[Senate Hearing 112-21]
[From the U.S. Government Publishing Office]
S. Hrg. 112-21
CLEAN ENERGY DEPLOYMENT ADMINISTRATION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
TO
RECEIVE TESTIMONY ON THE PROPOSAL FOR A CLEAN ENERGY DEPLOYMENT
ADMINISTRATION, AS CONTAINED IN TITLE I, SUBTITLE A OF THE AMERICAN
CLEAN ENERGY LEADERSHIP ACT OF 2009 (S. 1462 OF THE 111TH CONGRESS)
__________
MAY 3, 2011
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont MIKE LEE, Utah
DEBBIE STABENOW, Michigan RAND PAUL, Kentucky
MARK UDALL, Colorado DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire ROB PORTMAN, Ohio
AL FRANKEN, Minnesota JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Guith, Christopher, Vice President for Policy, Institute for 21st
Century Energy, Chamber of Commerce............................ 22
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 2
Reicher, Dan W., Executive Director, Steyer-Taylor Center for
Energy Policy and Finance, Stanford University, Palo Alto, CA.. 9
Rothrock, Ray, General Partner of Venrock and Board Member of the
NVCA........................................................... 47
Silver, Jonathan, Executive Director, Loan Programs Office,
Department of Energy........................................... 4
Vilsack, Thomas J., Secretary, Department of Agriculture......... 44
Yanosek, Kassia, Founding Principal, Tana Energy Capital LLC, New
York, NY....................................................... 17
APPENDIX
Responses to additional questions................................ 51
CLEAN ENERGY DEPLOYMENT ADMINISTRATION
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TUESDAY, MAY 3, 2011
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10:04 a.m. in
room SD-366, Dirksen Senate Office Building, Hon. Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. Why don't we get started. Thank you for
coming today to participate in this hearing on the proposal to
establish the Clean Energy Deployment Administration. This
legislation has been in development for several years now. It's
benefited greatly from input from many people in the private
sector, including the ones who are here today.
The problems of bringing new energy technologies to the
commercial marketplace have been documented for a long time. In
many hearings over several years, we've heard about the
challenging environment for securing investment in emerging
clean energy technologies. The high capital requirements
coupled with the unavailability of affordable financing have
generally steered investments toward largely proven
technologies while the real game-changing technologies have not
been able to get the financing they need.
People have become accustomed to Moore's law in the
information technology industry, which of course observes the
trend that computing power roughly doubles every couple of
years. This has resulted in rapid growth in that industry and
high expectations for technological achievement and investment
performance. But energy technologies have not followed that
same path. Although research and development in the United
States has been strong, leading to some very promising advances
in renewable energy, highly fuel efficient and electric drive
vehicles, smart grid technology, and ultra-efficient lighting
and appliances, their transition to the commercial marketplace
has been frustratingly slow.
The rest of the world is working hard to accelerate this
deployment cycle. As we've heard in a hearing in March of this
year, our global competitors are committing significant
resources to making their countries attractive environments for
clean energy technology deployment, including through financing
support.
We've discussed the particulars of this bill before in the
committee. I'll leave that issue to the witnesses. Mr. Silver
has had an impressive set of results in recent months with the
loan guarantee program. I'm interested in hearing what have
been the lessons that he has brought from that experience that
we should be aware of as we consider this legislation.
There are several features to the legislation, such as the
emphasis on management of risks across a portfolio of
investments and the targeting of a risk profile through a loan
loss reserve, that should allow CEDA to function with the speed
and flexibility that's needed. I hope we can hear testimony on
those issues.
One thing I think has been made clear in the hearings so
far on this topic is that we should not wait to make these
investments. The budgeting conventions that we use here dictate
that the funds set aside for CEDA within the Treasury are
considered spent immediately, even though any actual losses may
not happen for years and could be offset by fees collected. So
we need to find a way to pay the amount that the bill is
considered to cost when it comes to the full Senate.
While I'll acknowledge that the current environment makes
this difficult, I look forward to working with colleagues to
find a suitable offset, and we should not lose sight of the
fundamental cost-effectiveness of this type of financing
support. CEDA will generate significant private sector spending
and will finance projects that have many times the value of the
actual risks that will be taken.
So thanks again for your time and being here today, and let
me call on Senator Murkowski for any comments she has before we
hear from the witnesses.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I'd like to
thank the witnesses here this morning as well.
