DOE Loan Guarantee Program Vilified by Republicans Turns a Profit

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The U.S. expects to earn $5 billion to $6 billion from a federal loan program, bolstering President Barack Obama’s decision to back low-carbon technologies.

The loan program, which opened in 2009, was targeted by Congressional Republicans who charged taxpayer money was wasted on startups including Solyndra, the solar manufacturer that closed its doors in 2011 after receiving $528 million. Jonathan Silver resigned as director in 2011 after repeated congressional inquires.

“People make a big deal about Solyndra and everything, but there’s a lot of VC capital that got torched right alongside the DOE capital,” Michael Morosi, an analyst at Brentwood, Tennessee-based Jetstream Capital LLC, which invests in renewable energy, said in an interview. “A positive return over 20 years in cleantech? That’s not a bad outcome.”

The program’s biggest success story has been Tesla Motors Inc. The Elon Musk-backed electric carmaker paid back its $465 million federal loan nine years early. Abengoa SA, which received a $132.4 million guarantee, opened in October a biofuels plant in Kansas.

The successes didn’t stop Republican representatives John Shimkus of Illinois, California’s Darrell Issa, and Fred Upton of Michigan who focused on the program’s failures in a series of hearings on Capitol Hill.

Taxpayer Risk

“I’m obviously glad to hear that DOE doesn’t expect to lose money on its post-Solyndra loans,” Shimkus said today in an e-mailed statement. “That said, we can’t forget that no matter how positive today’s projections may be, billions of taxpayer dollars are still at risk.”

A spokesman for Issa didn’t immediately respond to phone and e-mail messages seeking comment.

Congresswoman Marsha Blackburn, a Tennessee Republican, said that while the loan program may be well intended, “what we have seen is incredible mismanagement, and it’s become the poster child for crony capitalism.”

Blackburn said she’d prefer a tax-credit-based incentive system to loans or grants.

Last Resort

The $5 billion to $6 billion figure was calculated based on the average rates and expected returns of funds dispersed so far, paid back over 20 to 25 years. Applicants view the Energy Department as a lender of last resort, according to Peter Davidson, the program’s director.

“When these project developers took their projects to conventional financing sources, those lenders said, ‘Sorry, there’s too much risk here,’” Davidson said in a phone interview. “That’s the gap that we’ve filled.”

The department didn’t disclose terms for investments in specific companies and declined to estimate how much the rest of its portfolio may earn.

“There’s no picking winners and losers — we’re just open for business and people apply,” Davidson said.

Four Failures

The failure of four companies has cost about $780 million. Solyndra burned through $528 million of a $535 million loan guarantee before filing a bankruptcy plan approved in October 2012. The California-based solar manufacturer went bust pursuing an alternate photovoltaic technology that became too expensive as panel prices plunged worldwide.

The electric carmaker Fisker Automotive Inc. filed for bankruptcy in November 2013. Abound Solar Inc. and Vehicle Production Group LLC failed in 2012.

Considering the whole portfolio of projects, a $5 billion return to taxpayers exceeds profits from many venture capital and private equity investments in clean energy, Morosi said.

The department is weighing applications for nuclear, energy efficiency and advanced fuels projects.

The program was the only source of funding for some developers after financial markets crashed in 2008, said Joe Aldy, who worked in the White House as a special assistant to the president for energy and environment from 2009 to 2010.

“The people in the VC world who made a lot of money with IT and Internet companies — they made their money on the EBays and the Googles and the Facebooks,” Aldy said. “They lost money on a lot of other things.”

Copyright 2014 Bloomberg

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