A little detail from biofuel company Mascoma’s IPO filing on Friday got me thinking: Mascoma says government grants constituted “86 percent of our revenue” while “product sales and other service agreements constituted 14 percent of our revenue.” Greentech has been like few other tech sectors in that many of the companies are relying heavily on government support for business, from biofuels to clean power to nuclear to smart grid. But at the same time, a variety of companies are finding that, if they are able to stand on their own two feet, that accepting government support can sometimes be the wrong choice.
Investors in the now infamous solar maker Solyndra think that the $535 million loan was actually part of Solyndra’s undoing, according to the Wall Street Journal. Those investors say that the loan added high fixed costs for the DOE-backed factory, and it was a disadvantage when the company wanted to raise more money from private investors, because the government had senior debt that would be paid back first (mostly, except for Solyndra’s final restructuring funds).
Other companies have passed on DOE loan guarantees altogether. Back in March solar company Suniva decided to “suspend participation in the loan guarantee program,” despite the company’s spending $750,000 on lawyers and consultants as part of its effort to secure the award. Suniva chief marketing officer Bryan Ashley would only say to us in an email earlier this year that “Given the continued uncertainty around the negotiation of acceptable terms and the final outcome, Suniva has decided to discontinue expending money, resources and time on the process at this time.”
Two years into its effort to obtain a guarantee on some $7.5 billion in loans, in October 2010, Constellation Energy declared the proposed terms and conditions for the guarantee “unworkable.” Together with French energy giant EDF, through a joint venture called UniStar Nuclear Energy, Constellation had requested the loan guarantee to support construction of a new nuclear reactor at the Calvert Cliffs power plant, in southern Maryland.
But in a letter to DOE officials, Michael Wallace, the chairman of UniStar as well as the vice chairman and chief operating officer for Constellation Energy, said the agency’s initial estimate for the “credit subsidy cost” (the expected long-term liability to the federal government when it issues the loan guarantee) was “shockingly high,” at 11.6 percent, or about $880 million. He wrote, “Such a sum would clearly destroy the project’s economics (or the economics of any nuclear project for that matter), and was dramatically out of line with both our own and independent assessments of what the figure should reasonably be.”
NRG Energy CEO David Crane told me earlier this year in an interview that in general “the government is requesting more and more conservative terms,” which may be comforting from the point of view of being a taxpayer but defeats the purpose of a program meant to provide debt financing where it wasn’t available from the private sector. He added, “If the government’s terms are more onerous than the private sector then it becomes sort of, what’s the point?”
The DOE still has billions of dollars in awards it wants to get out from its loan guarantee program before its end-of-September finale date. Now that there’s such high scrutiny on the program in the wake of Solyndra, applicants could be as gun-shy of accepting the awards as DOE officials are of handing out the money.
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