Discussion about a Clean Energy Deployment Administration I
think is certainly an important one, certainly timely. We had
an opportunity to bring this up and move this out of this
committee on a broad bipartisan basis last Congress. When you
look to the purpose of CEDA, to address the persistent
inability of clean energy projects to obtain financing, I think
you will have folks say, well, why haven't we figured this one
out earlier?
Back in 2005 with passage of the Energy Policy Act, we took
a major step toward addressing the problem by creating the loan
guarantee program there at DOE. But I think we would all agree
that it has been less than perfect I terms of its
implementation. We heard some continued frustration from clean
tech developers who can secure support from the Federal
Government for financing projects overseas, but not here in the
United States.
So we set out to address this in a more robust way by the
development of CEDA. Now, I want my colleagues to understand
that great care was taken to balance the deployment of clean
energy technologies with the requirement that CEDA be
responsible and transparent in its operations.
I want to be equally clear that this proposal will require
mandatory spending in the form of startup capital that was not
offset in the bill that we reported last Congress. CBO has
assigned a $9.6 billion score to CEDA. It's my view that we
must find an acceptable offset for this entire amount and I'm
prepared to work with every member of the Senate who's
interested in doing so. An offset will not only help CEDA
become a reality. It will also help us hold the line on new
spending and assure that we do not make our deficit any worse.
But despite the high initial cost, I agree with you, Mr.
Chairman; I believe that CEDA is a smarter way for the Federal
Government to promote clean energy technologies. Perhaps to
provide a little bit of context here, I would remind my
colleagues that CEDA would be able to re-use its funding over
time to back private lending for clean energy projects, and
that's a more efficient way--or a more efficient use of
taxpayer money than these one-time payments in form of grants
or tax credits.
So when you look at how CEDA would operate, I believe that
it would ensure that we get more bang for our buck than the
more conventional forms of government support.
Finally, I think it's important to recognize that there's a
legitimate role for the Federal Government to play in this
area, even in difficult fiscal environments such as we're
facing. As a matter of public policy, the United States is not
going to stop supporting clean energy technologies altogether.
So if you accept that premise, this debate can and should be
about how we make better use of all of our resources, including
the revenues that result from energy production.
It's my hope this morning that this hearing will serve as
the beginning of a constructive conversation about these
challenges, a conversation that accepts our limitations and
focuses on the most efficient possible use of our resources so
that we can support greater deployment of clean energy
technologies made here in the United States.
Mr. Chairman, I look forward to the testimony this morning
and again thank the witnesses.
The Chairman. Thank you very much.
Let me just introduce our panel of witnesses. First is Mr.
Jonathan Silver, the Executive Director of the Loan Guarantee
Program at the Department of Energy here in Washington. Next is
Mr. Dan Reicher, who is a frequent witness before our committee
and Executive Director of the Steyer-Taylor Center for Energy
Policy and Finance at Stanford at this time; Ms. Kassia
Yanosek, who is the Founding Principal of Tana Energy Capital
LLC in New York; and Mr. Christopher Guith, who is the Vice
President for Policy with the Institute for 21st Century Energy
at the U.S. Chamber of Commerce.
So we appreciate all of you being here. Why don't we just
have you give your testimony in that order, if you would, and
each of you take 5 or 6 minutes to make the main points you
think we need to understand and then we'll have some questions.
Mr. Silver, go right ahead.
STATEMENT OF JONATHAN SILVER, EXECUTIVE DIRECTOR, LOAN PROGRAMS
OFFICE, DEPARTMENT OF ENERGY
Mr. Silver. Thank you, Mr. Chairman, and good morning.
Chairman Bingaman, Ranking Member Murkowski, and members of the
committee: Thank you for the opportunity to testify today. My
name is Jonathan Silver and I'm the Executive Director of the
Loans Programs Office at the Department of Energy and by
background a venture capital investor, hedge fund manager, and
business executive involved in building high-growth companies.
I believe the loan programs provide critical support for
the Nation's commercial deployment of clean energy and the jobs
that go with it. I welcome the opportunity to discuss the
programs with you and to highlight the significant impact the
program has had to date.
The discussion about the right approach to energy finance
is in some ways a discussion about our national commitment to
global competitiveness in the 21st century. Clean energy will
play an important role in our future and the extent and speed
with which we successfully deploy new energy technologies will
have enormous implications for our economic vitality.
