LOAN continued from 32 the loan guarantee because lenders will have difficulty assessing their technology risk. Thus, it is unclear how a rating that assumes away the loan guarantee will be meaningful. Moreover, if the rating agencies are technology-risk averse, the Credit Subsidy Cost may prove to be too high to make the program useful, particularly given that project developers have to fund it up front. Those seeking loan guarantees are busy developing strategies that will give the rating agencies and DOE comfort that the risk to the federal Treasury associated with their projects is low.
Selection criteria
DOE has established a wide-ranging list of criteria upon which DOE will evaluate loan guarantee applications. These criteria, along with the explanations resolving several contested aspects of the final rule, signal that DOE is looking for projects that are as close as possible to commercial and only need the extra push to overcome the risk associated with financing first-of-a-kind technologies. (See sidebar.)
A critic might say DOE has chosen to support projects that need its support the least. More accurately, however, the selection criteria reflect a judgment that the program’s purpose—and perhaps the most that can be expected of it given its self-financing structure—will be to bring across the finish line projects that are already on the cusp of
commercial viability. Moreover, the special attention DOE is paying to commercial viability in this program is quite likely a result of historical lessons learned the hard way. DOE loan guarantee programs in the past, including the synfuels program of the 1970s and the alcohol loan guarantee program of the 1980s, suffered punishingly high rates of
The loan guarantee program is about to begin delivering
on the promise of helping to bring important new green-
house gas-reducing technologies to the marketplace.
default. Reviewing this history, one author has observed that in the past, DOE “based its financing decisions on whether technology was innovative and could solve current technological shortcomings in the industry, and failed to follow standard due diligence practices that emphasize financial viability.” Clearly, DOE intends to focus on
LOAN continued on 43
References:
Archives