A clean-energy company funded through a Department of Energy loan recently filed for bankruptcy.
Tonopah Solar Energy, the builder of a 110-megawatt concentrated solar power site, joined the ranks of bankrupt Solyndra and Abound Solar. Those companies all received money through the 2009 American Recovery and Reinvestment Act (ARRA), which set out $90 billion for clean energy at the depth of that recession.
Despite such failures, DOE loan guarantee programs for new energy technologies — enacted during the George W. Bush administration — have been a success overall. The DOE has disbursed nearly $30 billion to new and emerging technologies, with overall portfolio losses around just 2.7 percent, which is better than that achieved by most major banks. So far, the government has already received $3.15 billion in interest payments, with less than $1 billion in actual and estimated losses.
Alongside the program’s failures have come significant successes, such as Tesla and the once largest-in-the-world Desert Sunlight solar project, developed by First Solar. In the decade since ARRA’s passage, the solar PV space has transformed from a nascent market to an energy-industry powerhouse as installation costs fell about 70 percent.
“ARRA is a huge success,” said Daniel Kammen, a professor at the University of California, Berkeley who has advised DOE. “A few bankruptcies don’t diminish that fact. You’d be shocked if there weren’t some bankruptcies.”
As the U.S. faces the prospect of another catastrophic recession, many are now looking to ARRA as a template for a “green stimulus” package. The landscape for clean energy is different today: Solar PV and onshore wind are mature technologies, and the threat from climate change is much more pronounced. But there are lessons to be drawn from 2009, experts say, starting with setting the right expectations.
The Tonopah bankruptcy
Crescent Dunes, a concentrated solar power (CSP) project sited in the Nevada desert run by Tonopah Solar Energy and developed by the now-defunct SolarReserve, had been imperiled for some time.
At the time Crescent Dunes received its $737 million loan guarantee from the DOE, CSP was viewed as a promising technology in part because it could incorporate thermal storage. But numerous snags at the site, such as an extended shutdown related to a leak at Crescent Dunes’ molten salt thermal storage tank and offtaker NV Energy’s move to terminate its contract with the project last year, mired the project in uncertainty. When SolarReserve, of which Tonopah is an affiliate, ceased operations last year, there were warnings that a Tonopah bankruptcy was in the offing.
Meanwhile, comparatively huge cost declines in solar PV have largely relegated Crescent Dunes and other American CSP projects to a novelty.
The Chapter 11 process is designed to allow Tonopah, a project company, to reorganize its debt and pay back the federal government hundreds of millions of dollars. Under the arrangement, Spain’s ACS Cobra, which provided engineering, procurement and construction services on the project, would own the entirety of Crescent Dunes when it exits bankruptcy.
The Tonopah project is at risk of joining the now-infamous solar manufacturer Solyndra as a high-profile failure of the loan program. But that association — and an overemphasis on any loan program bankruptcy — “misses the forest for the trees,” said Dan Reicher, executive director of the Stanford University Steyer-Taylor Center for Energy Policy & Finance. Reicher served as Assistant Secretary of Energy for Energy Efficiency and Renewable Energy for the Clinton administration and on the Obama transition team that worked on the clean energy stimulus package.
Jeff Navin, a co-founder and partner at consultancy Boundary Stone Partners, who worked at both the Labor Department and the Department of Energy during the Obama administration, said failures should be expected in any portfolio, especially when that portfolio is geared toward funding new technologies.
“The biggest mistake we made with the loan guarantee process through the Recovery Act was failing to set the right expectations,” Navin said in an email. “Every loan portfolio at every bank in America has some portion of the portfolio that doesn’t perform.”
Lessons for a new green stimulus
With the coronavirus pandemic and U.S. government response depressing the economy, Navin, Kammen and Reicher told Greentech Media the U.S. has an opportunity to translate the successful parts of ARRA to a modern stimulus.
“The challenges are a lot higher right now, because we have not only a serious recession but also a global pandemic and a climate problem worse than a decade ago,” said Reicher. “It’s really a triple whammy that’s more substantial than the challenge we had a decade ago.”
Many early-stage and burgeoning technologies — such as carbon capture and storage, floating offshore wind and energy storage — need the same type of support that ARRA provided to utility-scale solar, Reicher said, especially in a landscape where international competition on clean-energy technologies has grown significantly.
Reicher favors the creation of a Clean Energy Deployment Administration, an idea introduced in Congress years ago, which would allow an independent federal financing agency to hold the purse strings on disbursing funds to renewables and leveraging private investment to boost deployment.
A stimulus package may be a logical vehicle to include clean-energy incentives — though lawmakers are currently embroiled in arguments on any type of public health and financial support — but Reicher said the government has several other options beyond stimulus legislation.
Policymakers could insert clean-energy incentives into a potential infrastructure package (a House infrastructure package passed in June included some clean-energy wins). They could also expand tax credits for renewables, or open the benefits of master-limited partnerships, which do not pay federal income taxes, to clean energy.
Dollars and sense
There’s also the question of how much support to give. Onshore wind and utility-scale solar are now largely competitive on their own and are the cheapest forms of new generation in many parts of the country. But scaling a renewables-based energy system quickly enough to meet the climate challenge would require substantial government support and intervention.
A green stimulus proposal published by a group of energy, social and environmental policy experts in March, which Kammen co-authored, called for significantly more investment than what was included in ARRA. That proposal, which, like the Green New Deal, prioritized environmental and energy justice, suggested at least $2 trillion in initial investment with a renewal of at least 4 percent of GDP each year until the U.S. fully decarbonizes its economy.
Presumptive Democratic presidential nominee Joe Biden borrowed that $2 trillion sum for an updated clean energy plan that his campaign released in July which emphasizes job creation and 100 percent carbon-free electricity nationwide by 2035.
Any such plan will face the reality that a growing number of congressional Republicans are raising alarms over the expanding federal budget deficit, having largely remained silent on the issue as the deficit ballooned under President Trump.
Kammen said any stimulus — whether post-election or in response to the coronavirus pandemic — would be wise to consider the significant employment potential that comes along with significant renewables investments.
“[For] green stimulus plans, there’s a really good energy-and-jobs combination,” said Kammen. “That’s the compelling high-level message.”