘The intent here was to clear out of some of the projects, which could get done quickly,’ he says. ‘The problem the DOE has created for itself is that only this checkout lane is available.’
The DOE will work with the private sector to accelerate the financing of these renewable energy projects in a co-financing program. To this end, the Financial Institution Partnership Program (FIPP) has been created to expedite the DOE's loan-guarantee underwriting process and leverage private-sector expertise and capital for the efficient and prudent funding of eligible projects.
ARRA created a new Section 1705 under Title XVII of the Energy Policy Act of 2005 for the rapid deployment of renewable energy projects and related manufacturing facilities, electric power transmission projects and biofuels projects that commence construction before Sept. 30, 2011.
Previous DOE announcements for renewable energy included provisions for a manufacturer's tax credit, as well as funds for emerging technologies.
This first solicitation under the new program will seek loan-guarantee applications for conventional renewable energy generation projects. Past solicitations for renewable energy generation projects have focused on loan-guarantee applications using new or innovative technologies not in general use in the marketplace.
Under this first FIPP solicitation, proposed borrowers and project sponsors do not apply directly to DOE, but instead work with financial institutions to satisfy the qualifications of an eligible lender, which may apply directly to the DOE, to access a loan guarantee.
The solicitation invites applications from eligible lenders for partial, risk-sharing loan guarantees from the DOE. The guarantee percentage will be no more than 80% of the maximum aggregate principal and interest during a loan term.
The DOE had earmarked money for the loan-guarantee program, but that was before the Office of Management and Budget allocated $2 billion from the program to fund the Cash for Clunkers program. Hansen speculates that the new money is about to be appropriated under the Department of Defense Appropriations Act of 2009, which will then act as a platform for restoring the $2 billion transferred from the DOE to Cash for Clunkers.