U.S. Energy Loan Program Back in Black

[Alcoholic Actuary]

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.

How do you know that? Certainly the treasury approves cash grants to these companies all the time, even those not in debt to the government.

aa

 

[Alcoholic Actuary]

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.)

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

 

[maxparrish]

Oh the wonder of it all. A government program that provides below market loans to a tax subsidized industry, sometimes supplemented by grants, manages to keep up with its loan payments.

Even for those who want government to subsidize their personal enthusiasm, some like this Mother Jones writer are unwilling to give a thumbs up till there is more honesty and less spin:

Out of its $32 billion in approved loans, half represent loan guarantees to nuclear power plant developers and Ford Motor. These are not exactly risky, innovative startups. They're huge companies that could very easily have raised money without government help, and which represented virtually zero danger of default. If DOE is including returns from those loans in its forecast, color me unimpressed.

The genuinely risky half of the loan program is called Section 1705, and it includes everything that most of us think of as real renewable energy projects (wind, solar, biofuel, etc.). DOE hasn't broken that out separately, saying in its press release that "The best perspective for assessing LPO’s financial performance is to look at the portfolio in its entirety." Maybe so. But before I declare success, I'd still like to see how well the 1705 program is doing on its own. That would be a fairer representation of how well things are going in the piece of this program that's truly dedicated to risky new renewable energy projects.

http://www.motherjones.com/kevin-dr...n-about-success-renewable-energy-loan-program

 

[Harry Bosch]

Oh the wonder of it all. A government program that provides below market loans to a tax subsidized industry, sometimes supplemented by grants, manages to keep up with its loan payments.

Even for those who want government to subsidize their personal enthusiasm, some like this Mother Jones writer are unwilling to give a thumbs up till there is more honesty and less spin:

Out of its $32 billion in approved loans, half represent loan guarantees to nuclear power plant developers and Ford Motor. These are not exactly risky, innovative startups. They're huge companies that could very easily have raised money without government help, and which represented virtually zero danger of default. If DOE is including returns from those loans in its forecast, color me unimpressed.

The genuinely risky half of the loan program is called Section 1705, and it includes everything that most of us think of as real renewable energy projects (wind, solar, biofuel, etc.). DOE hasn't broken that out separately, saying in its press release that "The best perspective for assessing LPO’s financial performance is to look at the portfolio in its entirety." Maybe so. But before I declare success, I'd still like to see how well the 1705 program is doing on its own. That would be a fairer representation of how well things are going in the piece of this program that's truly dedicated to risky new renewable energy projects.

http://www.motherjones.com/kevin-dr...n-about-success-renewable-energy-loan-program

No risk in a nuclear power plant??! No risk other than the gigantic upfront costs, 10 year build time, and that whole accident liability thing. I'd doubt that there are many privately financed nuclear power plants!

 

[dismal]

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

How do you know that? Certainly the treasury approves cash grants to these companies all the time, even those not in debt to the government.

aa

Project never would have been built. No loan guarantee no project, no project no grant.

 

[dismal]

Oh the wonder of it all. A government program that provides below market loans to a tax subsidized industry, sometimes supplemented by grants, manages to keep up with its loan payments.

Even for those who want government to subsidize their personal enthusiasm, some like this Mother Jones writer are unwilling to give a thumbs up till there is more honesty and less spin:



http://www.motherjones.com/kevin-dr...n-about-success-renewable-energy-loan-program

No risk in a nuclear power plant??! No risk other than the gigantic upfront costs, 10 year build time, and that whole accident liability thing. I'd doubt that there are many privately financed nuclear power plants!

In this country nuke plants would have been built by regulated utilities. Once you get regulatory approval it just rolls into the rate base. Whammy, guaranteed cost of service + profit.

In any case nukes are a pretty known technology. Not comparable to a solar bird cooking array. I guarantee you there is not much risk a nuke will produce 25% of design output.

 

[dismal]

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.)

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

Any wind, solar or biomass project would also be eligible for the 1603 grant.

Equity funds generally target 2x the money and 20% irr on capital.

 

[Harry Bosch]

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

Any wind, solar or biomass project would also be eligible for the 1603 grant.

Equity funds generally target 2x the money and 20% irr on capital.

I don't think that it's fair to compare a government loan program to an equity fund. Equity funds are started to maximize shareholder return. A government economic development fund is started for some purpose (create jobs, develop new technology, recycle, feed the poor and/or etc) and to be sustainable.

 

[dismal]

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

Any wind, solar or biomass project would also be eligible for the 1603 grant.

Equity funds generally target 2x the money and 20% irr on capital.

I don't think that it's fair to compare a government loan program to an equity fund. Equity funds are started to maximize shareholder return. A government economic development fund is started for some purpose (create jobs, develop new technology, recycle, feed the poor and/or etc) and to be sustainable.

