Sample Loan Guarantee Application Biofuels

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              Steven J. Spinner
  Loan Programs Advisor, Recovery Act Team
Chief Strategic Operations Officer, Loan Programs

                September 10, 2009
                 Guiding Objectives


Move the Funding to Projects Quickly

       Invest in Projects that Provide Enduring Value

           Deliver With Unprecedented Transparency and
           Accountability

                  Make a Down payment on the Nation’s
                  Energy & Environmental Future
                     Appropriations & Budget Authority
                         DOE ARRA                                            DOE Loan                  ARRA funding
                         Budget Authority                                    Guarantee                 Existing Loan
                         (excludes loans)                                    Authority*                Authority

       Energy Efficiency                 11.6               Renewables 32.0               18.5 50.5

     R&D / Renewables        2.8                                   Autos            25.0
Batteries/Transportation
                             2.4                                 Nuclear           20.5
           Electrification
                 Science     1.6                                   Fossil     8.0

                 ARPA-E 0.4                                  Mixed Tech      4.0
          Environmental
                                   6.0            WAPA/BPA Borrowing          6.5
           Management
              Smart Grid       4.5                    Cash for Clunkers        16.0

        Carbon Capture        3.4
                    Total
                                           32.7              Total Loans                    114.5
       (excluding loans)
                                                Total incl. $ for clunkers                     130.5


                                                                                                               3
                                            Selected Announcements
                              Amount          Date of
Announcement                  $, Billions     Announcement   Description
 Weatherization and State     • 8.1           • 3/12         • VP Biden announced $8.1B in weatherization and state energy block
 Energy Block Grants                                           grants

 Batteries and Transport      • 2.4           • 3/19         • President Obama announced $2.4B in batteries and transport
 Electrification                                               electrification at SoCal Edison

 Solyndra Loan Guarantee      • .535          • 3/20         • Secretary Chu announced first conditional loan guarantee

 Science                      • 1.2           • 3/23         • Secretary Chu announced $1.2B in Science at Brookhaven

 Energy Efficiency            • 3.2           • 3/26         • VP Biden and Secretary Chu announced $3.2B in energy efficiency
 Conservation Block Grants                                     community block grants in Pittsburgh

 Environmental Mgmt           • 6.0           • 3/31         • Secretary Chu announced EM funding

 Fuel Cells                   • 0.043         • 4/15         • Press release announcement

 Smart Grid                   • 4.1           • 4/16         • VP Biden announced funding for Smart Grid in Jefferson City, Missouri
                                                               ($4.1 announced)
 Clean Cities Program         • 0.3           • 4/22         • VP Biden announced Clean Cities funding in Maryland on Earth Day


 ARPA-E                       • 0.4           • 4/27         • President Obama announced ARPA-E funding at the National Academy of
                                                               Sciences (FOA - $200M)
 Wind and Facilities          • 0.2           • 4/29         • Secretary Chu announced in Colorado

 Biofuels                     • 0.8           • 5/5          • Secretary Chu announced in Washington, DC with VP Biden

 Wind Test Blade Center       • 0.025         • 5/12         • Secretary Chu announced in Boston with Governor Patrick

                              • 2.4           • 5/15         • Secretary Chu announced at the National Coal Council
 Carbon Capture and Storage

                              • .5            • 5/27         • President Obama announced in Nevada
 Solar and Geothermal


 Industrial Buildings Tech.   • 0.257         • 6/1          • Secretary Chu announced in Boston with Governor Patrick


 Building Energy Efficiency   • 0.346         • 6/29         • President Obama announced in Washington DC                              4
                                                           Financial Update
                                                               As of September 3rd, 2009

  Grant and Contract Appropriations; Loan Commitments
  Billions, USD

                 32.7                 32.7



                                       9.9

                                                            22.8




                                                            12.8



                                                                                   10
                                                                                                                                     8.08

                                                                                   9.4

                                                                                                         0.6                                    0.60

           Appropriated        Apportioned but         Selected but          Obligated but            Costed                  Conditional    Conditional
          (excluding loan       not selected           not obligated          not costed                                      ATVM Loan      ARRA Loan
            guarantees)                                                                                                      Commitments    Commitments



Note: Some selected funds have not been allotted yet In such cases they were represented in the selected but not obligated column.
                                                                                                                                                       5
                                            Integrated implementation plan
                                                         June                           Early fall                            Sept
Timing




                                                                                                                              2010

                                     Build      Announcement Select                       Award
                    Appropriation
                                     Foundation Apportionment Project                    Obligation
                                                                                                        Implement             Impact



                                    • Opportunity framing            • Panels convened                • Audit/oversight
                                    • S-1 approval of                • Applications                   • Impact
Phase Description