So far, our track record is mixed. Although we have the
highest GDP in the world, we rank ninth in clean energy
investment as a percent of GDP and we have fallen to third and
absolute dollars invested. A number of other countries have
proportionally larger and more significant ongoing Federal-
level programs to finance clean energy deployment.
Global competitiveness is not, of course, the only
challenge. Our reliance on foreign oil is a constant threat to
our national interests. Investment in domestic clean energy can
help us regain control of our energy future and eventually
achieve energy independence.
While investing in clean energy has long-term strategic
benefits, it also plays a more immediate role in our economic
recovery. Investments in power generation, manufacturing, and
energy efficiency create new and good jobs and they create them
today.
There are many ways for the Federal Government to support
investment in clean energy. Tax incentives and manufacturing
credits are effective, but must be put and left in place for an
extended period. Uncertainty makes business planning
challenging. Further, these credits do not finance construction
and are only applicable after a project is built.
The loan guarantee programs have been among our most
effective support mechanisms. Since March 2009 we've issued
conditional commitments or closed on 27 projects, with more to
follow. These investments are in a wide array of clean energy
and auto technologies, including wind, solar, nuclear, advanced
biofuels, geothermal, transmission, battery storage, and more.
I'm pleased to report that we issued our first term sheet for
an advanced fossil project just last week. The loan programs
effectively support an ``all of the above'' energy strategy.
So far the loan programs have offered nearly $30 billion in
financing for these projects. With total projects costs of
nearly $47 billion, that's about $17 billion of equity invested
in these projects.
Project sponsors estimate that these projects will create
or save more than 61,000 direct jobs. Cumulatively, they will
generate nearly 29 million megawatts of clean energy each year,
enough to power over 2 million households, about the number of
households in Kentucky and Wyoming combined. They will avoid
over 60 million tons of CO2 annually, more than the
emissions produced by the 3 million vehicles registered in
Alaska and Utah combined.
Loans have been made in 21 States representing almost every
region of the country. Apparently, the wind blows and the sun
shines in red and blue States.
The loan programs are necessary to overcome both cyclical
and structural impediments to the rapid deployment of
commercial energy technologies. First, the recent economic
crisis reduced investment in clean energy. The tax equity
market, one of the principal sources of equity for renewables
projects, shrank dramatically.
Second, traditional lenders, never eager to invest in
innovation, pared back further. There is a systemic shortage of
traditional debt financing for clean energy, stemming basically
from the relatively high completion risks associated with such
projects. It's the old adage: Every bank wants to be the first
bank to lend to your second project.
Third, many private sector lenders are unwilling to
underwrite commercial-scale clean energy projects because they
often require loans with unusually long tenors. The irony is
that this valley of death between pilot and commercial
deployment, where companies find it most difficult to source
capital, is exactly the moment they begin to have a meaningful
impact on jobs.
As you consider how the Federal Government can most
successfully support clean energy deployment, it might be
helpful to identify a few of the lessons learned from the loan
programs. First, time-limited funds are not ideal in selecting
highly innovative projects. Those projects need time to mature
and deadlines require projects that can get done quickly.
Second, project finance is an excellent financing
instrument for some, but not all, projects. At its most basic,
project finance matches cash-flows to repayment schedules. A
project without identifiable cash-flows for the duration of the
loan is at a disadvantage. The private sector makes use of a
wide range of financing tools, including venture, venture debt,
mezzanine debt, letters of credit, insurance instruments,
hedges, and more, to provide solutions tailored to project
needs.
Finally, small companies have different financial needs and
repayment capabilities than large companies do. Approaches
which recognize this difference will make it easier to support
important new technologies.
The loan programs have made an enormous contribution to the
Nation's ability to compete in the energy sector already. That
said, they represent only one of a variety of potential
approaches. They were not designed to be a comprehensive
Federal financing program and they do not operate that way. The
CEDA legislation adopted by this committee would pursue a
mission similar to the loan programs, but with additional
flexibilities and financial tools.
Again, thank you for inviting me here today. I look forward
to responding to your questions.