Well I think we already agreed that if your goal is to give away money to unfinanceable projects then just give money to unfinanceable projects, don't tell me how much profit you're making using some cockamamie metric that does not reflect the reality of what you are doing.

 

[maxparrish]

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

Any wind, solar or biomass project would also be eligible for the 1603 grant.

Equity funds generally target 2x the money and 20% irr on capital.

I don't think that it's fair to compare a government loan program to an equity fund. Equity funds are started to maximize shareholder return. A government economic development fund is started for some purpose (create jobs, develop new technology, recycle, feed the poor and/or etc) and to be sustainable.

You mean equity funds are for profitable pursuits in the creation of wealth, and government "economic development" are for burning the public's money in order subsidize someone's personal interests?

 

[Harry Bosch]

You provided one example of this - and it appeared they were paying back $132m using the grant on a $1.6b loan. Furthermore, the article said that the loan was in good standing, not that they received any interest on it yet, so we can agree that the Ivanpah deal is not reflected in the numbers provided in the OP.

That still leaves $32.6b in loans - they can't all be Ivanpahs.

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.

You just said there was no such animal to compare to. I agree that private enterprise would take an equity stake, so what is the comparison? I think it is a perfectly fine metric to look at the default rate compared to the charged interest rate. I also don't care if they make gobs of money (from whatever source). The point is that the "Failure of the Program" as pointed out by most conservatives, is overstated.

aa

Any wind, solar or biomass project would also be eligible for the 1603 grant.

Equity funds generally target 2x the money and 20% irr on capital.

I don't think that it's fair to compare a government loan program to an equity fund. Equity funds are started to maximize shareholder return. A government economic development fund is started for some purpose (create jobs, develop new technology, recycle, feed the poor and/or etc) and to be sustainable.

You mean equity funds are for profitable pursuits in the creation of wealth, and government "economic development" are for burning the public's money in order subsidize someone's personal interests?

Sounds good to me. Just because a program is creating some profit and is sustainable, does not mean that it is maximizing return.

 

[dismal]

Sounds good to me. Just because a program is creating some profit and is sustainable, does not mean that it is maximizing return.

I hope you are not suggesting this program is making profit in any meaningful sense of the word.

The OP article suggests the program is "$30 million in the black". But on just one project that I am aware of because it has been in the news lately we know:

- The project is producing at 25% of design capacity
- The project has missed two loan payments totaling $280 million on a $1.6 billion loan
- The projects ability to make payments seems entirely related to the receipt of a $539 million government grant
- The DOE considers this loan "in good standing".

Leaving aside the idea of calling something profitable when you are giving away hundreds of millions of free money grants to collect $30 million of profit, the orders of magnitude involved with just this one problem loan vastly outweigh the claimed $30 million of profit in the portfolio.

If this loan were to take a even a 5 or 10% impairment *poof* profit is gone.

 

[bilby]

Sounds good to me. Just because a program is creating some profit and is sustainable, does not mean that it is maximizing return.

I hope you are not suggesting this program is making profit in any meaningful sense of the word.

The OP article suggests the program is "$30 million in the black". But on just one project that I am aware of because it has been in the news lately we know:

- The project is producing at 25% of design capacity
- The project has missed two loan payments totaling $280 million on a $1.6 billion loan
- The projects ability to make payments seems entirely related to the receipt of a $539 million government grant
- The DOE considers this loan "in good standing".

Leaving aside the idea of calling something profitable when you are giving away hundreds of millions of free money grants to collect $30 million of profit, the orders of magnitude involved with just this one problem loan vastly outweigh the claimed $30 million of profit in the portfolio.

If this loan were to take a even a 5 or 10% impairment *poof* profit is gone.

If the reason you are aware of this particular project is "because it has been in the news lately", then your unspoken assumption that it is typical, or is representative of the entire program, is highly dubious.

The news media are not in the habit of reporting the banal - it doesn't get ratings - so anything that has been in the news lately is almost certain to be atypical.

Most news is stories of the most extreme outliers. Using these stories as a basis for a value judgment is a very dodgy business - and is IMO a major contributor to the poor outcomes in so much of public endeavour.

Ask not what is newsworthy - ask instead what is typical. Hysteria - on all sides - seems to be the primary driver of policy and opinion. We have the power to stop this, but only if we remain mindful that everything we hear on the news is filtered to remove the middle ground.

Most things are neither disasters nor triumphs. When did you last hear of any of those middling partial successes, or minor failures, in the news?

 

[dismal]

I hope you are not suggesting this program is making profit in any meaningful sense of the word.

