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Who's who in the DOE loan guarantee program
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American economy adds aspects to public-private relationships in energy markets.
Which sectors will perform which functions in the future in the energy industry is still being discussed, but the Department of Energy is now becomming a major investor in the renewable energy industry. So, now the U.S. government is in the auto industry, particulary advancing EVs; and also it is in the banking, investment banking, home finance, and insurance markets. Conditions are aligning to create a fundamental shift in how energy is financed, generated, transmitted, and consumed in both businesses and residences in America. Since the government has chosen to lead the way into the transition, it pays to listen to the process they have established for applicants and how they organize outgoing funds here in the initial buildout phase.
The figures have changed in the past, so have priorities, but the short of it is that renewable energy project development markets will begin seeing a surge in available capital late this year. That money will work its way through the markets for the duration of 2010 and into 2011.
Renewable energy loan applications at the U.S. Department of Energy are sorted by sector within the energy industry. Somewhere around $100 billion is approved for eligible projects that "employ new or significantly improved technologies as compared to technologies in service in the United States at the time the guarantee is issued", which was language from the Energy Policy Act of 2005.
Money within the DOE loan program has been around for while (2005), but remained unspent over the past four years shuffled around on paper quite frequently. It will most probably begin being transferred into individual sectors this summer. Where it will go depends alot on a variety of factors. Initial big winners are nuclear and renewables. A lioshare of the nearly $100 billion comes from a forward $48.6 billion of guaranteed loans that expire September 30, 2011. For now, renewable energy systems and electric power transmission are 2009 priorities for forward spending.
As for the applications to the DOE for renewable energy projects: Solar and biomass account for 55% of the applications; wind, transmission, industrial energy efficiency, and geothermal made up another 9% each; hydrogen 6%, and battery and vehicle technologies another 3%. It should be noted that the solar industry requested 61% of the total amount requested, or $7.5 billion in funds. Transmission and distribution projects and biomass development requested just over $1 billion in funds each.
To achieve a 10% penetration into global energy markets by 2012, the U.S. will need over $200 billion in annual new investment. Regulations are not certain yet, but it seems the plan of the U.S. government is to invest a portion of the needed annual investment, enact regulations, and hope to bring a young sector up to economy-of-scale size primarily through private investment. The government is injecting only about one-quarter of the needed annual investment to achieve the objectives of its policy. By guaranteeing loans and providing grants, a rare alignment of policy objectives and economic benefits has commenced. Will investors pick up the torch and make up 75% of the needed capital to reach 10% penetration targets?
We should get an indication of that in 3Q-4Q'09 as project capital for development projects begin building slowly into the sector. From this position, a dramitic redeployment of renewable energy technologies can be expected. The end of 2010 into 2011 will see the most flurries of activity, with seven-fold increases thrown to the wind industry. From there, 2012 and beyond, the future's a guess.
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