[The prepared statement of Mr. Silver follows:]
Prepared Statement of Jonathan Silver, Executive Director, Loan
Programs Office, Department of Energy
introduction
Chairman Bingaman, Ranking Member Murkowski, and members of the
Committee, thank you for the opportunity to testify today. My name is
Jonathan Silver, and I am the Executive Director of the Department of
Energy's (DOE) Loan Programs Office (LPO). DOE's loan programs provide
critical support for the nation's commercial deployment of clean
energy, and the jobs and economic growth that come with it. I welcome
the opportunity to discuss the programs with you and to highlight the
significant accomplishments we have made to date.
global and domestic context in which the loan programs operate
Clean Energy Opportunities
Clean energy has an important role to play in America's future. The
extent to which we can successfully deploy new, innovative clean energy
technologies will have enormous implications for our future global
competitiveness, energy security, economic recovery, and environment.
America's future prosperity may well depend on our ability to play
a leading role in the global transition to a clean energy future. Yet,
to date, the United States has not demonstrated the sustained
commitment to clean energy investment that is needed to remain
competitive.
Global competitiveness is not the only issue we face. The U.S.
imports a significant portion of the petroleum it consumes from foreign
sources, and this dependence on oil threatens our national security.
Investments in domestic clean energy sources can help us regain control
of our energy future and reduce oil consumption.
Clean energy not only has long-term, strategic benefits, it is also
an important part of our ongoing national economic recovery.
Investments in clean energy projects, including power generating
plants, manufacturing facilities, and energy efficiency activities,
create new and good jobs--and they create them now.
Deployment: Importance, Obstacles, and Role for Government
Much of the public discussion around clean energy focuses on
research and development, which is crucial to reaching our long-term
national energy goals. But near-term deployment of innovative,
commercially-ready technologies is critical as well. Deploying energy
technologies at scale immediately creates jobs, drives down unit costs,
creates new supply chains, and incentivizes future research and
development efforts. Innovation drives commercialization. But
commercialization also drives innovation; it is a virtuous circle.
Unfortunately, there are both cyclical and structural impediments
to the rapid deployment of innovative technologies in the United
States. The recent economic crisis slowed the pace of investment in
clean energy projects. Traditional lenders pared back their appetite
for risk, resulting in reduced liquidity in the market. The market for
equity investments in renewable energy projects based on tax credit
incentives--one of the principal sources of equity for renewables
projects--shrank, as well.
There also is an ongoing, systemic shortage of debt financing for
certain types of innovative clean energy projects, stemming from the
relatively high completion risks associated with such projects--
principally technology risk and execution risk. Private sector lenders
have limited capacity or appetite to underwrite such risks on their
own, particularly because commercial-scale clean energy projects are
capital-intensive and often require loans with unusually long tenors.
Thus, there is a ``valley-of-death'' in the clean energy technology
development cycle, between the pilot-facility stage and commercial
maturity, where companies find it difficult to obtain the financing
needed to deploy their technologies at commercial scale--the very point
at which they begin to have a meaningful impact on job-creation and the
environment.
The Department of Energy's loan programs were designed to address
these impediments and fill this financing gap. Loan guarantees lower
the cost of capital for projects utilizing innovative technologies,
making them more competitive with conventional technologies, and thus
more attractive to lenders and equity investors. Moreover, the programs
leverage the Department's expertise in technical due diligence, which
private sector lenders are often unwilling or unable to conduct
themselves.
Achieving our nation's clean energy goals--including global
competitiveness and domestic energy security--will require the
deployment of innovative technologies at a massive scale, and the DOE
loan programs are an important element of federal policy to facilitate
that deployment.
background on the loan programs
As you know, the Loan Programs Office actually administers three
separate programs: the Title XVII Section 1703 and Section 1705 loan
guarantee programs, and the Advanced Technology Vehicles Manufacturing
(ATVM) loan program.
The 1703 program, created as part of the Energy Policy Act of 2005,
supports the deployment of innovative technologies that avoid, reduce,
or sequester greenhouse gas emissions. As a result of the recently-
passed 2011 Continuing Resolution (FY11 CR), the program currently has
$18.5 billion in loan guarantee authority for nuclear power projects,
$1.5 billion in authority for energy efficiency and renewable energy
projects, $8 billion for advanced fossil projects, $4 billion for
front-end nuclear projects, and $2 billion in mixed authority. In
addition, and for the first time, the 1703 program, historically a
``self pay'' credit subsidy program, now has $170 million in
appropriated credit subsidy, which will support a small number of loan
guarantees for energy efficiency and renewable energy projects.
