US Issues Loan Guarantee Rules for Energy Projects

By Tom Doggett
Reuters

Friday 11 May 2007

Washington - The US Energy Department Thursday proposed regulations for a new program that would spur investment in clean energy by having the government repay a portion of the commercial loans, in case of default, that fund such projects.

The loan guarantees would cover financing for refineries that produce ethanol made from farm waste, new nuclear power plants, electric generating plants that capture greenhouse gas emissions and other clean energy projects.

Congress has already provided the Energy Department with the authority to issue up to US$4 billion in loan guarantees for the current budget year, and the White House has asked for US$9 billion more for the 2008 spending year that begins on Oct. 1.

"This demonstrates our desire to foster implementation and commercialization of new, environmentally friendly technologies that will reduce emissions and strengthen our energy and economic security," Energy Secretary Sam Bodman said.

"This program will support promising energy technologies that will help encourage increased use of cleaner sources of energy worldwide," he added.

The Energy Department last August sought requests for US$2 billion in loan guarantees for clean energy projects. By the end of the solicitation period on Dec. 31, the department received 143 requests for US$27 billion in loan guarantees on projects estimated to cost more than US$51 billion. Those applications are still being evaluated.

The department said its US$9 billion request for the 2008 budget year would cover US$4 billion in loan guarantees for nuclear power plants or coal-burning power plants that capture greenhouse gas emissions; US$4 billion in loans for projects that promote biofuels and clean transportation fuels, and US$1 billion for improving the transmission of electricity or renewable power generation systems.

The proposed regulations will be published in the Federal Register next week for public comment for 45 days.

Until the program's regulations are finalized, the department can't issue any loan guarantees, which DOE officials said would probably occur in early 2008.

Under the proposed regulations, the department said it may guarantee repayment on up to 90 percent of any loan as long as it does not guarantee more than 80 percent of the total cost of a project.

The energy secretary would also have to determine that there is a "reasonable prospect" of a project's sponsor to repay the guaranteed debt.

In the event of a loan default, the department would have a a right to all a project's assets pledged as collateral for the guaranteed loan.

When evaluating an application, the department said it will consider what other government assistance a project will receive, such as grants, tax credits and accelerated depreciation.

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