                                      projects                         received                         Measurement
                                    • Spend plans                    • Award                          • Job measurement
                                      submitted to OMB               • Contracts processed            • Costing / Financial
                                    • Controls put in place          • Allotment issued                 reporting
                                    • FOA announcement               • Obligation
                                    • OMB apportionment
                                    • Master plan
Target milestones




                                                         100%                              50%                            100% obligated
                                                       apportioned                       obligated                         70% costed

                           Current status                             Current status
                         99% apportioned on                          31% obligated on
                             grants and                                grants and
                             contracts                                  contracts                                                      6
         Recovery Act Programs Significantly Oversubscribed



•   Battery Manufacturing ($2B) – 3X
•   CCPI – Rd.3 ($800mm) – 9X
•   Smart Grid Inv. Grant ($3.4B) – 3X
•   Transport Electrification ($400mm) – 9X
•   Industrial Carbon Capture ($1.4B) – 5X
•   SC Early Career Award ($85mm) – 40X
•   ARPA-E ($150mm) – 150x


• Significant market enthusiasm for DOE Recovery Act Programs
• Enables DOE to choose the best of a broad array of technologies
                                Review and Award Schedule
                                                                Application due           Selection completed           Award complete

                                                                                                                                           Funding
                                                                                 2009                                                      Amount,
Activity                        May          Jun          Jul             Aug           Sep             Oct           Nov      Dec         USD Billions
Weatherization                                                                                                                             $5.0
                              5/12                 6/30
SEP                                                                                                                                        $3.1
                              5/12                    7/13 7/25
Transport Electrification                                                                                                                 $2.4
                               5/13                              7/31                                                                12/31
Battery manufacturing                                                                                                                     $0.4
                                 5/19                            7/31                                                                12/31
Clean cities                                                                                                                              $0.3
                                      5/29                                       8/30                                                12/31
ARPA-E – First wave                                                                                                                       $0.2
                              6/2 – Concept papers          7/20                                              10/30
Energy Efficiency                                                                                                                          $2.7
Community Block Grants                         6/25                                            9/30

Biorefinery demonstrations                                                                                                                 $0.7
                                                   6/30                                                 10/22                12/15
Smart Grid Demo                                                                                                                            $0.7
                                               6/25                         8/26                         10/23
Smart Grid Investment Grant                                                                                                                $3.3
                                               6/25                 8/6
Industrial CCS                                                                                                                             $1.3
                                                                                                                                         6
                                                                    8/7                 9/13             10/23
ARPA-E – Second Wave                                                                                                                     / $0.2
                                                                          8/17                   10/7                                    1
CCPI                                                                                                                                     1 $0.8
                                                                            8/24                        10/22                            /
Appliance rebates                                                                                                                        1 $0.3
                                                                          8/15                                    11/15                  0

                                                                     8/10

                                                                                                                                                      8
                         Recovery Act Highlights
•   Energy Efficiency:       $11.6B   SEP, WAP and EECBG

•   Transportation:          $2.4 B   Batteries & Transportation Electrification
                             $5.9 B   Advanced Technology Vehicle Loans
                             $0.3 B   Clean Cities

•   Renewables:              $0.6 B   Conditional loan guarantees
                             $2.0 B   Renewable grants in review
                             $1.0 B   1603 Tax credits

•   Clean Up:                $6.0B    Legacy Nuclear Clean up

•   Scientific Innovation:   $0.3 B   Energy Frontier Research Centers
                             $0.4 B   ARPA-E
                             $0.9 B   Science Projects

•   Carbon Capture:          $1.0 B   Future Gen
                             $2.4 B   CCPI & Industrial CCS (in review)

•   Smart Grid:              $4.5 B   in Review
                             $0.6 B   first WAPA & TSPA Projects
                  Operational Innovation
               Progress to Date

            • Operating expert call center for Recovery Act inquiries – 1-888-
Outreach      DOE-RCVY receiving ~500 calls per week
            • Speaker’s bureau for regional and district speech requests
            • Website upgrade – FOA’s, Stories, state data

Speed       • 1500 peer reviewers to accelerate applicant processing
            • Targeting 6 weeks for application to selection and 8 weeks for
             selection to award


Internal    • Detailed risk assessment and risk mitigation by program
Controls    • Daily Recovery Act program and function meetings
            • Phased gate spend plans
            • Personal risk assurance from each leader

            • Working with CEA and EIA on economic return measures
Measuring
Impact



                                                                                 10
               We are making a significant transition



From…                                … To

• Announcements / Apportionments     • Application / Awards

• Opening Funding Opportunities      • Selecting the Best Recipients & Rejecting
                                       Others


• Preventative Audits                • Identifying Problems Early


• HQ Planning with Field Support     • Field execution with HQ Support / Guidance


