By Mark Mathews and John Herrick, Brownstein Hyatt Farber Schreck

Earlier this month in Elyria, Ohio, a town once dominated by the steel industry and now suffering record number of unemployed, President Obama once again preached the benefits of clean energy and the domestic jobs that come with it. Before Obama landed, Elria reported that its unemployment rate had risen in December to 10.9 percent from 10.6 percent the month before. To a restive American audience, the President reiterated that federal stimulus help is on its way, touting his $787 billion economic stimulus plan, which the White House said has created 79,000 jobs in Ohio.

The jury is still out on how much the Administration’s stimulus program will impact the clean energy sector.  The government, with the Department of Energy (DOE) leading the way, has launched four major government initiatives to stimulate growth: the extension of the renewable production tax credits; the new manufacturing tax credit for the renewable energy industry; the grant program for development and demonstration projects; and the five-year-old loan guarantee program operated by DOE.

There is nearly universal consensus that the loan guarantee program has generated the most controversy.  Most also agree that if this program is not successful, this Administration’s goals to make the United States the world leader in clean energy technology will be a failure.

Congress enacted the federal loan guarantee in 2005 to attempt to remedy the fact that new and untested clean energy companies could not attract debt financing to support projects large enough to provide a return on investment. Since then, DOE has issued four different rounds of loan guarantee solicitations, committing over $50 billion in federal funding to guarantee over $100 billion in loans to commercialize promising clean energy technology.

 In response to these solicitations, hundreds of clean energy companies have invested a tremendous amount of time and energy attempting to satisfy the complex DOE application requirements that even in the kindest light can only be described as Byzantine. The hitch, as always, is in how the government has implemented this program. Indeed, since the first round of loan guarantee solicitations in 2006, only one project has been awarded a loan guarantee, though to be fair three other projects may be nearing final approval. DOE’s cumbersome and slow application process has created huge backlogs of project proposals which have resulted in major delays in U.S. project development. 

Some of this could be blamed on the previous administration not placing a priority on this sector during a time when private capitol was more available.  But the fact remains that the bottleneck has not been broken in the past year.

The question now for the Administration and DOE is what can be done to salvage this program.  In response to the glacial pace of loan guarantee awards, Congress and the Administration have been tweaking the program over the past year to make it more available and less cumbersome for shovel-ready and job-intense projects.
 
One such change is that DOE now allows more flexibility in how it will shape its role in collateralizing debt packages for large-scale green energy projects by, among other things, no longer mandating that it receive a first lien priority in project collateral.  Hopefully, this will encourage groups of debt financiers to join with DOE to mutually support large scale developments. 

DOE also has initiated an effort to allow private-sector banks to structure the debt and speed up the approval process for loans under the program. The hope is that banks will be able to more rapidly conduct due diligence on a project than did DOE prior to this initiative. 

Finally, even Congress has gotten into the act. Under last-year’s Stimulus Bill the program re-directed priorities to shovel-ready projects that can create immediate jobs in the clean energy sector. In addition, the proposed Jobs Bill that has passed the House and is now in front of the Senate could expand the loan guarantee program to developers of smaller scale renewable energy and energy efficiency projects by allowing the bundling of multiple projects under a single loan guarantee. This could open the program up to the real estate development community who want to include renewable energy and energy efficiency components as part of multiple development projects. 

Whether these changes will be enough to salvage the loan guarantee program remains to be seen. Much is at stake - including whether this Administration’s deeds can match President Obama’s promise, in Elria and elsewhere.