This week, both the House and Senate included increases for the Department of Energy Loan Guarantee program in their stimulus bills, but the Senate took the cake adding more than $50 Billion in budget authority to the program for projects that are unlikely to have any short-term economic benefits. In 2005, Congress created the program, but the program has yet to distribute a single loan guarantee and has come under the scrutiny the Government Accountability Office and the Department’s own Inspector General. Although promulgated as a means to promote innovative energy technologies, it has become a black hole for billions in loan guarantees for the coal and nuclear industries.

Currently the DOE loan guarantee program has $38.5 billion earmarked for nuclear energy, coal gasification, coal power generation with carbon capture and storage, and renewable energy and transmission projects. Of the $38.5 billion, more than half, $20.5 billion is allocated for nuclear facilities and uranium enrichment projects. ¹ The Congressional Budget Office (CBO) considers the risk of default on nuclear loan guarantees to be very high, well above 50%. ² Although the loan guarantee program is designed to be self-financing and DOE is tasked with estimating the administrative and the subsidy cost (the net present value of the anticipated costs of defaults) of the loans, the CBO projects that DOE will likely underestimate these costs.

Senate Stimulus
On Tuesday, the Senate Appropriations Committee passed their portion of the stimulus bill.  By authorizing $50 billion in budget authority for any energy project eligible under the program, including coal projects and nuclear reactors, the committee more than doubles the program’s existing authority.  They also appropriated $9.5 billion to cover the costs of loan guarantees for renewable energy projects.  As icing on its cake, the Senate language also disregards the stimulus’s overarching goal of providing immediate economic impacts by allowing this authority to remain available until expended. This language has not yet passed the Senate but is anticipated to be on the floor next week. 

House Stimulus
While the House did not include the dramatic increases of the Senate, they did join them in taking the unprecedented step of providing appropriations for the “subsidy cost” (the cost borne by the taxpayer to provide the loan guarantee) of guarantees distributed under the program for renewable energy technologies. The House awarded $8 billion to cover the cost of the loan guarantees just under the Senate’s $9.5 billion proposal. As described in the original law, the program can either be self-financed (where the loan guarantee recipient covers the subsidy cost of the loan) or appropriated by Congress. To date, the loan guarantee program had always been recognized by Congress as a self-financed program. Although assessing the subsidy cost of the loan guarantees is difficult, it does provide some protection to taxpayers who are underwriting the loans. According to the House, the $8 billion aims to cover the cost of more than $80 billion in loan guarantees for renewable energy projects. The House language was included in the final bill that passed Wednesday, January 28th.
 

Learn More:

Department of Energy Loan Guarantee Program

GAO Recommends Congress Limit Loan Guarantees : 

Read the Bill Language:

House Stimulus Bill and Report Language:
INNOVATIVE TECHNOLOGY LOAN GUARANTEE PROGRAM
For an additional amount for ‘‘Innovative Technology Loan Guarantee Program” for the cost of guaranteed loans authorized by section 1705 of the Energy Policy Act of 2005, $8,000,000,000: Provided, That of such amount,$25,000,000 shall be used for administrative expenses in carrying out the guaranteed loan program, and shall be in lieu of the amount set aside under section 1106 of this Act: Provided further, That the cost of such loans, including the cost of modifying such loans, shall be as defined in section 502 of the Congressional Budget Act of 1974.

Renewable Energy and Transmission Loan Guarantee
Recovery funding: $8.000 billion
This new loan program would provide loan guarantees for proven renewable technologies and
transmission technologies. The $8 billion in appropriated funds is expected to support more than
$80 billion in loans for these projects. The temporary program is designed to address the current
economic conditions of the nation for renewable and transmission projects and will allow the
subsidy cost of the loans to be made through appropriations. Due to the contraction in the credit
market and lower bond ratings for companies, renewable and transmission projects have been
postponed, this loan program is intended to provide adequate capital to construction new
generation of renewable energy projects and make improvements to the nation's transmission
system. The authority to enter into new loan agreements expires on September 30, 2011.
(EPACT Title XVII)

Senate Stimulus:

Link to Bill Language included in Committee Passed Bill

Bill's Explanatory Language:
TITLE 17-INNOVATIVE TECHNOLOGY LOAN GUARANTEE PROGRAM
The Committee provides an additional $9,500,000,000, to remain available until expended for loan guarantees to standard renewable projects such as wind or solar projects and for electricity transmission projects. From within the available funds, up to $15,000,000 may be used to cover administrative expenses in carrying out the guaranteed loan program. A General Provision permits the Secretary to temporarily make loans for renewable and transmission projects that are based on commercially available technology, a category of projects not included in the original statute.

The Committee also recommends an additional $50,000,000,000 to support the deployment of eligible technologies under the Section 1702(b)(2) of EPACT 2005 that will contribute to transforming the energy sector. This funding will add to the existing loan guarantee authority provided in other appropriations bills to support self-financed loan guarantees. The Committee is aware of the strong interest in the program and the large number of pending applications.
 

1. Department of Energy Loan Guarantee Program, “Title XVII 2008 Omnibus Report Language,” http://www.lgprogram.energy.gov/appro/rptLanguage.pdf.

2. Congressional Budget Office, “S. 14 Energy Policy Act of 2003: Cost estimate”, May 2003, http://www.cbo.gov/doc.cfm?index=4206&type=0.