Michael M. Cunningham on DOEs Loan Guarantee Program

Michael M. Cunningham on DOEs Loan Guarantee Program

The American Recovery and Reinvestment Act of 2009 (ARRA) amends the Energy Policy Act of 2005 (EPACT) and authorizes the Department of Energy (DOE) to "rapidly deploy" certain loan guarantees made in connection with renewable energy projects and electric power transmission projects. In this Analysis, Michael M. Cunningham of SNR Denton lays out the parameters of the existing loan guarantee program under EPACT, sets forth the provisions of the temporary loan guarantee program under ARRA, and briefly explains some of the rules in place under the existing program. He writes:

DOE's Existing Loan Guarantee Program
 
     Under EPACT, in order to incentivize the implementation of "innovative technologies," the DOE Secretary, after consultation with the Secretary of the Treasury, may make loan guarantees to Eligible Projects that "(1) avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases; and (2) employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued."
 
     Under the original loan guarantee program, no guarantee could be made unless the "Credit Subsidy Cost" or cost of the guaranteed loan had been appropriated by Congress or paid for by the Applicant. This "Credit Subsidy Cost" was not published at the time of application, would not be determined until closing, and would result in a significant cost to the Applicant. As the DOE had no intention of requesting specific appropriations from Congress for Credit Subsidy Costs, these costs would always be borne by the borrower. Additionally, the DOE required that its rights in the project be superior to those of any other person with respect to the property, which caused most, if not all, commercial lenders to shy away from the program and thus limited the program to 100% guaranteed loans.
 
     . . . .
 
Temporary Loan Guarantee Program as enacted by ARRA
 
     ARRA significantly modifies the DOE's loan guarantee program to include an expanded list of eligible projects that must "commence construction" by September 30, 2011:
 
1. Renewable energy systems, including incremental hydropower, that generate electricity or thermal energy, and facilities that manufacture related components[;]
 
2. Electric power transmission systems, including upgrading and reconductoring projects[; and] . . . .
 
3. Leading edge biofuel projects that will use technologies performing at the pilot or demonstration scale that the Secretary determines are likely to become commercial technologies and will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared to other transportation fuels.
 
     Notably, contrary to the existing loan guarantee program, ARRA does not require that eligible projects employ "innovative technologies." Furthermore, Congress has appropriated $6 billion to pay the "Credit Subsidy Costs" associated with the temporary program guarantees that is "expected to support more than $60,000,000,000 in loans for these projects." Nuclear energy technologies were not included in the temporary guarantee program.
 
(footnotes omitted)