Engineering News

Latest Bailout Cuts Subsidies for Renewables
August 11, 2010

U.S. President Barack Obama on Tuesday signed into law a bill that slashes federal renewable-energy subsidies, to help finance instead a $26 billion emergency aid package for state and local governments.

His signature came hours after the U.S. House of Representatives voted to transfer $1.5 billion from the renewable-energy and transmission loan-guarantee program, dealing yet another blow to solar, wind and ethanol companies. It was the second reduction in a year and left the program's size at about $25 billion, less than half the amount originally envisioned when the Democratic-led Congress used an economic stimulus package to steer money into alternative energy projects. The Senate had already approved the measure.

Congress, aiming to keep ballooning federal deficits in check, has targeted the loan-guarantee program at a time when the U.S. Energy Department has been slow to award funds. The program gained the ability to back up about $60 billion in loans under the 2009 economic stimulus package. The funding was slashed months later, reducing its size to about $40 billion, to finance a program that offered consumers vouchers to trade in gas-guzzling cars for more efficient vehicles.

"Unless this funding is restored by Congress, several meritorious renewable energy proposals in California might not be able to proceed," said Sen. Dianne Feinstein (D., Calif.) in a statement. "That would be a real setback for a number of California's clean energy companies, which stand to lose a significant investment of time and money in the absence of these loan guarantees."

The vote will help states pay for rising costs for Medicaid, a federal program that provides health care for poor Americans. It will put at a disadvantage renewable-energy projects that have applied more recently for government funding and haven't yet cleared through initial rounds of review.

An Energy Department representative said that even with the reduction in funding, the Obama administration would have enough for existing projects in the pipeline as well as for some additional projects. But on Capitol Hill, supporters of renewable-energy subsidies predicted funding shortages unless money is restored.

"Expectations are that another $20 billion or so in applications are in various stages and no money would now be available to them," said Bill Wicker, a spokesman for the Senate Energy and Natural Resources Committee.

About 55 projects seeking about $15 billion of loan guarantees have completed some early stages of review but have not yet entered a key stage known as due diligence, he said. The Energy Department already needs to set aside $16 billion worth of loan guarantees to support projects that have already been selected or are currently in due diligence, he said. Of the 26 projects in the due-diligence phase, 15 are utility-scale or manufacturing solar projects, he said.

House Speaker Nancy Pelosi (D., Calif.) "has been assured by the Obama Administration that it will work to restore these funds so that loans planned for later this year can move forward," Pelosi spokesman Drew Hammill said. Senate Majority Leader Harry Reid (D., Nev.) also has vowed to restore funding. But at a time of big budget deficits, the funding could be hard to restore.

The House vote is the latest blow to the renewable-energy industry. In late July, the Senate leader released an energy bill that failed to include a requirement that utilities generate a certain amount of electricity from renewable sources, a key industry priority.

The loan-guarantee program is funded with money to account for the risk that a project might default. A general rule of thumb is that $1 billion appropriated by Congress allows the federal government to guarantee $10 billion worth of loans. With the latest cutbacks, the U.S. Energy Department is operating with $2.5 billion, an amount that roughly backs up about $25 billion worth of loans.

Source: Dow Jones Newswires

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