The Export-Import Bank of the United States (Ex-Im Bank) announced, on July 14, 2009, that it will now offer 18-year repayment terms for exports to water, renewable energy and nuclear power projects. Ex-Im Bank will also offer a more flexible repayment schedule and revised interest rates.
The longer repayment terms are allowed under a new understanding among the Organization for Economic Cooperation and Development (OECD) member countries. One of the OECD’s roles is to ensure that export credits do not amount to subsidies for domestic industries, and in this role it limits the loan terms credit agencies may provide. The new terms recognize OECD’s policy interests in renewable energy and climate change. They also reflect the realities of nuclear and renewable energy projects, which frequently have extensive upfront capital costs and slower build times than conventional power facilities. Previously, the maximum tenor permitted by the OECD arrangement for these projects was 15 years.
In addition to the longer repayment terms, the OECD also authorized more flexible repayment terms and a new fixed-interest rate schedule. Repayment terms can be either equal installments of principal or mortgage-style repayments, which are equal payments of combined principal and interest. In addition to the exposure fee due to Ex-Im Bank, for repayment terms up to 11 years the minimum fixed interest rates are the relevant CIRR rate, which changes monthly, but now ranges from 2.76% to 4.37% depending on the term. For 11 to 18 year repayment terms, the minimum interest rate is 100 to 120 basis points over the 7 to 10 `year US Government bond rate. Local costs can be included in up to 30% of the export contract value.
Eligible renewable energy projects include: wind, solar photovoltaic, solar thermal, geothermal, ocean thermal, hydroelectric, tidal and tidal stream power, wave power, and bioenergy. Bioenergy includes installations using sustainable biomass such as agricultural waste, forestry products, and biodegradable portions of municipal and industrial waste, as well as landfill gas, sewage treatment gas, and biogas plants. Ex-Im Bank provides the same terms to nuclear energy projects and to water purification and sewage treatment projects.
Enhanced credit terms are also applicable to loans for the modernization of existing renewable energy or nuclear power plants, provided that the upgrades are expected to extend the life of the plant by at least the repayment period. Exports of components, equipment, materials and services (including training of personnel) may be financed by Ex-Im Bank under this program. Ex-Im Bank’s Office of Renewable Energy and Environmental Exports will administer the program.
Examples of Qualifying Exports
So far in 2009, Ex-Im Bank has supported one project that would have been eligible for the new enhanced credit terms. The bank provided long-term loan guarantees totaling $61 million to support the exports of photovoltaic solar modules by SolarWorld Industries America to Gochang Solar Park of South Korea. The loans covered the cost of purchasing the solar modules and the cost of local installation. Ex-Im Bank’s loan guarantees enabled Gochang Solar to obtain competitive interest rates from the Private Export Funding Corp (PEFCO). As with many similar transactions, financing may not have been available without Ex-Im Bank’s loan guarantee, which covered 100% of the commercial and political risk of the loan repayment.
Last year, Power Engineers, Inc. exported almost $5 million of procurement, design, and engineering services to support a geothermal power project in Turkey. The Idaho-based consulting firm’s services were paid for with a loan backed by a 15-year loan guarantee from Ex-Im Bank. Under the new understanding, this loan guarantee would have qualified for the new 18-year term because the consulting services were provided in support of a qualifying renewable energy project. Also in 2008, Ex-Im Bank provided a loan guarantee to Bio-Microbics Inc. to support its export of wastewater treatment systems to a purchaser in Mexico.
Ex-Im Bank’s Environmental Exports program has been operating since 2002, and it has provided many direct loans and loan guarantees that would have qualified for the new terms. Transactions supported include numerous exports of solar photovoltaic modules and exports of components and engineering services to water treatment plants around the world.
These export success stories provide examples in support of President Obama’s message that green energy can boost the economy and provide jobs. On Earth Day this year, the President visited an Iowa manufacturing facility for wind turbine towers. In a speech there, the President declared: “The choice we face is not between saving our environment and saving our economy. The choice we face is between prosperity and decline. We can remain the world’s leading importer of oil, or we can become the world’s leading exporter of clean energy.”
Ex-Im Bank’s mission is to facilitate exports by domestic manufacturers, and the recent changes to its loan terms add more support and greater incentive for companies interested in exporting products or services for water, renewable energy, or nuclear power projects.