As a result of the bankruptcies of solar maker Solyndra and flywheel maker Beacon Power, the Department of Energy’s Loan Guarantee Program (1705) is now under heavy scrutiny, and I wouldn’t be surprised if it landed in the dustbin next year. But Bloomberg has put together a report digging into the numbers behind the program and showing how the program has been a lot more successful than the Solyndra headlines would lead people to believe.
Here are 10 findings from Bloomberg’s report on the DOE’s loan guarantee program you should know:
1. Clean power generating projects. Bloomberg found 87 percent of the DOE’s loan guarantees were for power generation projects and the likelihood of default is much lower for those projects because they already have committed buyers (e.g., PG&E for the BrightSource solar thermal plant). Manufacturing, fuel production and storage projects made up the other higher-risk 13 percent.
2. An insurance fund covers the losses (and then some). The DOE allocated $2.47 billion in credit subsidies to act as insurance to cover project losses, and the fund more than covers both Solyndra and Beacon losses (and Beacon is selling its plant to pay back the loan). Bloomberg found that even if all of the eight remaining high-risk manufacturing and fuel production projects default, the insurance fund would cover all of them. In addition, the DOE actually budgeted for a failure of 15 percent of the total value of the loan guarantees, which is pretty high for a federal program, and in comparison, Bloomberg notes that commercial banking projects set aside 2.8 percent of the value of loans.
3. Cutting the program won’t help the budget. The report found “ending DOE’s loan-guarantee authority would have no budgetary impact and may jeopardize the remaining projects under review.” That’s because the commitments from the program aren’t included in the federal budget, which only encompasses direct expenditures. Though the report notes that defaults on the guaranteed loans can be costly.
4. The default numbers to date. So far, two of the 28 projects from the 1705 loan guarantee program have defaulted: Solyndra for $535 million and Beacon Power for $43 million. The Advanced Technology Vehicles Manufacturing program has five loans that equal $8.4 billion and one outstanding conditional commitment. The 1703 loan guarantee program has four projects in the conditional commitment stage for $10.6 billion.
5. U.S. government loan guarantees aren’t new. Bloomberg notes that U.S. federal loan guarantees were first used during the Great Depression to help families buy homes. History lesson!
6. The DOE’s loan guarantees are a small piece of the pie. The U.S. government has $947 billion worth of loan guarantees across various sectors of the government like Agriculture and Treasury. The DOE’s 1705 loan guarantee program is only 1.7 percent of the government’s total loan-guarantee commitments, and the other loan guarantee commitments include high risk programs like the Treasury’s Troubled Asset Relief Program (TARP), mortgage-backed securities and individual home mortgages by three agencies (Agriculture, Housing and Urban Development, and Veterans Affairs).
7. Solar dominates DOE loan guarantee program. For the 1705 program, which has 28 guarantees, the DOE issued 16 to solar companies.
8. Other solar manufacturers with DOE loan guarantees face the same risks as Solyndra. Abound Solar, which received a $400 million loan guarantee; SoloPower, which received a $197 million loan guarantee; and 1366 Technologies, which received a $150 million loan guarantee, are subject to the same market conditions and risks that led to the bankruptcy of Solyndra.
9. Ways to de-risk future loan guarantees. Bloomberg says one way to lower the risks for future DOE loan guarantees is to make sure they all have “off-take agreements”: essentially, the project has a secured buyer. The power-generating projects (like a large solar thermal farm) already have this, and that makes them lower risk. But Bloomberg says perhaps manufacturing loan guarantees should have this component too, and should include agreements like having federal, state and local buildings agree to buy the solar panels created with the loan guarantee.
10. Solyndra was three percent of the DOE portfolio. This number has been bandied about before, but worth mentioning again. Solyndra represented three percent of the DOE’s entire loan guarantee portfolio.