Whenever a Department of Energy loan goes bad – as it did in the case of the Crescent Dunes concentrated solar project in Nevada (PFR, 7/31) – questions are raised about the program.
Industry insiders will be familiar with the Solyndra-shaped stick used to beat President Barack Obama with. American taxpayers recovered just $24 million of the $527 million loan extended to the company.
But they may not be as familiar with the $535 million that stock market darling Tesla repaid in full, with interest, in May 2013.
Outright opponents of the program point to bankruptcies as examples of failure and mismanagement, but they are more often driven by an ideological aversion to government intervention in the economy, arguing that it distorts markets and creates dependence.
A more moderate view is that, while there is a role for government in nurturing novel technologies until they are mature enough to attract private capital, there is a risk of overreach, or that financing decisions end up being based on politics rather than merit, potentially wasting money.
Should the taxpayer be backing proven technologies like nuclear, as in the case of the $12 billion in loan guarantees to Vogtle 3 & 4 in Georgia? If carbon reduction is a valid aim of the program, then the answer is yes. But emissions reductions and other policy goals such as national energy security go beyond the narrow remit of incubating new technologies, introducing an element of politics.
One question, at least, is much easier to deal with: How bad is the US government at picking winners?
The DOE Loan Program Office's portfolio and annual reports are publicly available and the results are not as dire as the average taxpayer might expect. And it is run by technocrats who have served through administrations red and blue – let's hope it stays that way!
At the end of 2019, the program had issued $35.69 billion in loans and loan guarantees and recouped $9.96 billion in principal and $2.77 billion in interest. Its loss ratio as a percentage of disbursements stands at 2.91%.
How does that compare to your project finance desk?
Sadly, no matter how high the quality of underwriting at the department, it is unlikely to stop climate change deniers from weaponizing the Crescent Dunes restructuring.
"Even though this loan fund has done better than most commercial funds to date, the anti-clean-energy folks will have a field day," notes tech entrepreneur and venture capitalist Bill Nussey.