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3 Questions DOE and Congress Must Answer About the Renewable Energy Loan Guarantee Program

September 21, 2010


Since its creation, the Department of Energys Renewable Energy Loan Guarantee Program (as established by the 2005 energy bill) has been defined by inaction and obstruction and is largely seen as a complete failure to date in terms of bringing next generation biofuel technologies to the marketplace. Additionally, the loan guarantee program has been raided time and again to pay for other federal programs with little if anything to do with renewable energy. Despite repeated promises to restore funding, money stolen from the program is still MIA. With DOE officials set to testify this week before a Senate committee and defend their inaction, several questions for DOE and members of Congress need to be answered. When do DOE officials anticipate making the necessary changes to the program to make it more accessible to next generation biofuel technologies? As constructed by DOE, the loan guarantee program is unnecessarily discriminatory against biofuel companies, requiring operating data and purchasing agreements for example that are not part of the real world of liquid transportation fuel marketing. Back in October 2009, the Renewable Fuels Association sent a letter to Energy Secretary Stephen Chu listing all the concerns raised by RFAs cellulosic and next generation ethanol company members. Among some these concerns are:
  • A requirement for off-take agreements for the fuel for the life of the DOE loan guarantee. Anyone even tangentially aware of fuel markets knows this is simply not how fuel markets operate. This may be effective for power generation technologies, like wind power, but not liquid transportation fuels. The RFA has asked DOE to eliminate this requirement for biofuel companies.
  • A requirement for operational and financial data from a commercial-scale facility. This requirement is particularly ironic and unnecessary, as the purpose of the loan guarantee program, at least as outlined by Congress, is to help transition biofuel technologies from demonstration scale to the commercial market. The RFA has urged DOE to recognize that, by definition, emerging technologies may not have commercial scale data and adjust their expectations accordingly.
  • A practice of putting applicants that could not meet these out-of-touch requirements back at the end of the queue, rather than allowing them an opportunity to quickly answer any questions raised by their application. The RFA has asked DOE to adjust this practice.
(It should be noted that inApril 2010, the RFA met with DOE officials on all the issues raised in its October 2009 letter. That meeting, and subsequent inaction from DOE, have been disappointing. A letter to the head of the program following the meeting can be read here.) How do DOE officials view the loan guarantee program? Is it for power generation technologies only? Or, should it apply to all renewable energy technologies including biofuels, as Congress intended? The reason that is question is relevant is that no biofuel company has yet been awarded a loan guarantee from the program. Moreover, no biofuel witness is being called at the hearing. President Obama has strongly stated his priorities of bringing new biofuel technologies to the marketplace, yet, as RFAs repeated communications with DOE point out, the loan guarantee program being operated by his Department of Energy is skewed toward power generation and not liquid transportation fuels. While wind, solar and other renewable power technologies are important, they will do scant little to reduce our reliance on petroleum. We use oil for motor fuel, not to power lights and charge iPhones. There is no shortage of biofuel technologies ready to turn a myriad of feedstocks currently viewed as wastes into renewable fuel. The companies developing these technologies face one enormous and shared hurdle: access to capital. The DOE loan guarantee program, as put into law by Congress in the 2005 energy bill, is designed to help companys clear this financing hurdle and bring these technologies to the commercial market. Until DOE makes the necessary changes the RFA has called for, these promising technologies continue to wither on the vine. For members of Congress, assuming DOE gets on track to dispense funds from this critical program, when will you act to restore funding raided for various programs unrelated to renewable energy infrastructure development? The account supporting the loan guarantee program has been routinely raided by Congress to pay for pet programs and other initiatives that have nothing to do with developing domestic renewable energies. Last year, the fund was raided to the tune of $2 billion to pay for the Cash for Clunkers program. This year, $1.5 billion was stolen to cover budget shortfalls in the states. That $3.5 billion, assuming that DOE had this program operating appropriately which it does not, would have financed up to a dozen commercial scale cellulosic and other next generation ethanol projects. As it stands, those technologies remained stymied and their promise for economic and environmental benefits unrealized. While DOE has failed to administer this program effectively to date, Congress must also realize that budget uncertainty creates apprehension about dispensing loans as well. Americas biofuel industry faces no shortage of vital policy and regulatory decisions this fall. Many of these are of immediate concern to the industry and the role of ethanol in the nations energy mix. But this issue is equally important from a long term and strategic energy perspective. If we are to achieve the goals of the Renewable Fuels Standard and realize the promise of emerging biofuel technologies, we have to incubate and provide assistance to ensure they can get off the ground and compete with a well-heeled, established, and still subsidized oil industry. Congress and the Obama Administration need to take an immediate, short term, and long term view of our energy situation. We cannot afford to be reactive alone. We must set and remain true to a proactive course that puts our energy future under our control, and not the whims of tyrannical regimes around the world.