DOE Loan Program: Junk-Grade Investments or Smart Portfolio Management?

The numbers suggest DOE loan guarantees played a significant role in U.S. solar’s enormous emerging success — but a new report claims that cronyism and lobbying plagued the program.

The Reason Foundation, a half-century-old libertarian think tank, claims the DOE Loan Program Office (LPO) concentrated loan guarantees in “highly risky enterprises” and failed “to mitigate risk through diversification,” according to Stimulating Green Electric Dreams: Lobbying, Cronyism and Section 1705 Loan Guarantees, a policy brief from the group.

LPO chose “mostly ‘junk’ grade investments” in “financially unsound” companies that had “close ties to those in charge of approving the loan guarantees,” the brief asserts. Because the LPO “allocated funds broadly in proportion to applicants’ lobbying expenditures” and some recipients “were able to use political connections,” the report adds, “it diverted money away from more sustainable projects.”

The 930 megawatts of PV built in the U.S. in Q3 2013 made the quarter the industry’s second biggest ever, 20 percent higher than this year’s Q2 and 35 percent more than Q3 2012, according to the just-released GTM Research/Solar Energy Industries Q3 2013 U.S. Solar Market Insight report. Utility solar was more than half of the new PV capacity. The first wave of new U.S. concentrating solar power projects came on-line, as well.

“A big part of that was the early, active, and crucial support to the first five U.S. utility-scale solar PV projects,” explained Department of Energy Loan Program Office Executive Director Peter Davidson. “They had offtake agreements, equity investors, eager developers, and they were fully permitted. But they couldn’t attract senior bank financing until the LPO provided loan guarantees.”

The LPO also invested in CSP projects like Abengoa’s Solana and SolarReserve’s Crescent Dunes because, Davidson added, these projects’ storage capability “creates what we call ‘nighttime solar’ that extends the production of the facility into the shoulder and night demand periods.”

The LPO’s goal is “to take untested technologies that our financial and technology experts feel would make the world a better place and demonstrate them so that when we step away, the private sector steps in.”

Approximately 10 percent of the 10 gigawatts of U.S. solar energy now on-line came from LPO-backed projects. But after 2011, when stimulus funding ended, ten new utility-scale PV projects went into development without LPO backing that are now either built or in construction, Davidson said. “The PV solar industry has now been incubated and is completely financed from the private sector. That is a real success.”

“Our portfolio is 97 percent money good with very strong credits. We’ve had issues. We’re not hiding anything. But it is less than 3 percent of the program,” Davidson responded.

“The credit quality of the LPO loan portfolio has increased every year since 2009 when the first loans were made and it continues to get stronger,” he said. “We primarily funded innovative generating technologies and the loans were made before the projects were built. Now twelve are grid-connected and three more will be in the next few months. From a credit perspective, that makes the portfolio much stronger.”

But the Reason Foundation’s brief claims that according to a 2012 U.S. House Oversight Committee report, there was “a pattern of poor management and unconstrained lending” that ended in “a high risk, speculative and undiversified loan portfolio.”

“Having worked in the private sector for much of my career,” Davidson said, “the process the LPO goes through and the deep due diligence we do is more rigorous than the private sector and the approvals process is just as rigorous.”

“The Republican report,” House Democrats responded to the Oversight Committee conclusions, “is a political document, not an accurate portrayal of the facts.” The Oversight Committee’s report, they said, cherry-picked facts, omitted evidence and made “unsubstantiated insinuations.”

“And after all that Congressional oversight,” Davidson noted, “no charges were made, nothing was proved, and the Allison report showed there was no basis for the allegations.”

NRG Energy, which spent $10,724,000 on lobbying between 2007 and 2012 and got $5.2 billion in loan guarantees, according to the Reason Foundation report, exemplifies the “stark” and “excessive concentration of investment” in a few companies and especially in those that made big lobbying investments.

“NRG developed some of the largest solar power projects in the United States with the help of the DOE loan guarantee program and, in the process, created thousands of construction jobs and many permanent jobs,” NRG responded. “We believe [our projects] represent good investments in a sustainable and clean energy future.”

“Government loan officers do not have incentives to ensure that the investments they make on the public’s behalf generate a return,” the Reason Foundation report charges. “There is a far better way to allocate funds. It could establish prizes that it would only award to technologies that meet specific criteria.”

“We don’t go out and select winners and losers. Everything we do is part of a competition,” Davidson said. “We put out a solicitation and people respond. There is a brutal competition among the applicants to make it through our gauntlet of due diligence.”

Photo Credit: DoE and Investment Risk/shutterstock

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