The Section 1705 program was created as part of the American
Recovery and Reinvestment Act of 2009 (Recovery Act), to jump-start the
country's clean energy sector by supporting projects that had
difficulty securing financing in a tight credit market. The 1705
program has different objectives than 1703 and somewhat different
programmatic features. Most notably, under 1705, the credit subsidy
costs associated with the loan guarantees are paid through funds
appropriated by Congress (though applicants still must pay application
and other administrative fees). Additionally, to qualify for 1705
funding, projects must begin construction no later than September 30,
2011. DOE's authority to enter into loan guarantee agreements under
1705 expires on that date as well.
The ATVM program issues loans in support of the development of
advanced vehicle technologies to help achieve higher fuel efficiency
standards and reduce the nation's dependence on oil. Congress funded
this program with $7.5 billion in credit subsidy appropriations to
support a maximum of $25 billion in loans.
success of the loan programs
The Loan Programs Office has made great strides since this
Administration took office two years ago. Between 2005, when the
program began, and 2009, DOE did not issue a single loan or loan
guarantee. Since March 2009, the Department has issued conditional
commitments for loans or loan guarantees to 27 projects, 16 of which
have reached financial close--with more to follow soon.
DOE has provided (or conditionally committed to provide) nearly $30
billion in financing to these 27 projects, which have total project
costs of nearly $47 billion. The projects are spread across the
country, and reflect an array of clean energy and automotive
technologies, such as wind, solar, advanced biofuels, geothermal,
transmission, battery storage, and nuclear. These projects include the
world's largest wind-farm; two of the world's largest concentrated
solar power facilities; the first nuclear power plant to begin
construction in the United States in the last three decades; the
world's first flywheel energy storage plant; and a biodiesel refinery
that will triple the amount of biodiesel produced in the United States.
Project sponsors estimate these 27 projects will create or save
over 61,000 jobs, including construction and operating jobs.\1\
Cumulatively, they will generate nearly 29 million MWh of clean energy
each year--enough to power over two million households, or
approximately the same number of households in the states of Kentucky
and Wyoming combined.\2\ And they will avoid over 16 million tons of
CO2 annually--more than is produced by all of the
approximately three million registered vehicles in Alaska and Utah.\3\
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\1\ Breakdown by program is as follows (based on Sponsor
estimates): 1703: 5,210 construction, 1,340 permanent; 1705: 12,900
construction, 3,470 permanent; ATVM: 5,700 created, 33,000 saved.
\2\ Sources: EIA 2005 Residential Energy Consumption Survey, Table
US8; U.S. Census Bureau, American FactFinder, 2010.
\3\ Sources: U.S. Environmental Protection Agency, Emission Facts:
Greenhouse Gas Emissions from a Typical Passenger Vehicle; U.S.
Department of Transportation, Federal Highway Administration, Highway
Statistics 2008, Table MV-1 (December 2009).
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Under the Section 1703 program, DOE has offered conditional
commitments for four projects so far, including one nuclear power, one
front end nuclear, and two energy efficiency projects, which amount to
just over $10.6 billion in total government supported financing,
including capitalized interest. Under 1705, DOE has issued conditional
commitments to 18 projects representing approximately $10.8 billion in
financing, including capitalized interest. In addition, a significant
number of projects are sufficiently far along in the due diligence
process that we have issued a working draft term sheet and are in
active negotiations with the applicants. LPO estimates that these
projects, if they ultimately reach financial close, will utilize all of
our remaining credit subsidy appropriations.
While there has been significant interest in the 1705 program,
there has been little demand for renewables loan guarantees under the
1703 program. This may, in part, reflect the ability of certain
renewable projects to qualify under both programs. But it may also
reflect the fact that innovative clean energy companies--which tend to
be smaller and have less capital--consider the 1703 program's self-pay
credit subsidy cost requirement to be prohibitive. The new credit
subsidy provided by the 2011 CR will allow the 1703 program to invest
in a limited number of projects that may not have had the means to pay
a fee to cover the subsidy cost up front.
To date, DOE has committed and closed five ATVM loans, totaling
over $8.3 billion, which will support advanced vehicle projects in
eight states. We anticipate making a number of significant additional
ATVM loan commitments in the coming months.
value of doe loan programs
It is important to remember that the loan programs are not grant
programs; LPO expects that the loans it provides or guarantees will be
repaid. We review projects on a competitive basis, and we do not fund
every eligible project. We ensure that the loans we support meet our
statutory requirement of having a ``reasonable prospect of repayment.''
