The DOE’s Loan Programs Office Banks On U.S. Solar

SI Staff
Written by Michael Puttre
on December 10, 2013 No Comments
Categories : Policy Watch

13574_solarvault The DOE's Loan Programs Office Banks On U.S. Solar As the year draws to a close, there are approximately 10.25 GW of solar capacity installed in the U.S. About 10% of that total was funded by the Loans Program Office (LPO) of the U.S. Department of Energy (DOE). According to Peter Davidson, executive director of the LPO, the significant growth of the solar sector is due in part to bets placed by the DOE in the form of loans to utility-scale solar power projects banks would not touch.

‘Scaling up PV represented a new technology, and lenders would not lend,’ Davidson says. ‘We forget the pain. But our loan programs have helped develop the future bankability of the PV solar sector.’

While a victory lap may be in order, Davidson says the LPO has big plans for the new year, including upcoming loan programs that have the potential of influencing the future development of hybrid and distributed generation (DG) solar.

The LPO currently consists of three separate programs: Section 1703, Section 1705 and Advanced Technology Vehicles Manufacturing. The first two, specified in the Energy Policy Act of 2005, authorize the DOE to back innovations in clean energy technology that private-sector banks walk away from due to what they perceive as high risk.

In practice, the 1705 program has had a tremendous impact on the solar sector. According to Davidson, over 80% of the projects that received funding under that section were for solar. In particular, the growth of utility-scale has its origins in 1705 loans.

In the period of 2010-2011, Davidson says, utility-scale solar photovoltaic power was taking off. Developers wanted to get into the business but had difficulty attracting bank financing. From the LPO's perspective, the equity was there, and the income from off-takers was there. While PV technology was well established, it was not yet proven for very large utility power projects.

‘The first three hundred-plus megawatt solar PV projects in the U.S were funded by the loan office,’ Davidson says. ‘We've given loan guarantees on the next two.’

On the concentrating solar power (CSP) side, the LPO has provided loan guarantees for the new generation of large-scale solar thermal power facilities now coming online. Davidson says the DOE's enthusiasm for CSP technology rests on the way it integrates into the grid as just another generating asset and its potential for employing thermal energy storage, as in the case of the Solana facility.

‘CSP with storage now exists,’ Davidson says. ‘Once you demonstrate the technology, history shows the price comes down.’

In terms of utility-scale solar, the LPO has backed 2.8 GW of PV and CSP plants in the U.S. That's 22% of the nation's utility-scale solar capacity and pipeline. Since the 1705 program's sunset on new loans in 2011, there have been 10 new 100+ MW utility-scale PV projects greenlit in the U.S. with private financing. Davidson says nothing makes him happier than getting out of the way for private capital.

‘The LPO's goal as a lender is to prove the technology and then step aside,’ he says. ‘Fund it. Prove it. Get out.’

The LPO is not authorized to pick specific clean energy technologies, but Davidson says the office does have some input on the way it gives guidance in the requests for proposals (RFPs) it solicits and the way it scores submissions. Nevertheless, the vast majority of projects the office has backed have been solar ones.

Davidson says that the LPO approaches each loan candidate with a checklist to see if it would be a worthy investment, just as any financial institution would. The only unique requirement is that the selected project incorporate some innovative clean energy technology.

If the innovation quotient is deemed potentially loan-worthy, then the LPO's 25-member technology assessment team goes to work, evaluating whether the technology is workable and economical. If it passes muster, the LPO then consults with the DOE's National Renewable Energy Laboratory (NREL) and the network of Energy Frontier Research Centers (EFRCs) to see if they are on the right track.

Davidson says the combination of the LPO's technical team and the DOE's NREL and EFRC facilities are why the program works. He reports that because of this due diligence, 98% of the LPO's portfolio is performing. Nevertheless, the other 2% gets a lot of ink.

While the sun has set on the successful 1705 program, Davidson says funds remain under the 1703 program for new energy solicitations. The office is currently finalizing an $8 billion solicitation for advanced fossil fuel projects. An important goal of the new program of loans is the development of hybrid generation projects that incorporate renewable energy capacity with existing fossil-fueled power plants. Davidson says the LPO is likely to announce the details of this solicitation before the end of the year.

At the end of October, the DOE awarded the Sacramento Municipal Utility District $10 million to develop a hybrid CSP and gas-fired power plant could serve as a model for such hybrids all across the U.S. According to the agency, up to 21 GW of ‘small CSP’ could be integrated into U.S. fossil-fueled power plants.

In addition to the $8 billion for advanced fossil energy, Davidson says money remains under the 1703 authorization for a dedicated renewable energy loan program in 2014. In particular, the LPO is interested in backing projects for integrating DG capacity into the grid. It seems likely that DG solar will be a beneficiary of such programs.

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