Last month, the Department of Energy (DOE) made$8 billion in loan guarantees available by publishing a second solicitation for applications from advanced fossil energy projects. The first solicitation, announced by the department’s Loan Program Office (LPO) in 2008, was intended for projects attempting to reduce net greenhouse gas emissions from exclusively coal-fueled energy production.  It received only eight applications, none of which were eventually funded. The recent funding opportunity greatly expands the range of projects that can apply for federal support and notably, de-emphasizes applicants’ creditworthiness during the department’s application review process. In effect, the DOE has re-offered to guarantee $8 billion of loans with taxpayer money, with fewer restrictions and embracing greater risk.      

One of the biggest concerns about the first fossil energy solicitation was that it risked billions on unproven technologies with uncertain commercial potential, like coal gasification and carbon capture and sequestration (CCS). The DOE has refrained from picking specific risky technologies to endorse in the latest solicitation, but the new definition of eligible fossil fuels, which “is intended to be broad,” allows projects to apply that should never receive taxpayer support. Projects that employ untested technologies like CCS are still eligible, while others that industry should privately finance, like the development of new oil and gas extraction methods, are now welcome. The broadened definition amounts to an invitation for all companies developing fossil fuel innovations to apply for another government subsidy.

The solicitation’s guidelines for evaluating loan guarantee applicants are also troubling. In every solicitation since 2008, the DOE has released a list of the criteria they’ll use to evaluate project proposals and detailed how each of the various factors will be weighted. In the previous eight solicitations, financial factors, including an applicant’s creditworthiness, have always been weighted as much as or greater than any others. That practice reduced some exposure to the risk of default for the inherently risky loan guarantees. The creditworthiness of an applicant in the current solicitation, however, only constitutes 45 percent of an application’s merit in the review process, throwing out established prudence of the LPO (see below). The decrease entails that protecting taxpayer money is no longer the primary concern of the DOE when evaluating requests for the $8 billion in loan guarantees.

The LPO has been risking federal funds on questionable projects for years. Through the defaults of Solyndra, Fisker Automotive, and the Vehicle Production Group on their guaranteed or direct loans, the gamble has cost taxpayers hundreds of millions.  Now, the office has decided to potentially support an unlimited array of advanced fossil fuel projects with even less regard for protecting their investments. The advanced fossil energy loan guarantee solicitation released last month creates an unprecedented liability from the Loan Program Office and needs to be retracted before billions of taxpayer money is gambled away.