A White House–commissioned independent review of the Department of Energy’s (DOE’s) loan portfolio concludes that the DOE could better manage its loan program and ongoing monitoring of its loan portfolio, but that the loan portfolio as a whole is expected to perform well and holds less risk than envisioned by Congress when it created and funded that program.
The review was conducted by Herb Allison, a former Treasury Department official who the White House says has a “wide-ranging experience in the finance, business, and government sectors during a career in public and private service that spans four decades and both Republican and Democratic Administrations.”
The DOE operates two programs that provide loans or loan guarantees to support clean energy projects. The Title XVII program, established under the authority of Title XVII of the Energy Policy Act of 2005 (EPAct) and the American Recovery and Reinvestment Act of 2009 (ARRA), provides loan guarantees for loans made to support certain types of clean energy projects. The Advanced Technology Vehicle Manufacturing program (ATVM) was established by the Energy Independence and Security Act of 2007 (EISA) to make direct loans to manufacturers of advanced technology vehicles. The review essentially evaluates 30 loans of which 25 were closed under the Title XVII program and five under ATVM. The loans total about $23.7 billion as of Nov. 28, 2011.
Among its key recommendations, the review calls on the DOE to establish an “early warning system” to identify and mitigate potential problems with individual loans or guarantees. It also calls on the DOE to strengthen management by ensuring long-term funding for oversight of the portfolio.
Finally, it calls on the DOE to develop explicit standards of performance for managing the portfolio during construction phases of projects and beyond. For example, “The Title XVII program’s statutory standard of ’reasonable prospect of repayment‘ is vague. DOE should provide clear guidance regarding the meaning of ‘reasonable prospect of repayment’ so that the financial goal for managers is unambiguous,” it says.
Chu: More Loan Recipients Could Collapse
Responding to the White House–commissioned review, Energy Secretary Steven Chu warned that several other companies that have received loan guarantees could fail.
“We have always known that there were inherent risks in backing innovative technologies at full commercial scale, and it is very likely that there will be other companies in the portfolio that won’t succeed,” Chu said in a statement Friday. “But the vast majority of companies are expected to pay the loans back in full, on time, and with about $8 billion in interest—while supporting a total of 60,000 American jobs and helping us compete for a rapidly growing global industry,” he said.
A Rash of Bankruptcies
The review was commissioned on October 28, 2011, after the White House came under fire for its management of the loan program. After California solar panel maker Solyndra Inc., which received a $528 million federal loan guarantee folded last summer, Massachusetts-based flywheel-maker Beacon Power, a company that got $43 million in loan guarantees, also filed for bankruptcy in October. Then in January, New York-based Ener1, which makes lithium-ion batteries for electric cars, filed Chapter 11. Ener1 subsidiary EnerDel received a $118 million stimulus grant from the DOE in 2009.
The latest casualty is lightweight solar product maker Energy Conversion Devices (ECD), parent company of lightweight solar product maker United Solar. ECD filed for bankruptcy Tuesday, saying it struggled to keep costs down as prices on solar panels fell. The company temporarily suspended manufacturing of its lightweight solar products last fall and said it would cut 500 jobs.
The Hill reported that Rep. Fred Upton (R-Mich.), a lawmaker who has been vocally critical of the Obama administration’s handling of Solyndra, urged the DOE to back ECD, a Michigan firm, in 2009.
ECD’s failure is the fourth major solar bankruptcy in the industry in the past year stemming from the global price war. Solar Inc., Solyndra, and SpectraWatt have also sought Chapter 11 protection.
Sources: POWERnews, The White House, The Hill