Head of DOE loan programs asks Congress not to cut funds

By Kris Bevill | April 04, 2011

Congress has until April 8 to reach a decision regarding the nation’s budget for fiscal year 2011, or face a government shutdown. Various ethanol-related programs are on the chopping block as legislators seek ways to reduce federal spending.

The head of the U.S. DOE’s loan programs office took the witness stand at a March 31 House Appropriations subcommittee hearing to make his agency’s case for continued funds to provide loan guarantees to renewable energy projects. The DOE’s proposed 2012 budget includes $200,000 in appropriations for its loan program offices and $36 billion for nuclear power loan guarantees. Congress is considering eliminating those funds as part of an effort to reduce federal spending. During his testimony, Jonathan Silver, executive director of the loan programs, told subcommittee members that the programs are critical to expanding clean energy production.

“The pace at which innovative technologies are deployed in the United States has been slowed by both cyclical and structural impediments,” he said. “There is also a systematic shortage of debt financing for clean energy projects, which stems from the relatively high completion risks associated with such projects—principally technology risk and execution risk. Private sector lenders have limited capacity or appetite to underwrite such risks on their own, particularly because commercial-scale clean energy projects are capital intensive and often require loans with unusually long tenors.”

Silver testified that the DOE’s loan programs are designed to address the financing gap that occurs in the so-called “valley of death,” the perilous period between pilot scale and commercialization. He pointed out that the agency has approved 25 projects since 2009, 15 of which have reached financial close, and more approvals are expected soon.

One of the projects waiting to close is Fulcrum Bioenergy Inc.’s 10.5 MMgy cellulosic ethanol plant near Reno, Nev. The $120 million project is currently going through the closing process for an $85 million DOE loan guarantee. A groundbreaking is currently planned for this summer, but if funds are cut to the loan program, Fulcrum officials say their project will be put on hold indefinitely.  “Fulcrum has invested millions of dollars and over two years in the application process, and we are now in the final stages of securing a loan guarantee essential to the construction of our facility,” Fulcrum CEO and President Jim Macias said. “Cancelling or limiting this investment program now would be a devastating blow to our nation’s economic recovery and path to energy independence. It would kill jobs, lead to broken contracts and agreements, discourage private sector investment in innovative technologies and ultimately drive up energy prices even higher than they are now.”

On March 28, a coalition of renewable energy groups, including the Renewable Fuels Association and the Advanced Ethanol Council, sent a letter to Congressional leaders encouraging them to maintain funding for the loan programs. “It is important to recognize and retain programs that create American jobs, leverage private sector investment and increase tax revenue,” the groups stated in their letter. “The DOE Loan Guarantee Program is one of these programs. Eliminating funding for this program will disrupt and delay dozens of projects that are seeking a DOE loan guarantee, and will have very real impacts on job creation and energy security efforts currently underway.”