Solar Projects: DOE Section 1705 Loan Guarantees

Since Solyndra, a solar system manufacturing company that received a $535 million loan guarantee from the Department of Energy (DOE), filed for bankruptcy in September of 2011 there has been much congressional interest in better understanding the characteristics of renewable energy projects, specifically solar projects, that have received DOE loan guarantees. The objective of this report is to provide Congress with insight regarding solar projects supported by DOE’s loan guarantee program, the risk characteristics of these projects, and how other DOE loan guarantee projects are either similar to or different from the Solyndra solar manufacturing project.Key Points• DOE’s Loan Programs Office (LPO) administers three separate loan (1) Section 1703 loan guarantees, (2) Section 1705 loan guarantees, and (3) Advanced Technology Vehicle Manufacturing (ATVM) loans.• To date, all loan guarantees for solar projects have been provided under LPO’s Section 1705 program.• LPO’s Section 1705 program has closed transactions that guarantee approximately $16.15 billion of loans for renewable energy projects. Roughly 82% ($13.27 billion) of Section 1705 loan guarantees have been for solar projects.• Solar projects supported by Section 1705 loan guarantees generally fall into one of two (1) solar manufacturing, or (2) solar generation. Each category has different financial, operational, and technology risk characteristics.• Four solar manufacturing projects, including Solyndra, have received loan guarantees totaling $1.28 billion, which is approximately 8% of the total dollar value of loans guaranteed under the Section 1705 program.• Twelve solar generation projects have received loan guarantees totaling $11.99 billion, which is approximately 74% of the total dollar value of loans guaranteed under the Section 1705 program.• Solar manufacturing projects might generally be considered more risky than solar generation projects because solar generation projects have contractual mechanisms (power purchase agreements, performance guarantees, service agreements, etc.) that allow these projects to manage many project financial risks.• One solar manufacturing project might be considered somewhat similar to Solyndra, only because the project aims to manufacture solar panels that use the same materials as those used by Solyndra (copper indium gallium selenide— CIGS). However, the company’s manufacturing approach, products, and markets are distinctly different from those of Solyndra.• All LPO solar manufacturing projects will have to address and manage the same market risks that may have contributed to Solyndra’s bankruptcy. These risks include (1) declining solar module prices; (2) competition from new and established solar manufacturing competitors; and (3) subsidy/incentive reductions in international (mostly European) markets.