What is the Department of Energy’s loan guarantee program?

The Department of Energy’s loan guarantee program is the federal government’s most important vehicle for clean energy. That means renewable energy like wind and solar power, also manufacturing processes for those technologies, and other things like clean vehicles and nuclear power. These technologies need support because they need to bridge the so-called valley of death; that is they’re not start-up companies that get venture capital and they’re not very mature technology that gets debt financing from traditional Wall Street banks. Now it’s important to know that with a loan guarantee the government is not issuing direct loans. In a direct-loan transaction the Department of Energy would actually give cash to these clean tech companies that would then repay the direct loan over time. A loan guarantee is different. In that transaction the clean technology company gets a loan from a private bank or another type of private investor. Then if they don’t pay back that loan the government pays it back for them. That helps engage private capital and it also makes sure that these companies can borrow at a lower cost of capital than they would be without the loan guarantee.

Has the loan guarantee program been successful?

The loan guarantee program has been an unmitigated success. It has helped finance 40 projects over 38 states all across the country. And these aren’t regular, everyday projects either. These are noteworthy projects that will be very important contributions to their field. These include the world’s biggest wind farm in Oregon, the country’s first nuclear power plant in over a generation, one of the world’s largest solar-thermal plants, and the country’s first cellulosic-ethanol plant. Critics of the loan guarantee program will point to Solyndra as an example of the program’s failure. Solyndra received the first guarantee under the program back in 2009 and unfortunately it declared bankruptcy recently. Thinking that this represents a failure for the program overall is a serious mistake. Solyndra had an innovative technology that could still work; unfortunately the market turned against it and the company failed. And it’s also important to remember the Solyndra represented less than two percent of the DOE’s entire portfolio.

How can the government improve clean energy financing?

The loan guarantee program has been an important first step for government involvement in clean energy financing, but it can be improved upon. One way to do this would be to create something called a Green Bank, which would provide a richer set of financial products to clean energy companies and businesses involved in all clean energy technologies. Some important characteristics of a Green Bank would be giving it the flexibility to operate across a wide set of financial products and clean energy projects. It would also mean giving it independence within the Department of Energy so that it could operate quickly. And it would mean giving it longevity, almost permanence, so that people would know that this vehicle would be there for a long time and that they wouldn’t have to operate very, very quickly and move things much too fast. A Green Bank with all of these characteristics will be successful in private capital and building out the clean energy economy. That’s why it’s important for Congress to take the first step and create a Green Bank.