U.S. Energy Loan Program Back in Black

[Alcoholic Actuary]

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit

In 2011, solar panel company Solyndra defaulted on a $535 million loan guaranteed by the Department of Energy. The agency had a few other high-profile bankruptcies, too — electric car company Fisker and solar company Abound among them. But now that loan program has started turning a profit.

Overall, the agency has loaned $34.2 billion to a variety of businesses, under a program designed to speed up development of clean-energy technology. Companies have defaulted on $780 million of that — a loss rate of 2.28 percent. The agency also has collected $810 million in interest payments, putting the program $30 million in the black.

By my calculations, the Energy program is earning about 2.4% interest on a lending program with a 2.3% default rate. Weren't there quite a few people condemning the government program after Solyndra? Seems like they know what they're doing (and by 'know what they're doing' I'll use the typical conservative synonym of 'making money at it' as a definition).

Naysayers, how about now? Still a bad idea? Still think they are 'picking and choosing winners,' or are they developing technology across the board?

aa

 

[dismal]

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit

In 2011, solar panel company Solyndra defaulted on a $535 million loan guaranteed by the Department of Energy. The agency had a few other high-profile bankruptcies, too — electric car company Fisker and solar company Abound among them. But now that loan program has started turning a profit.

Overall, the agency has loaned $34.2 billion to a variety of businesses, under a program designed to speed up development of clean-energy technology. Companies have defaulted on $780 million of that — a loss rate of 2.28 percent. The agency also has collected $810 million in interest payments, putting the program $30 million in the black.

By my calculations, the Energy program is earning about 2.4% interest on a lending program with a 2.3% default rate. Weren't there quite a few people condemning the government program after Solyndra? Seems like they know what they're doing (and by 'know what they're doing' I'll use the typical conservative synonym of 'making money at it' as a definition).

Naysayers, how about now? Still a bad idea? Still think they are 'picking and choosing winners,' or are they developing technology across the board?

aa

How much of the $1.6 billion loan to the Ivanpah bird roaster did you write off?

 

[Alcoholic Actuary]

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit



By my calculations, the Energy program is earning about 2.4% interest on a lending program with a 2.3% default rate. Weren't there quite a few people condemning the government program after Solyndra? Seems like they know what they're doing (and by 'know what they're doing' I'll use the typical conservative synonym of 'making money at it' as a definition).

Naysayers, how about now? Still a bad idea? Still think they are 'picking and choosing winners,' or are they developing technology across the board?

aa

How much of the $1.6 billion loan to the Ivanpah bird roaster did you write off?

I don't think they would write off any part of the loan until it becomes impaired. I don't think they've proposed any solution to the birds yet, have they? The solutions I've heard range from clearing more land (which may carry an expense write-off) to shutting down during migratory season (which would prolong the recoupment, but wouldn't require a write-off, necessarily).

aa

 

[dismal]

The project appears to be having some issues:

A solar power plant in the Mojave Desert that's attracted negative attention for its injuries to birds is producing a whole lot less power than it's supposed to, according to Energy Department figures.

According to stats from the U.S. Energy Information Administration, a number-crunching branch of the U.S. Department of Energy, the Ivanpah Solar Electric Generating System in San Bernardino County has produced only about a quarter of the power it's supposed to, with both less than optimal weather and apparent mechanical issues contributing to the shortfall.

ReWire's colleague Pete Danko, who shared the story Wednesday over at Breaking Energy, reports that Ivanpah's three units generated a disappointing 254,263 megawatt-hours of electricity from January through August. Ivanpah's owners had expected the solar plant to produce well over a million megawatt-hours of electrical power in that eight-month period.

...

September was even more disappointing, with 21 days in which at least one unit was down and 42 "unit-days" of power production lost. Given that September hath 30 days, and thus 90 unit-days, losing 42 unit-days means Ivanpah at best would have produced only about 53 percent of its expected output, and that's not accounting for the partial unit curtailments (every day in September) or pesky clouds.

As Danko points out, Ivanpah's owners have recently sought extensions on the repayment schedule for the $1.6 billion in government-backed loans that paid for Ivanpah's construction, hoping to delay writing checks until the firms can secure a government grant they hope to use to pay down the loan.

http://www.kcet.org/news/redefine/r...t-producing-way-less-power-than-expected.html

More on what's going on with the loan here:

Oakland, Calif.-based BrightSource began developing Ivanpah and then sold the majority stake in the project to NRG and Google. The project received about $1.6 billion in federal loans under the Department of Energy's 1705 Loan Guarantee Program.

