On Thursday, Peter Davidson, the official who took over the controversial, much-mocked Energy Department Loan Programs Office in 2013, announced he’s stepping down. Created during the Bush administration, the program received a huge influx of funds as a result of the 2009 stimulus bill, which it lent to a range of companies in the energy and transportation industries.
Early on, the program was known for its failures, especially Solyndra, which was like Benghazi before Benghazi was Benghazi—a three-syllable slogan that signified to conservatives the Obama administration’s fecklessness. A startup solar panel manufacturer, Solyndra received a $535 million loan guarantee and in 2011 went bankrupt. The program had other high-profile face-plants, including Fisker Automotive, a startup electric car-maker that went bust, causing the government to write off $139 million of the $192 million loan it made.
But lending to high-risk startups was only a small portion of the program’s portfolio—some $30 billion doled out to 30 companies and projects. The loans fell into three broad categories: startup manufacturers like Solyndra and Fisker; established automakers like Ford, which took a $5.9 billion loan in September 2009 to modernize its plants, and Nissan, which got $1.4 billion; and projects like solar and wind farms that would produce energy and sell their output to utilities. Far from the scandals that animated conservatives, most of these loans are doing quite well. They’re virtually all current, paying interest and principal every quarter. Indeed, the interest payments received so far outweigh the losses on the failed borrowers. And the gains for the U.S. power industry at large have been far greater.
Let’s look briefly at the auto portfolio. Yes, Fisker failed. But Tesla, another early borrower, in May 2013 repaid its entire $465 million loan nine years ahead of schedule. Ford, which borrowed 12 times more cash than Tesla did, began making $148 million quarterly interest and principal payments on its loan in September 2012. According to Ford’s most recent 10-K, by the end of 2014, it had paid back $1.5 billion in principal. It will continue to make those payments through 2022. (The interest rate Ford pays is about 2.3 percent.)
Ford, of course, is a company with a century of operating history and a solid balance sheet. And it probably didn’t need government financing. But many of the loans that the Energy Department has made went to startups employing untested technologies. A good chunk of the money in the period from 2009 to 2011 supported giant, first-of-their kind, utility-scale solar and wind projects, like the 290-megawatt Agua Caliente project in Arizona, which reached full operation in 2014, or the 240-megawatt Antelope Valley Solar Ranch plant. They’re called utility-scale because they approach in size the type of fossil fuel–powered plants that utilities can rely on. And prior to 2009, nobody in the U.S.—or in the world, really—had attempted to build several of them at once.
Of course, at the time, American banks, which were recapitalizing themselves and licking their wounds after the financial crisis, weren’t willing to tie up huge sums of capital in projects whose business models had yet to be proven. But armed with federal guarantees and financing, companies were able to design huge solar farms that worked—as power plants, and as businesses. Yes, the business models of these large plants rely on federal and state subsidies and tax credits, as well as on requirements in many states that utilities purchase a certain percentage of electricity from renewable sources. But until the loan program came along, nobody was willing to take the risk to actually build a project, strike a deal with a utility, and make it work.
The loan program says it has made loans to 17 entities that are currently producing power—and hence generating revenue to pay back their loans. Meanwhile, as the industry has gained scale (thanks in part to the Energy Department–backed projects), the price of building such plants has fallen. And so the private sector has seized the initiative. Solar and wind are booming in the U.S., as utilities, private equity firms, banks, startups, and Fortune 500 companies are rushing to finance the construction of dozens of large-scale emissions-free power plants. According to the Solar Energy Industries Association, the U.S. utility-scale solar sector grew 38 percent in 2014. From nothing before the loan guarantees, utility-scale solar now accounts for about 4 gigawatts of generating capacity. It’s a genuine growth industry, financed largely by private funds.
In a way, this dynamic is no different than the one we’ve seen over the last two centuries, in which the first efforts at commercializing a new technology—the canal, the telegraph, the railroad, the Internet—were funded by the government, and then the private sector rushed in after it was proved to work.
When the Treasury Department bailed out the financial sector, it provided daily updates and a great deal of transparency on just how much cash each institution had received, what the terms were, and how much had been paid back. It’s too bad the Energy Department hasn’t adopted a similar approach. We tend to hear about failures when a loan recipient files for bankruptcy, and can ferret the repayment efforts only from publicly held borrowers like Ford. Last fall the department said the program had received $810 million in interest payments, which would more than make up for the $780 million in losses it had suffered on soured loans.
The numbers are certainly far better than that. It looks like a very solid portfolio of loans to revenue-generating projects that have served as a catalyst for a vast new industry. And the program has not exhausted its authority. Since the beginning of 2014, it has approved $6.5 billion in loan guarantees to a nuclear project in Georgia and granted a conditional commitment to Alcoa for $259 million to help finance its efforts to use aluminum in autos.
As with the financial bailouts, it is likely the taxpayers will get all the money they lent to energy-related companies back—and then some. Unlike the financial bailouts, these bailouts will produce lasting social, economic, environmental, and industrial benefits.