• Program Focus                      • Project Detail


• Planning / Laying the Foundation   • Execution / Early Impact




                                                                                    11
                      Loan Programs Overview


1703 - Innovative Technologies Loan Guarantee Program - $51B
   Issues loan guarantees to support early commercial use of advanced clean energy
   technologies in the US

1705 – ARRA - Conventional Technologies Loan Guarantee Program - $32B
   Issues Loan guarantees to certain renewable, advanced biofuel and electric power
   transmission projects adversely impacted by the significant reduction in commercial
   credit in the marketplace

ATVM – Advanced Technology Vehicles Manufacturing - $25B
   Issues Direct Loans to develop technology vehicles and associated components in
   the US
                   1703 Program Overview


Purpose: to encourage commercial use in the U.S. of new or
significantly improved energy-related technologies, and to
achieve substantial environmental benefits


   Technologies funded:
       Renewable Energy Systems         Efficient Electrical
                                          Generation
       Advanced Fossil Energy
        Technology                       Efficient End-Use Energy
                                          Technologies
       Hydrogen Fuel Cell
        Technology                       Production Facilities for Fuel
                                          Efficient Vehicles, including
       Advanced Nuclear Energy
                                          hybrid and advanced diesel
        Facilities
                                         Pollution Control Equipment
       Carbon Capture and
        Sequestration Practices and      Refineries
        Technologies
                             Sample Projects


Biomass:                                   Geothermal:
    – Biofuels production, distribution        – Advanced exploration and drilling
      and infrastructure                         technologies
    – Municipal solid waste to ethanol         – Electricity production from hot
      projects or syngas                         wastewater from oil/gas wells
    – Biomass to diesel                        – Advanced power cycle
Efficient Electricity Transmission,              technologies
Distribution and Storage:                      – Hybrid cooling systems
    – Smart grid technologies                  – Enhanced air-cooled
    – Solid-state devices for grid               condensation systems
      applications (advanced                   – Advanced geothermal power
      converters, transformers, fault            facilities
      current limiters)                    Wind and Hydropower:
    – Advanced utility-scale energy            – Advanced wind power plant
      storage devices                          – Wind/renewables-specific
Solar:                                           transmission lines
    – Concentrated Solar Power or              – Turbine or component
      Photovoltaic generation facilities         manufacturing
    – Solar technology manufacturing           – Community wind power systems
      facilities                               – Hydropower technology devices
    – Solar thermal                              in existing empoundments
      technologies/manufacturing
                2008 Renewable Energy Applications
                                       (by Technology)




                          3%
              9%                                             Biomass
                                                  24%
                 Geothermal
                                                             Hydrogen
 9%
      Industrial Energy
                                   BIOMASS                   Solar
         Efficiency

                                                             Wind
      Transmission
9%                                           Hydrogen
                                                        6%   Transmission and Distribution
                                                             Projects
              Wind
                               SOLAR                         Industrial Energy Efficiency Projects


     9%                                                      Geothermal


                                                             Battery and Vehicle Technologies
                                       31%
            2008 Renewable Energy Applications
                                  (by Loan Request)



                          5%
                     4%                        15%
                                                          Biomass

     10%
                                     $1.8 billion         Hydrogen
                                                     2%
           $1.2 billion
                                                          Solar
3%

                                                          Wind


                                                          Transmission and Distribution Projects


                                                          Industrial Energy Efficiency Projects
                               $7.5 billion

                                                          Geothermal


                                                          Battery and Vehicle Technologies



                                    61%
                Program Successes


Title XVII: 3 conditional commitments
  – Solyndra ($535 million) - CLOSED
  – Beacon ($43 million)
  – Nordic ($16 million)

ATVM: 3 conditional commitments
  – Ford ($5.9 billion)
  – Nissan USA ($1.6 billion)
  – Tesla ($465 million)
                        Key Features


•   Applicant type: Past pilot/demonstration project. No R&D, not a
    program for start-ups.
•   Repayment: “Reasonable Prospect” of repayment before loan
    guarantee issued.
•   Innovation requirement: No more than three versions of the
    same technology within a five-year period (DOE labs determine
    innovation).
•   Government Exposure: Guarantee NTE 80% of debt (100% if
    funded through the Federal Financing Bank),
•   Interest rates: not to exceed “a level the Secretary determines
    appropriate”
•   Term: 30 years or 90% of the useful life of the project,
    whichever is less
                         Key Features
                             (cont.)