In February, after several years of construction, Ivanpah began producing electricity in full capacity. Energy Secretary Dr. Ernest Moniz attended the launch celebration.

Two weeks later, on Feb. 27, a part of the project received an extension from the Department of Energy on the $132 million first installment it owed to the federal government, according to documents filed by NRG Energy with the Securities and Exchange Commission. This amount is now due on Feb. 27, 2015. Ivanpah is divided into numerous sub-project legal entities, which are supposed to repay the government at different times.

Similarly, another Ivanpah entity, which owed $159 million originally due on June 27 of this year, was allowed to push off the payment to Dec. 27, according to Michelle Tsai, spokeswoman for NRG Energy.

Another loan repayment installment, from a third sub-project entity, of $117 million, which is due this year, remains on schedule for Oct. 27.

A Department of Energy spokeswoman declined to comment on the status of the timing of the loan payments, adding the project overall is in "good standing" with the department.

Joseph Desmond, BrightSource Senior Vice President of Marketing & Government Affairs, who said he wasn't aware of the financial details, added that NRG assumed operational control of Ivanpah last December.

The three Ivanpah entities all applied to the U.S. Treasury Department to receive $539 million in net cash grants, according to Ms. Tsai. The applications were submitted to the Treasury's 1603 cash grant program, which allows renewable energy projects to be reimbursed for 30% of their costs in the form of a grant.

In a recent filing with the SEC, NRG Energy said the first entity, which owed $132 million, was going to use "any proceeds received [from the cash grant] to repay the borrowings" made under the Department of Energy loan program.

The applications were submitted to the Treasury this year, after the Ivanpah project became operational, Ms. Tsai said.

"The extensions [for repayment of the federal loans] were necessary as it takes time to prepare and file the applications, and for Treasury to approve and pay them. The original bridge loan due dates that were set in 2011 did not allow sufficient time for this to happen," Ms. Tsai wrote in an email to VentureWire.

https://www.google.com/#q=wall+street+journal+ivanpah

If I understand things right, most of Ivanpah's ability to pay off it's government guaranteed loans comes from its government grants.

I guess it does really reduce the risk to the lender to also be giving lots of free money to the borrower.

Did you adjust the success of the loan program to reflect the percentage of the loans that were paid off by the government?

 

[Alcoholic Actuary]

I guess it does really reduce the risk to the lender to also be giving lots of free money to the borrower.

Did you adjust the success of the loan program to reflect the percentage of the loans that were paid off by the government?

Yes, actually it does reduce the risk. If the program was going to receive a grant anyway, then uses the grant to pay off the loan, the issue was timing risk only (not default risk).

It also appears that they get the cash grant in lieu of a 30% investment tax credit (which they were going to get anyway). I don't see why we would make adjustments for those...

aa

 

[dismal]

I guess it does really reduce the risk to the lender to also be giving lots of free money to the borrower.

Did you adjust the success of the loan program to reflect the percentage of the loans that were paid off by the government?

Yes, actually it does reduce the risk. If the program was going to receive a grant anyway, then uses the grant to pay off the loan, the issue was timing risk only (not default risk).

It also appears that they get the cash grant in lieu of a 30% investment tax credit (which they were going to get anyway). I don't see why we would make adjustments for those...

aa

The government almost certainly would not have paid the grant if it had not guaranteed the loan.

 

[TV and credit cards]

I thought it was government's duty to put up money for the riskier R&D to advance the technology. Companies can't go too far out unless they see some potential payout on the horizon.
As far as I'm concerned, if we're in the black, we're not on the cutting edge. So there, yet another failure of the Obama administration.

On a serious note, I hope the administration does all it can to push renewables to the point where it is economically advantageous in all climates. Then we can focus on fighting the state laws the repubs put in place to strip away that advantage.

 

[Harry Bosch]

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit

In 2011, solar panel company Solyndra defaulted on a $535 million loan guaranteed by the Department of Energy. The agency had a few other high-profile bankruptcies, too — electric car company Fisker and solar company Abound among them. But now that loan program has started turning a profit.

Overall, the agency has loaned $34.2 billion to a variety of businesses, under a program designed to speed up development of clean-energy technology. Companies have defaulted on $780 million of that — a loss rate of 2.28 percent. The agency also has collected $810 million in interest payments, putting the program $30 million in the black.

