While an uproar has arisen over the loan guarantees for solar from the U.S. Department of Energy (namely the one for Solyndra), another federal agency has also been making hundreds of millions of dollars worth of loans and loan guarantees to support the U.S. solar industry. Will it have a better success rate?
From the start of this fiscal year (Oct. 1, 2010) through Sept. 1, the Export-Import Bank of the United States — which provides financing for U.S. companies to produce goods for export — has approved about $650 million in financial support for U.S.-made solar products and services, the bank said. Specifically, last Friday, the bank announced loan guarantees worth $455.7 million for First Solar’s (s FSLR) Canadian project company First Solar Development Canada to help it build two solar farms in Canada using First Solar’s (s FSLR) panels.
The bank has been offering both loans and loan guarantees for solar. Loan guarantees are given to companies to help them secure loans from commercial banks, and through the guarantees the Ex-Im Bank promises to pay back loans if the borrowers can’t.
Soon-to-be-bankrupt Solyndra has also benefited from the Ex-Im Bank’s help. The bank offered a $10.3 million loan guarantee to support a loan provide by the KBC Bank NV in Belgium to German solar project developer U/S/E to buy 3 MW of Solyndra panels. Solyndra has since gained notoriety for receiving a $535 million loan guarantee from the DOE, drawing down on most of that loan from the Federal Financing Bank, but then just last week planning to file for bankruptcy. Solyndra filed the bankruptcy papers on Tuesday.
The Solyndra failure raises questions about how the federal government has been supporting clean power, how much risk should the government take on, and should the government supports loan guarantee programs that pick winners and losers. The Ex-Im Bank’s support of solar will also likely come under this lens in the wake of the Solyndra controversy.
Will the Ex-Im Bank’s solar support fare better?
Like the DOE, the Ex-Im Bank’s aim is to help fill the funding gap created by banks in the private sector, which sometimes won’t loan funds to riskier clean power companies unless the loans are backed by a sure source of repayment, such as the federal government. The financial market meltdown in 2008 made it extremely difficult to secure bank loans initially, though that has climate has improved since.
Ex-Im Bank is eager to set itself apart from the DOE, which has offered loan guarantees and essentially direct loans from the Federal Financing Bank. Ex-Im Bank’s spokesman, Phil Cogan emphasized in an interview with us that the Ex-Im Bank has historically experienced a low default rate of 1-2 percent. And the bank has collected enough interests and fees from borrowers to cover defaults, he added. When the Ex-Im Bank makes loans, it borrows the money from the Treasury and pays the money back with interest (it charges the borrowers a higher interest), he said.
Arizona-based First Solar has been a big beneficiary of the bank’s heightened focus on renewable energy exports. The bank announced a $15.7 million loan to solar developer Azure Power Rajasthan Pvt. Ltd. in New Delhi in July to buy solar panels from First Solar, as well as inverters from SMA Solar Technology and cables from General Cable. Azure wanted the loan to build a 5 MW project in the state of Rajasthan.
The bank also approved an $19 million loan guarantee to support a loan issued by PNC Bank of Pittsburgh in Pennsylvania to ACME Solar Technology in India. ACME was planning to build a 15MW project in the state of Gujarat in India. In addition, the Ex-Im bank approved an $84.3 million loan to a project by Reliance Power to build a 40 MW plant with First Solar’s panels in Rajasthan. On Monday, First Solar said the 40 MW is part of a 100 MW deal to sell its solar panels to Reliance.
First Solar, having been in business since 1999 and traded on the Nasdaq, is a significantly less risky loan than a loan for VC-backed startup like Solyndra. First Solar reached 1.5GW of production capacity by the end of 2010 and is set to reach $2.3 GW by the end of 2011.
But Ex-Im is supporting less established solar companies, too, and other solar companies that have benefited from the bank’s help include Colorado-based Abound Solar and Infinia. The bank announced a $9.2 million loan to Punj Lloyd Solar Power in India to buy solar panels from Abound, and offered a $30 million loan to Dalmia Solar power in India to buy 10 MW of solar electric systems from Washington-based Infinia.
Infinia is working on raising $25 million in venture capital to commercialize its Stirling engine technology, which uses mirrors to concentrate the sunlight to heat and expand helium gas in order to drive an engine for electricity production. Stirling engine-based solar projects have so far proved not be economical, and Stirling Energy Systems has struggled, as has its Irish investors NTR.
Image courtesy of First Solar