In what must be considered the first substantial policy making effort to build upon the energy related provisions in the recently passed stimulus package, the Senate Energy and Natural Resources Committee (the Committee) released a bi-partisan "discussion draft" of the "21st Century Energy Technology Deployment Act." This legislation seeks to bridge the gap between investments in the deployment of new energy technologies and the risks lenders perceive in new and unfamiliar technologies which result in high interest rates and a prohibitively high need for equity financing.
The proposed legislation would, if passed, implement a series of reforms to the existing Department of Energy (DOE) loan guarantee program, including the creation of a new Clean Energy Investment Fund (the Fund) to allow collected costs and payments to be used to support additional technology deployment. The Fund will be provided with $10 billion upon transfer of the functions of the DOE loan guarantee program to a new entity within the DOE, the Clean Energy Deployment Administration (CEDA). The task of CEDA is to create an attractive investment environment for the development and deployment of new clean energy technologies by providing various types of credit to projects. CEDA will develop financial products to mobilize private sector support for clean energy technologies through securitization including development of debt instruments which will allow investment in clean technologies on a residential or small commercial scale.
According to the Committee, "the mission of CEDA is to encourage deployment of technologies that are perceived as too risky by commercial lenders and thus the agency is encouraged to back riskier technologies with a higher potential to address our climate and energy security needs." In addition to the creation of CEDA, the bill significantly modifies the existing loan guarantee program to (i) allow Credit Subsidy Costs to be paid from the Fund (as opposed to solely from the applicant), (ii) remove the requirement that the DOE be superior to the rights of any commercial lender, (iii) impose wage rate requirements on all projects funded under Title XVII of the Energy Policy Act of 2005 and (iv) require that a decision on whether to proceed with a loan guarantee be issued within 180 days of application.
To achieve the goal of bringing down the cost of lending in the private sector, CEDA would provide loans, loan guarantees, and other credit enhancements, as well as secondary market support for development products such as clean energy backed bonds. The agency would have the tools to accommodate the riskier debt often associated with the deployment of the most innovative technologies. CEDA would use a portfolio investment approach in order to mitigate risk and, according to the Committee, to "become self-sustaining over the long term by balancing riskier investment with revenues from other services and less risky investments."
With a series of hearings scheduled by the Committee over the next five weeks, we can expect this legislation to receive considerable attention. However, whether it passes as stand-alone legislation or the language becomes part of the energy package being drafted in the Senate is unclear at this point. We will continue to carefully monitor this developing legislation and will share with the Committee staff our clients' experiences seeking funding for cutting-edge clean energy technologies.
Meanwhile, on March 31, 2009, the House Energy and Commerce Committee released full and summary versions of the Discussion Draft of the American Clean Energy and Security Act of 2009 (also referred to as the Waxman-Markey Bill); however, the Section-by-Section Discussion Draft was not made available until April 20, 2009. The Bill is the principal legislative offering on climate and energy from the House. Click here to access the Section-by-Section Discussion Draft.