Solar CEOs to Congress: Don't Ax Our Loans

CEOs of green energy companies including First Solar (FSLR) and SunPower (SPWRA) petitioned Congress on Tuesday to spare two key Department of Energy loan guarantee programs from the Congressional budget ax.

By Eric Rosenbaum - The Street

The deficit hawks in Congress have taken aim at the Department of Energy's loan guarantee program that has helped to finance the development of solar power companies and specific solar power plants. The 1705 DOE loan guarantee program could be completely eliminated, while the 1703 DOE loan guarantee program could see its funding cut in half from roughly $50 billion to $26 billion. In the letter, the green energy CEOs specifically ask that Congress allow section 1705 projects to be transferred to section 1703 of the DoE loan guarantee program.


Solar energy experts have said in the past that if the 1703 DOE loan guarantee program were cut in half, it's possible that there would be no funding for any projects under this program other than nuclear energy -- that, however, was analysis in the pre-Japanese nuclear crisis days. In the case of the broader attack on the 1705 DOE loan guarantee, talk in the solar market has hit the level of hyperbole, with solar sector executives talking about Congress "killing" solar projects.

First Solar CEO Robert Gillette and SunPower CEO Tom Werner were among the signatures on the letter sent to both Senate and House leaders.

The green energy CEOs struck both the rhetorical high note of losing the green energy race to China, and the bottom line reality of U.S. job numbers, in making their pitch for extension of the DoE loan programs.

"We are deeply concerned that eliminating funding for this critical program will not only destroy thousands of pending jobs and hinder the growth of critically-needed U.S. domestic energy production, but also defeat America's effort to compete with China, Germany, and others in the clean technology marketplace," the green energy CEOs wrote. In addition to both public and private solar companies, CEOs of wind, geothermal, biomass, and biofuel companies signed the letter to Congress in defense of the DoE loan guarantee program.

The green energy lobby stated these data points in its letter:

The program's real costs are paid for by the companies that submit applications, and each federal dollar of loan guarantees leverages $13 in private capital investment.
This program has already committed more than $26 billion in loans and loan guarantees to projects that represent $42 billion in investment the U.S. economy.

The green energy lobby continued in its letter:

The investments represent an estimated 58,000 direct and indirect jobs across 19 states.
Projects still in the pipeline for approval that would be killed or put at risk by the proposal in H.R. 1 to take away the funding for the program represent an additional $24 billion in near-term investment in America's energy infrastructure and another 35,000 jobs.

Putting the numbers aside, there is a philosophical divide in the budgetary debate. There is a belief among some politicians that the government should not be in the business of "picking" the winners and losers in the green energy market development, and they argue that aside from budgetary constraints, the DoE loan guarantee program tilts too far in this direction.

There is also a philosophical divide over the idea that green energy draws a straight line to job growth. The conventional economic debate over "broken windows theory" applies to green energy. If a bakery window is broken, the theory goes, it creates a job for the window replacement company, which then goes out and spends the money it has earned on the wares of other merchants. Therefore, the person who broke the window is a benefactor of the economy. Yet there is stiff philosophical opposition from some conservatives that the "broken windows theory" is a fallacy, especially when it comes to green energy, and that replacing one job for another does not create a new job or add to the economy, but in fact, the broken window destroys a job that is not visible to the public.

When it comes to green energy jobs, one fact that can be stated plainly is that the industry is so young the US government does not have enough data on its overall impact on the economy.

In the solar sector context specifically, the Department of Energy loan guarantee program is more important to the solar thermal industry than photovoltaic solar companies -- solar thermal is more expensive and needs more support -- yet it has still been a major source of funding for utility-scale solar projects of all types. Most importantly, any Department of Energy loan guarantee that can't be accessed as part of financing by a solar company like First Solar, as it builds and sells utility-scale solar power projects means one thing: that the company has to sell projects at a lower price overall to make up for the buyer's need to bring more equity to the table.

First Solar recently closed a DOE loan guarantee that enabled it to achieve a higher sales price on its Agua Caliente project. First Solar has applied for DOE loans on many other projects in its pipeline too.

Ken Hansen, a partner at Chadbourne & Parke who works on solar financing, said it would be "an epic breach of faith" for the government to eliminate the DOE loan guarantee programs.

Thomas Amis, partner at Cooley, said that the DOE has done much to respond to many of the criticisms lodged against the loan guarantee program in the past, and that to gouge the program now would be penny-wise and pound-foolish. "It would be the height of irony that precisely at the moment when Jonathan Silverexecutive, director of the DOE loan program office, has his loan guarantee team fully assembled and operating on all cylinders, it is essentially defunded," Amis said.

Amis did not want to employ the hyperbole of the solar market being "killed" as a result of an elimination of the DOE loan guarantee program, but he maintains that it's a serious issue for the growth of the US solar market. While experts including Amis agree that the DOE program is more important to solar thermal companies, they worry that the former primary mechanism for financing of all solar projects -- tax equity under the investment tax credit (ITC) -- has not returned to a healthy enough level to make up for an abrupt end to the DOE loan program.

Amis added that while, to date, the DOE loan program has been more focused on solar thermal, given the continued constraints in the private project finance market an abrupt end to the DOE loan program will have a disproportionate impact.

Additionally, the Internal Revenue Service section 1603 cash grant program, which some solar experts argue is a better way to fund renewable energy than the DOE loan program due to its wider availability, is set to expire at the end of the year. Though the cash grant program could be extended for one more year, as it was in the 2010 tax cut package (current industry outlook is not bright for its extension), any budget hit on the DOE loan program coupled with the cash grant expiration would be a double whammy for renewable energy financing.

"Very few developments can completely destroy an industry, but in a constrained financing environment the disappearance of the DOE Loan Guaranty Program will represent a huge setback to the deployment of innovative renewable energy technologies," Amis said.