• Position: Government cannot be subordinate (can be pari passu)
• Stripping: Guarantee portion of loan may be “stripped” from non-
  guaranteed portion, except in cases where the guarantee
  exceeds 90% of the loan amount
• Credit Rating: Independent credit assessment required for
  projects over $25 million
• Credit Subsidy: Applicant pays cost of issuing loan guarantee
• NEPA: Projects must comply with Federal environmental
  regulations
• Equity: 20% minimum
• Cost recovery: DOE must collect fees to cover applicable
  administrative expenses
                    1703 Program Fees


DOE must collect fees to cover applicable administrative
   expenses:
   – Application fee: $75,000 min. (two part)
   – Due diligence: $300,000-$1,000,000+
   – Facility fee: 1% of guaranteed amount
   – Credit subsidy fee: varies, based on default risk and recovery
   – Maintenance fee: $50,000-$100,000/year
                   1705 Program Overview


Temporary Program for Rapid Deployment of Renewable Energy
   and Electric Power Transmission Projects
Purpose: Encourage capital markets re-enter these sectors,
   “unclog” pipelines of renewable energy projects
$4 billion in subsidy to support $30-40 billion in loans
Technologies funded:
   –   Renewable energy systems that generate electricity or thermal
       energy, and facilities that manufacture related components
   –   Electric power transmission systems
   –   Leading-edge biofuels
                   1705 Program Overview
                               (cont.)



Differences from 1703:
   –   Innovative and commercial technologies
   –   DOE and private sector underwriting
   –   Requires unguaranteed hold for private sector lenders
   –   Credit subsidy appropriated
   –   Lender applicants
Caveat: Stimulus funding – must start construction by
  Sept. 30, 2011
NEPA issues
                         Title XVII Loan Guarantee Program
                                 Solicitation Strategy


                          QUALIFY FOR 1705 SUBSIDY
                                                                       Other
                  Renewable                                         Renewables
                                   Advanced       Transmission
                 Generation &                                        & Energy        Nuclear
                                    Biofuels      & Distribution
                 Manufacturing                                       Efficiency      & Fossil

                                     Renewables Solicitation                        Solicitation
  Innovative
                                           (OPEN)                                   (CLOSED)
                                                   Transmission
                      FIPP
Conventional                                        Solicitation
                    (SOON)
                                                      (OPEN)

                                          Recovery Act                            Non-Recovery Act



   Projects underwritten by DOE
        –      Transmission (released)
        –      Qualifying 1703 Innovative Technologies (released)
   Projects underwritten by qualified eligible lenders (Financial Institution Partnership Program)
        –      Commercial technology renewable energy projects
        –      Manufacturing projects
        –      Development Finance Agency solicitation
                   Program Comparison


1703 Program                     1705 Program
• Innovative technologies only   • Commercial AND innovative
                                   technologies
• 10 types of applicable
  technologies                   • Renewable energy
                                   systems/manufacturing,
• FFB or private sector
                                   transmission, biofuels only
  financing
                                 • Unguaranteed hold
• Self-pay credit subsidy
                                   requirement for lenders
• DOE monitors, services loan
                                 • Credit subsidy appropriated
                                 • Banks monitor, service loans
                                   (FIPP)

Program Similarities: 20% minimum equity requirement, NEPA
compliance, loan-by-loan scoring methodology, Davis-Bacon Act
                       Program Process


DOE Underwriting:                    FIPP Underwriting:
  –   Part I, Part II applications     –   Lender sources,
  –   Innovation check                     underwrites transaction
  –   Financial, Technical             –   Lender responds to FIPP
      Reviews                              solicitation
  –   Due Diligence/ Negotiation       –   Lender application,
  –   Term Sheet/Conditional               including transaction
      Commitment                           information, reviewed by
  –   Final approval and closing           Program Manager
                                       –   At DOE:
                                           • NEPA
                                           • Credit Subsidy scoring
                 Key Documents



All on www.lgprogram.energy.gov
Solicitations
Notice of Proposed Rulemaking:
  – Undivided Interest
  – Pari Passu
Additional Information
                     Eligible Project Costs


• Costs of acquisition, lease, or   • Cost of issuing project debt,
  rental of real property,            such as fees, transaction and
  including associated fees           legal costs and other normal
• Costs paid in connection with       charges imposed by Eligible
  construction of the facility        lenders
• Costs of equipment                • Cost of design, engineering,
  purchases                           start-up, commissioning, and
• Costs related to safety and         shake-down
  environmental protection          • Costs of IP licenses
• Financial and legal services      • Reasonable contingency for
  costs                               cost overruns during
• Costs of necessary insurance        construction
  and bonds                         • Capitalized interest
                       Ineligible Projects


• Finder’s fees/ arrangement        • Costs not directly related to the
  fees                                project, including hedging
• Parent corporation                  instruments
  administrative expenses           • Expenses incurred after start-
• Goodwill, franchise, trade, or      up, commissioning, and
  brand name costs                    shakedown before the facility is
• Dividends and profit sharing to     placed in service
  stockholders, employees, and      • Borrower-paid Credit Subsidy
  officers                            Costs and Administrative Costs
• Research, development, and          of Issuing a Loan Guarantee
  demonstration costs               • Operating costs

				
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