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Loan guarantees in the U.S. context – a note by DOE

Loan guarantees in the U.S. context – a note by DOE Blue Mountain Faulkner-1, geothermal power plant, Nevada (source: Nevada Geothermal Power)
Alexander Richter 12 Oct 2011

The DOE's Secretary of Energy, Steven Chu recently gave some remarks on the importance of the fierce competition for clean energy jobs and industries of the future, and the role loan guarantees play in this context.

Reported on the website of the U.S. Department of Energy, the Energy Secretary of the U.S., Steven Chu noted, that America finds itself in a fierce global competition for the clean energy jobs and industries of the future – with countries like China, Germany and others investing tens of billions of dollars to expand their domestic renewable energy industry and capture the lead in a rapidly growing field.

In this context, the Department of Energy’s loan programs have played a crucially important role in helping the United States compete, by providing affordable financing to innovative projects that might not otherwise happen but that hold the potential to seed entire new industries for U.S. workers.

Take, for example, geothermal energy – a clean, renewable energy source that is available in vast quantities in the Western United States. The U.S. Geological Survey has estimated that there could be as much as 16,500 megawatts of untapped power potential just from geothermal sources that have already been identified, which is equivalent to 16 large nuclear power plants or dozens of coal fired power plants.

America’s geothermal industry already employs an estimated 25,000 workers and could one day employ a much larger number, but has faced some difficulties in the past few years. The technological and operational hurdles facing the industry are certainly not insurmountable, but are typical for an emerging industry as it moves to a larger scale. By launching a few more power plants at commercial scale, the industry can get the experience it needs to overcome these hurdles and prove that the technology can be broadly deployed.

That’s why last year, the Department of Energy provided a $79 million loan guarantee for the Blue Mountain power plant in northeastern Nevada. While the plant didn’t initially generate as much power as the operators had hoped, it is generating more than enough clean, renewable power to repay its loan even if the power output were to continue to decline. Indeed, the company has a long term contract in place with a local utility that has agreed to buy the power for a set price – which means it will have a stream of revenue in place to pay back the loan. And in fact, the company has been consistently making its payments on time and in full.

The Department is monitoring the progress of the project closely and has structured the loan guarantee to give ample protections to taxpayers. Very importantly, the loan guarantee is for the Blue Mountain power plant, not Nevada Geothermal, which is the parent company. They are two different companies. Neither the parent company’s debts, nor those of any other company in its ownership structure, affect the ability of the power plant to repay its obligations from the revenue it generates under its long term sales contract. The power plant cannot be used as collateral for any other debt. What matters is that the power generated by the Blue Mountain plant – and the revenue generated under its long term guaranteed sales contract – will be enough to repay the loan.

This project shows exactly why the loan program plays such an important role in helping innovative clean energy projects find affordable financing. The Blue Mountain project is not only producing clean power and paying back the government – it is helping us build a growing new industry and can help pave the way for many similar projects across the Western United States.”

Source: DOE