When energy consultant Matthew Rogers moved to the Energy Department over a year ago, he had $36.7 billion in grants and loan guarantee authority from the 2009 American Recovery and Reinvestment Act to get out the door. Today, all but about $300 million has been committed to 5,000 winners in the awards competition. "My popularity continues to decline," Rogers said this week.
After frustrating delays, the flow of the Recovery Act energy dollars is finally entering the economy. Spending by grant recipients reached $3.5 billion in April, double the total at the end of 2009.
The wind power industry, for instance, has been a big winner. The Recovery Act "was not so much a stimulus as it was a life ring," said Don Furman, president of the American Wind Energy Association and a senior executive for a major wind turbine manufacturer in Portland, Ore. "We would have been in a world of hurt without that program."
The question looming now is: What next?
Recovery Act energy grants must be committed by the end of September. Energy tax credits have to be taken by the end of the 2011 fiscal year. What happens if further support programs tied to climate legislation die in Congress?
Whether the goal is reviving nuclear power, accelerating wind and solar energy projects, advancing energy efficiency, launching an electricity-power transportation sector or building out a smart grid, a wide range of new energy initiatives remain in a federal incubator. They remain heavily dependent upon continued support from Washington. But the prospects for future backing could hardly be murkier.
If the Senate fails to get the 60 votes necessary to pass climate and energy legislation, clean energy proponents are looking at possibilities of tying key measures to tax or jobs legislation that has better prospects for passage this year.
Push for a new federal financing mechanism
Backers of proposals for a new federal "green energy" financing bank say they have the answer.
Former Federal Communications Commission Chairman Reed Hundt heads the Coalition for Green Capital, a lobbying group that supports and works with congressional sponsors of a proposed Clean Energy Deployment Administration (CEDA). The House-passed climate bill (H.R. 2454) put forward by Reps. Henry Waxman (D-Calif.) and Ed Markey (D-Mass.) and the American Clean Energy Leadership Act of 2009 (S. 1462) from the Senate Energy and Natural Resources Committee both would create a CEDA, although in different forms.
A coalition paper issued last month calculates that energy stimulus spending will peak this year at $400 billion, shrink to about $120 billion in 2011 and be virtually gone by 2015. Today, private investment is not strong enough to fund a trillion-dollar overhaul of the energy sector by itself, Hundt argues. Too many households are repaying debt, too many building owners are strapped for capital, and the recession has taken such a deep cut out of energy demand that many existing power companies won't scrap carbon-intensive generation for clean energy on their own, he says.
The existing $18.5 billion in DOE loan guarantee authority for new nuclear plants may only cover two projects, the $8.4 billion guarantee for the planned Vogtle Unit 3 and 4 reactors to be built in Georgia by Southern Co. and probably only one other, industry officials say. President Obama has asked Congress to raise the guarantee level to $54 billion, but nuclear industry incentives are in limbo along with the rest of the climate agenda in the Senate.
Even if climate legislation with cap-and-trade restrictions on carbon emissions can pass, politics will force limits too low to bring about a major shift toward clean energy sources, Hundt predicted.
"From where we stand, federal loans and loan guarantees are critical for all three" -- wind, solar and nuclear projects, Hundt said. Nor are building efficiency improvements likely to accelerate without federal financing support, he added. "A unique financing mechanism is needed," he said.
A federal financing administration would change the equation, he argued. The coalition offers an example of two higher-cost wind energy projects, one paid for solely with private financing, the other backed by federal loan guarantees.
Federal loan guarantees cut the interest rate on the $165 million wind project in nearly in half, to 4.5 percent from 8 percent, and stretch out repayments, raising the amount of debt that developers of the guaranteed project could take on by $24 million, making the project easier to finance, according to the coalition.
Junking old coal-fired power plants
Without lower-cost financing provided by a clean energy bank, only projects in the strongest wind-resource regions like the Great Plains meet investors' minimum financial goals -- and even these projects are not competitive unless they can charge a relatively high price of 70 cents per kilowatt-hour or more. The cheaper financing from a clean energy bank makes wind power projects fundable in poorer wind-resource areas, too, at as little as 55 cents a kilowatt-hour in wind power prices, the coalition said.
A principal aim of the green bank would be purchasing old coal plants from utilities and generators, and then scrapping them. The coalition estimates that 100,000 megawatts of coal plants could be retired in this way, opening room for investments in new clean energy generation.
The coalition is also lobbying for a change in tax law that would permit states and local governments to issue tax-exempt bonds to fund private clean energy investments. The commission also calls for tax law changes that would give individual investors in renewable energy projects the same tax reduction advantages that partnership investors in oil and gas ventures commonly have now.
The green bank proposal is seen by supporters as a survivor if the Senate can't produce comprehensive climate legislation. "If the wheels come completely off on the full energy climate approach, there is no fallback position now," said one congressional staff source involved in the issue. "In that case, you are looking for any moving vehicle. It could be a tax extender package or a direct jobs package." Something will get across the finish line, and there is a good chance that CEDA can be on it, he said.
Skeptics of the green bank approach see self-interest at play. The coalition has support from the ranks of law and investment firms that presumably would be heavily engaged in handling expanded federal and state clean energy lenders. "If we're going to build a capital-intensive energy infrastructure, we're going to be issuing a lot of bonds, and that's good for the people in the bond business," said Jim Lazar, a consulting economist in Olympia, Wash., who specializes in energy project investment.
A bargain, if nothing goes wrong
Lazar also worries about the risks to taxpayers if federal energy loan guarantees mushroom, particularly for new, untested technologies. "The loan guarantees cost us nothing if nothing goes wrong, and everything if everything goes wrong," he said.
House and Senate green bank plans don't agree on how the financing institution should be set up, run and overseen; what its funding priorities should be; and how much independence it should have from the Energy Department and the Office of Management and Budget. These issues would have to be dealt with in a hurry if a CEDA provision gets on a congressional fast track later later this year, critics say.
But there is no disputing the impact that federal financial backing can have on new energy projects.
The $2.67 billion of bonds offered in March by the Municipal Electric Authority of Georgia was part of the first public financing of new nuclear reactors since the Three Mile Island accident a generation ago. Investors snapped them up, despite ongoing question marks over nuclear plant construction costs and federal climate legislation.
Nearly all of MEAG's offering consisted of Build America Bonds, a key part of the Recovery Act. Through this program, the federal government covers 35 percent of the interest paid by state and local government on their bonds for energy, infrastructure, schools and other municipal projects. Investors were reassured by "hell or high water" sales contracts that require participating MEAG power customers to keep paying down on the project's debt even if the reactors can't be completed.
Also, the Obama administration gave an assist with preliminary approval of a $1.8 billion guaranteed federal loan to help MEAG pay for its share of the plants and cover possible overruns, explained James Fuller, chief financial officer and senior vice president of the Atlanta-based municipal power company.
The offering for MEAG's part of the Vogtle project was oversubscribed by better than 2.5-to-1, pushing interest rates MEAG will pay down significantly. "We had very strong appetite for the bonds," Fuller said. "We think it's a good deal."
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