Q&A: DoE's Jonathan Silver
Jonathan Silver is the executive director of the U.S. Department of Energy's loan program office in Washington, D.C. He supervises multiple initiatives, including the Sects. 1703 and 1705 loan guarantee programs. The Sect. 1705 program was launched under the 2009 American Recovery and Reinvestment Act and is designed to spur investment in commercially viable technologies at large scales and create clean energy jobs. The Sect. 1703 was established during the Bush Administration to propel innovative technologies forward. Under Sects. 1703 and 1705, the U.S. government has offered support for 16 clean energy projects in 13 states--and to some of the most-discussed renewables projects, including Caithness Energy and GE Energy Financial Services' 845 MW Shepherds Flat wind farm in eastern Oregon, the largest such project in the U.S. Congress initially appropriated $6 billion to the program, but has sliced it to $2.465 billion (PFR, 8/12). He spoke to Senior Reporter Brian Eckhouse.
What would the clean energy financing market look like without the DOE loan guarantee programs?
One of the goals is to incentive the private capital markets into these energy sectors. We do that by attempting to de-risk them from a technological perspective and provide low-cost capital around commercial debt. Ever since the economic [crisis], there has been an increased need for loan guarantees in order to stimulate and launch these markets. The tax equity market... has shrunk considerably. Commercial lending has been smaller in this space and equity capital has been somewhat scarcer. I think the DOE loan guarantee programs are necessary to the resurgence and renaissance in these sectors.
Bankers often characterize the process to secure a loan guarantee as glacial. Is that a fair assessment?
I think that was a correct perception but that's an outdated perception. We've automated the entire submission process. You can now fill out the submission online; that has really helped the speed. We used to take three to four months to do an initial review of the application, which is now something we can do in 5 to 10 business days. The recent applications have been processed soups-to-nuts in under six months. That's been the recent norm. That review time has been cut by at least half. I'd like to see it [wrapped] in five to six months. It won't get much faster than that. And that's on par with the private sector. Remember, we're dealing with the most complex loans in the country... involving new and innovative technologies that have really not been tried at scale in the country.
What methodology do you use to determine a project's worthiness?
There's a very robust due diligence... including detailed screening of financial issues, market issues, the underlying technology, legal issues, regulatory issues and environmental impact issues. The mechanics of it are that every part of the project is scored. Those scores are weighted and tabulated in a model that we've developed with the Office of Management and Budget so there is a level playing field by which all projects are measured. In some respects, our work mirrors the work of the private sector. It's what's done at financial institutions everywhere when looking at both sides of the balance sheet. You look at the competitive landscape and data from independent third-party sources to validate those assumptions.
Has the methodology evolved in the past year?
The underlying modeling remains much the same. Under the loan program's office, we've completed 20 projects financing $25 billion in loan guarantees generating $40 billion in project costs. With that experience, we've been able to refine not so much our methodology but our insights into various energy sectors. That has helped us speed up the processing of these applications. People don't realize that as early as January 2009, we had 15 employees. Now we have 80 to 90 federal employees in addition to a large number of consultants. We've become more effective at reviewing applications quickly.
What is the status of loan guarantees for developers of nuclear reactors?
We are actively involved in reviewing and doing due diligence. You probably know that we did one earlier this year, the first one done in 30 years, the Vogtle project in Georgia. I expect we'll move some forward in the relatively near term.
What will happen with the Calvert Cliffs project in Maryland now that Constellation Energy has pulled out?
EDF and Constellation have concluded their negotiations and EDF is now the owner of the Calvert Cliffs project. We continue to work on the UniStar project and see where things go.
How has Congress' slashing of the DOE loan guarantee program affected how you decide whether a developer merits a loan guarantee?
Obviously we have less capital to work with... but we have sufficient funds to deploy on the projects we're working on and robust new projects that come in.