Stimulus Funds Flow

Stimulus Funds Flow

April 01, 2009

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

An economic recovery may be hinged to the transformation of the energy sector. And that's why the Obama administration is targeting billions toward revamping the nation's transmission grid, increasing energy efficiency and expanding renewable fuels.

Perhaps the single biggest investment that could most affect national markets is the endeavor to grow the green fuel portfolio. As such, the U.S. Department of Energy has said it will provide $6 billion in loan guarantees by May to those businesses that have proven ideas and which will expand jobs. It's all necessary so that young companies can acquire the funding they need to move ahead with their projects and at a time when traditional debt and equity markets are hard to crack.

"Prior to this economy, those businesses would have started with traditional venture capital," says Tim Carey, partner for PricewaterhouseCooper's Cleantech division. "But wind, solar and biomass projects are capital intensive. They require more money than venture capital firms will risk, requiring them to go and raise debt. They then would take that debt to the final commercial expansion and ultimately go do an initial public offering. But with private debt markets sealed, the initial public offering market is also closed. The Energy Department program is one of the few sources out there."

Money must start flowing by July for clean technology from the $787 billion stimulus bill to avert severe economic consequences for many green technology developers, he says, noting that venture capital firms are still interested but have cut back their spending. The hope for the foreseeable now rest with the Energy Department. That money is needed, Carey says, to stabilize markets.

The stimulus package, which passed in February and which was pushed as the central vehicle that would lift the economy out of recession, has about $83 billion in clean technology funds. The Obama administration has said that the allocation of those dollars would be completely transparent, although concerns exist that the process will become too bureaucratic and therefore unworkable.

It's one thing to have good ideas. It's another to labor through the logistics to get them done. It involves leadership: People need to be trained and the resources must be available so that the ideas actually reach fruition. Beyond the process hurdles, there are the eventual policy questions -- the ones involving business development, tax policy and energy laws. At stake are job creation and whether the development of green energy resources will also mean that the products are manufactured, installed and maintained in the regions where the fuel forms are harnessed.

The $6 billion allocation in renewable energy is linked to other investments in the intelligent utility and in energy efficiency. The overarching aim of all those policies is to reduce the nation's carbon footprint and to increase grid reliability. "The government needs to fund the best deals but do it as quickly as possibly," says Carey.

Generating Momentum

To be sure, the Obama administration is keenly aware of potential problems that could result from waste, fraud and abuse of stimulus funds. But while the president says that he cannot make any guarantees, he can promise that his administration will do all in its power to avoid such a situation. Along those lines, Obama is requiring that any business interests seeking such funding to articulate in writing their positions.

"Whenever a project comes up for review, we're going to ask a simple question," President Obama said in a speech. "Does it advance the core mission of the Recovery Act? Does it jump-start job creation? Does it lay the foundation for lasting prosperity?"

Toward that end, Energy Secretary Steven Chu offered a $535 million loan guarantee for Solyndra to support the company's construction of a commercial-scale manufacturing plant for its proprietary solar photovoltaic panels. That money will be provided under the recently enacted stimulus plan.

It is the first of what is expected to become several other loan guarantees that will be issued by May -- an arrangement that allows Solyndra and similar developers to take their projects from testing to commercialization. The solar company expects to create thousands of new jobs in the United States while deploying its technology across this country and around the world.

Before approving a loan guarantee, the Energy Department says that it takes significant steps to ensure risks are properly mitigated. It says that it performs due diligence on all deals, including a thorough investigation and analysis of their financial, technical and legal strengths and weaknesses, all of which is also reviewed by independent third parties. The loan to Solyndra illustrates that process, it adds, noting that commitment and teamwork were paramount to ensuring the deal got done early.

"The stimulus package is going to generate momentum," says Rick Nicholson, partner at Energy Insights. "If you look at independent project developers, they got hit hard by credit crisis. They could not get funding. But with these loan guarantees in combination with the production and investment tax credits, it will provide a big incentive to get projects started. At least for the rest of this year, things are looking way better than before."

The stimulus spending plan is drawing a host of critics who are expressing legitimate concerns. But it is also giving a necessary boost to green energy developers, who say that the money gets their viable projects over the hump and into the market. And that, in turn, helps fulfill the Obama administration's strategy of putting Americans back to work while building a domestic arsenal of clean energy supplies.