By my calculations, the Energy program is earning about 2.4% interest on a lending program with a 2.3% default rate. Weren't there quite a few people condemning the government program after Solyndra? Seems like they know what they're doing (and by 'know what they're doing' I'll use the typical conservative synonym of 'making money at it' as a definition).

Naysayers, how about now? Still a bad idea? Still think they are 'picking and choosing winners,' or are they developing technology across the board?

aa

2.3% rate of default is pretty good for a government loan program. If the default rate is too low, then the government is competing with banks (not taking enough risk). If it is too high, it won't be self sustaining.

 

[Togo]

I'd say the default rate is unacceptably low. Capital for new ventures generally has a much higher rate of failure.

 

[dismal]

I'd say the default rate is unacceptably low. Capital for new ventures generally has a much higher rate of failure.

Generally risky new ventures do not get loans. Or government grants to pay loans off. Taking massive project risk with 2% upside has not caught on for some reason.

 

[dismal]

http://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit



By my calculations, the Energy program is earning about 2.4% interest on a lending program with a 2.3% default rate. Weren't there quite a few people condemning the government program after Solyndra? Seems like they know what they're doing (and by 'know what they're doing' I'll use the typical conservative synonym of 'making money at it' as a definition).

Naysayers, how about now? Still a bad idea? Still think they are 'picking and choosing winners,' or are they developing technology across the board?

aa

2.3% rate of default is pretty good for a government loan program. If the default rate is too low, then the government is competing with banks (not taking enough risk). If it is too high, it won't be self sustaining.

If you had a project that had already missed two loan payments, was producing at 25% of advertised capacity, and becoming more famous for cooking birds than Colonel Sanders would you consider that loan in "good standing".

 

[Alcoholic Actuary]

I'd say the default rate is unacceptably low. Capital for new ventures generally has a much higher rate of failure.

Probably true for private enterprise, but thinking about it in reverse: If you are the federal government and can only command an interest rate on loans of around 5% or lower, wouldn't it be better to keep the default rate below that?

aa

 

[dismal]

I'd say the default rate is unacceptably low. Capital for new ventures generally has a much higher rate of failure.

Probably true for private enterprise, but thinking about it in reverse: If you are the federal government and can only command an interest rate on loans of around 5% or lower, wouldn't it be better to keep the default rate below that?

aa

Given the nature of this program it seems very inappropriate to use traditional portfolio benchmarks to assess it's effectiveness. If the government guarantees a loan for $400 million and issues a grant for $450 million to pay the loan back with interest I don't think "huzzah the government made $50 million on this deal" is the appropriate metric. (Ignoring for the moment that most of the interest probably went to an evil bank.)

If the private market were taking these sorts of risks these would not be loans at all. They would be equity. And when the project worked the equity holder would get a large percentage of the upside.

If you want to benchmark the true success of the program you would need to compare it to investments of similar risk.

 

[Harry Bosch]

2.3% rate of default is pretty good for a government loan program. If the default rate is too low, then the government is competing with banks (not taking enough risk). If it is too high, it won't be self sustaining.

If you had a project that had already missed two loan payments, was producing at 25% of advertised capacity, and becoming more famous for cooking birds than Colonel Sanders would you consider that loan in "good standing".

A loan in "good standing" means different things to different lenders. For example, banks will downgrade a loan based on financials even when all payments are current. Generally, most government loan programs consider a loan in default when it's 60 days or more behind. But again, this varies depending on the fund and it's governing bylaws. But in any government economic loan program, there will be losers and winners. The goal should be that the winners generate enough interest and fees so that the fund is self sustainable.

 

[dismal]

If you had a project that had already missed two loan payments, was producing at 25% of advertised capacity, and becoming more famous for cooking birds than Colonel Sanders would you consider that loan in "good standing".

A loan in "good standing" means different things to different lenders. For example, banks will downgrade a loan based on financials even when all payments are current. Generally, most government loan programs consider a loan in default when it's 60 days or more behind. But again, this varies depending on the fund and it's governing bylaws. But in any government economic loan program, there will be losers and winners. The goal should be that the winners generate enough interest and fees so that the fund is self sustainable.

Well, the ivanpah loan has missed payments and the project is producing at 25% of capacity so I can't imagine it's financials look great. Something tells me a government bank regulator might have an issue calling that a loan in good standing. As far as "winners and losers" goes I will repeat that it seems ridiculous to talk about this program as one would talk about a private fund given large portions of the loans are being paid off with government grants. If it were a private fund the goal would be to earn returns commensurate with the risk taken plus some.

