U.S. Loan Guarantee Program Needs a Revamp: Here's Why.
By Amy Myers Jaffe
In a recent interview, Jigar Shah, head of the U.S. Department of Energy’s Loan Programs Office (LPO) and former founder of SunEdison, is mobilizing a new team of 10 “outreach” professionals to help potential financing recipients tap up to $40 billion in loan capacity.
LPO is trying to tap a broad remit to unlock and help finance residential carbon reducing technologies such as energy efficient refrigerators, water heaters, and heat pumps. Notes Shah, “We’re not looking to support rooftop solar and HVAC in their 1.0 form. The innovation in virtual power plants is that they’re connected devices and that they can be used as a grid resource. That’s new. So we are saying to the solar industry and to the HVAC industry: If you want to use our programs and be classified as innovative, then you have to do innovative things.”
Indeed the U.S. loan guarantee program can spur experimentation and innovation by helping firms avoid the “valley of death” in the innovation process, a new policy brief from Climate Policy Lab concludes. But the program needs a wider set of evaluation metrics and an active marketing plan to generate interest from a wider constituency if it is to avoid pitfalls of the past. CPL recommends the LPO office needs to reform its procedures to consider not only geographical equity and better representation from underrepresented groups, but also to think carefully about how to prevent different objectives from working at cross purposes.
The question should be asked: Is the loan program underwriting a sufficient portfolio of projects to address different kind of structural problems such as the fair and equal distribution of economic benefits of clean energy and related permanent jobs across a broad spectrum of U.S. geographies, income classes, race, and other equity metrics? CPL finds the program fell short in the past and recommends an active marketing campaign that proactively visits university and college communities and other innovation clusters to familiarize potential applicants of diverse backgrounds with opportunities for funding and the goals of investors.
CPL suggests that the LPO office should also further streamline paperwork and reporting requirements as well as consider other mechanisms that would facilitate smaller awards to a larger number of firms to avoid past practice that concentrated participation to a small handful of already well-financed large entities. In particular, experts suggest that the program should be adjusted to shorten the timeline for notification that a venture will not qualify for a loan or loan guarantee. The program should to move away from prioritizing “shovel ready” projects as a key criterion and instead favor projects that promote innovation. CPL also recommends that data reporting on diversity and inclusion performance of recipient firms’ board of directors composition would raise visibility to the issue, much the way such standards are being considered by NASAQ and others.
For more details, click here to read the full policy brief. ∎
Amy Myers Jaffe is the Managing Director at CPL and a research professor at The Fletcher School, Tufts University.