The OP article suggests the program is "$30 million in the black". But on just one project that I am aware of because it has been in the news lately we know:

- The project is producing at 25% of design capacity
- The project has missed two loan payments totaling $280 million on a $1.6 billion loan
- The projects ability to make payments seems entirely related to the receipt of a $539 million government grant
- The DOE considers this loan "in good standing".

Leaving aside the idea of calling something profitable when you are giving away hundreds of millions of free money grants to collect $30 million of profit, the orders of magnitude involved with just this one problem loan vastly outweigh the claimed $30 million of profit in the portfolio.

If this loan were to take a even a 5 or 10% impairment *poof* profit is gone.

If the reason you are aware of this particular project is "because it has been in the news lately", then your unspoken assumption that it is typical, or is representative of the entire program, is highly dubious.

It may or may not be typical, but this one project alone is many times over enough to put the lie to this "the program is $30 million in the black" nonsense.

 

[bilby]

If the reason you are aware of this particular project is "because it has been in the news lately", then your unspoken assumption that it is typical, or is representative of the entire program, is highly dubious.

It may or may not be typical, but this one project alone is many times over enough to put the lie to this "the program is $30 million in the black" nonsense.

No it isn't. That's just basic mathematics - you can't tell if the sum of a set of integers is negative by studying a single member of the set. You can make an informed guess that the sum is negative, if a random member you are studying is negative; but the value of that guess is eliminated if the member is not random, but was instead selected because it was the lowest value, or amongst the lowest values.

The existence of one project that has made a huge loss tells us little or nothing about whether or not the program as a whole is profitable.

 

[dismal]

It may or may not be typical, but this one project alone is many times over enough to put the lie to this "the program is $30 million in the black" nonsense.

No it isn't. That's just basic mathematics - you can't tell if the sum of a set of integers is negative by studying a single member of the set. You can make an informed guess that the sum is negative, if a random member you are studying is negative; but the value of that guess is eliminated if the member is not random, but was instead selected because it was the lowest value, or amongst the lowest values.

The existence of one project that has made a huge loss tells us little or nothing about whether or not the program as a whole is profitable.

The government is giving them $539 million to pay the loan off. $539 million > $30 million. QED.

 

[bilby]

No it isn't. That's just basic mathematics - you can't tell if the sum of a set of integers is negative by studying a single member of the set. You can make an informed guess that the sum is negative, if a random member you are studying is negative; but the value of that guess is eliminated if the member is not random, but was instead selected because it was the lowest value, or amongst the lowest values.

The existence of one project that has made a huge loss tells us little or nothing about whether or not the program as a whole is profitable.

The government is giving them $539 million to pay the loan off. $539 million > $30 million. QED.

Project is a subset of program.

Examining one project, selected for the fact that it made a major loss - no matter how large a loss it made - cannot possibly tell us whether the program is profitable overall.

The information simply is not there.

You can't say x-y<0, if the only value you know is y - even if y is 509 million.

 

[dismal]

The government is giving them $539 million to pay the loan off. $539 million > $30 million. QED.

Project is a subset of program.

Examining one project, selected for the fact that it made a major loss - no matter how large a loss it made - cannot possibly tell us whether the program is profitable overall.

The information simply is not there.

You can't say x-y<0, if the only value you know is y - even if y is 509 million.

I'm not going to argue with you any more about this.

I mean, really.

 

[Alcoholic Actuary]

If the reason you are aware of this particular project is "because it has been in the news lately", then your unspoken assumption that it is typical, or is representative of the entire program, is highly dubious.

It may or may not be typical, but this one project alone is many times over enough to put the lie to this "the program is $30 million in the black" nonsense.

But this one project alone is not reflected in the numbers. That's not how the accounting works. If we were to include this program as defaulted and deduct all of the $1.6b, then we should also get to count all future interest payments (even those not received yet) on programs that are in good standing as revenue.

aa

 

[dismal]

It may or may not be typical, but this one project alone is many times over enough to put the lie to this "the program is $30 million in the black" nonsense.

But this one project alone is not reflected in the numbers. That's not how the accounting works. If we were to include this program as defaulted and deduct all of the $1.6b, then we should also get to count all future interest payments (even those not received yet) on programs that are in good standing as revenue.

aa

I understand the whole portfolio concept.

I'm not sure if people are missing this important point: The government is giving these projects money to repay the loans.

The second point is a less important one, but still I think valid: It does not appear they are applying traditional standards in writing down problem loans. If you are a bank, you don't write a loan from par to 0% when it defaults. You start it write it down as there are signs it is in trouble.

http://cpaclass.com/gaap/sfas/gaap-sfas-114.htm

If you want more detail:

https://www.fdic.gov/news/news/press/2006/pr06115a.pdf