 

[Harry Bosch]

A loan in "good standing" means different things to different lenders. For example, banks will downgrade a loan based on financials even when all payments are current. Generally, most government loan programs consider a loan in default when it's 60 days or more behind. But again, this varies depending on the fund and it's governing bylaws. But in any government economic loan program, there will be losers and winners. The goal should be that the winners generate enough interest and fees so that the fund is self sustainable.

Well, the ivanpah loan has missed payments and the project is producing at 25% of capacity so I can't imagine it's financials look great. Something tells me a government bank regulator might have an issue calling that a loan in good standing. As far as "winners and losers" goes I will repeat that it seems ridiculous to talk about this program as one would talk about a private fund given large portions of the loans are being paid off with government grants. If it were a private fund the goal would be to earn returns commensurate with the risk taken plus some.

But government economic loans are not regulated to the same degree that banks are. Banks are regulated because their deposits are federally insured. Government loan programs do not carry FDIC insured deposits. Secondly, for profit banks are required to maximize investor returns. Generally, gov economic programs are suppose to create jobs first, then generate a return high enough to make the program sustainable. But they are not created to benefit the investors.

 

[dismal]

Well, the ivanpah loan has missed payments and the project is producing at 25% of capacity so I can't imagine it's financials look great. Something tells me a government bank regulator might have an issue calling that a loan in good standing. As far as "winners and losers" goes I will repeat that it seems ridiculous to talk about this program as one would talk about a private fund given large portions of the loans are being paid off with government grants. If it were a private fund the goal would be to earn returns commensurate with the risk taken plus some.

But government economic loans are not regulated to the same degree that banks are. Banks are regulated because their deposits are federally insured. Government loan programs do not carry FDIC insured deposits. Secondly, for profit banks are required to maximize investor returns. Generally, gov economic programs are suppose to create jobs first, then generate a return high enough to make the program sustainable. But they are not created to benefit the investors.

Well, my point is these loans should are not meaningfully comparable to private loan statistics, so the numbers in the OP are essentially meaningless. If you want to give money away, give money away. Just don't tell me you are making money making loans while giving away the money to pay the loan and failing to apply the governments own standards for writing down non-performing loans.

 

[Harry Bosch]

But government economic loans are not regulated to the same degree that banks are. Banks are regulated because their deposits are federally insured. Government loan programs do not carry FDIC insured deposits. Secondly, for profit banks are required to maximize investor returns. Generally, gov economic programs are suppose to create jobs first, then generate a return high enough to make the program sustainable. But they are not created to benefit the investors.

Well, my point is these loans should are not meaningfully comparable to private loan statistics, so the numbers in the OP are essentially meaningless. If you want to give money away, give money away. Just don't tell me you are making money making loans while giving away the money to pay the loan and failing to apply the governments own standards for writing down non-performing loans.

We're in agreement (I think!). I sat on a board that ranked economic development loan programs. The higher they ranked, the greater likelihood that they would receive funding from the NMTC program. We used many different ratios. We concluded that a "loss rate" of between around 2% to 5% was about right. Too much above 5%, the fund would need additional capital injection. Below 2%, the fund was competing with banks. (It's not that competing with banks is bad, but that economic development funds are limited). A well managed fund can fund close to bankable projects for an infinity after an initial capitalization. There are many economic development loan programs that were funded in the 1970's that fund all their operations from their own earnings, and yet turn the fund over and over with no additional outside funding.

 

[Bomb#20]

I'd say the default rate is unacceptably low. Capital for new ventures generally has a much higher rate of failure.

Generally risky new ventures do not get loans. Or government grants to pay loans off. Taking massive project risk with 2% upside has not caught on for some reason.

If the private market were taking these sorts of risks these would not be loans at all. They would be equity. And when the project worked the equity holder would get a large percentage of the upside.

If you want to benchmark the true success of the program you would need to compare it to investments of similar risk.

But the upside is far higher than 2%, and government lending to for-profit startups actually is de facto equity financing rather than an ordinary loan. In the event that the borrowers make a go of it -- if a project like Ivanpah eventually becomes self-sustaining -- then the government will get a cut of the profits, on top of the 2% or whatever interest was negotiated on the loan, just as if the contract also gave them N% of the stock. Unlike private banks, the government has the advantage of taxing power over the entities it helps create, thereby making a lot of investments rational for the government that would not be rational for a private lender. This difference needs to be taken into account when calculating risk vs. return.

 

[ZiprHead]

Sounds like our resident conservatives are making perfect the enemy of the good.