Every project that receives financing first goes through a rigorous
financial, legal and technical review process--similar to, and in some
ways more comprehensive than, what a private sector lender would
conduct--before a single dollar of taxpayer money is put to work.
Not surprisingly, this type of sophisticated review requires
thousands of man-hours, which is costly. However, administrative costs
associated with the Title XII programs, including personnel expenses,
are required by Title XVII to be covered by fees paid by applicants.
Moreover, the programs can efficiently and effectively leverage
government resources to spur private-sector investment. A relatively
small amount of appropriated credit subsidy can support a large amount
of new private sector investment. Moreover, when a loan is fully
repaid, the nation will have benefited from the incentivized private
sector investment at relatively little cost to taxpayers.
The potential benefits are great. The projects supported by the
loan programs promote economic growth and job creation. Clean energy
and automotive technology projects can create construction and
permanent operating jobs. In addition, these projects help lower the
delivered cost of renewable energy and contribute to the build-out of
the domestic supply chain and manufacturing base that we will need to
``win'' the clean energy future.
conclusion
In just two years, the Department's loan programs have begun to
meet the expectations Congress had in creating and funding them. We are
making a meaningful contribution to our national clean energy goals,
and we look forward to continuing our progress.
That said, it is important to recognize that programs such as ours
represent only one of a variety of potential approaches to providing
federal support for clean energy. While useful for certain types of
projects, loan and loan guarantees are not appropriate for all types of
clean energy projects.
Moving forward, we must think about clean energy investment in a
comprehensive manner, ensuring that limited resources are deployed in
the most effective and efficient manner possible. Only then will we be
able to create an environment where the private sector will invest in
clean energy technologies at the scale needed to remain globally
competitive, help secure our energy independence, and protect our
environment.
Thank you again for inviting me here today. I look forward to
responding to your questions.
The Chairman. Thank you very much.
Mr. Reicher, please go ahead.
STATEMENT OF DAN W. REICHER, EXECUTIVE DIRECTOR, STEYER-TAYLOR
CENTER FOR ENERGY POLICY AND FINANCE, STANFORD UNIVERSITY, PALO
ALTO, CA
Mr. Reicher. Mr. Chairman, Ranking Member Murkowski, and
members of the committee: Thank you for the opportunity to
testify. My name is Dan Reicher. I recently became Director of
Stanford University's Steyer-Taylor Center for Energy Policy
and Finance and a faculty member of the Stanford Law School and
the Graduate School of Business. Prior to my role at Stanford,
I was Director of Climate Change and Energy Initiatives at
Google, held senior executive posts with a venture-backed
renewable energy company and a private equity firm, and served
as Assistant Secretary of Energy for Efficiency and Renewables
in the Clinton Administration.
The legislation you are advancing today would, in simple
terms, create a financing entity with the resources, tools, and
independence to help American clean energy technologies cross
the colorfully but accurately named valley of death that sits
between the early stages in the development of an energy
technology and its full commercial deployment. By helping to
reduce the risks in crossing the valley of death, the Clean
Energy Deployment Administration would substantially increase
private sector investment in energy technology development and
deployment and create a more successful and competitive U.S.
clean energy industry.
Let me personalize the CEDA story a bit. For about 2
decades I have walked the ups and downs of the energy research,
development, demonstration, and deployment pathway. I started
my journey at DOE, where we spent billions on R and D to
advance the full range of energy technologies from fossil to
renewables and efficiency to nuclear power. R and D was and is
a high-risk enterprise, where the only certainty is that it
almost always takes longer and costs more to get a technology
to a point where the private sector will take a serious look at
commercialization.
After 8 years, I left DOE and joined a venture capital-
backed renewable energy company. Our mandate was to take high-
risk venture capital and use it to turn energy R and D into
products that had enough of a shot at commercialization that we
could sell our firm or take it public. It was tough sledding at
this company, in part because the route to successful
commercialization of energy technologies is so very
challenging.
Proceeding down the energy technology pathway, I helped
form and lead a private equity firm to invest in clean energy
projects. We worked with banks, engineers, and construction
firms to get real energy projects built and financed. It was at
this firm that I reached the scariest point along the energy
pathway. Day after day, we received investment proposals for
energy project with profiles that simply exceeded the risk
threshold of our capital. Had the underlying technologies been
prone in the lab? Generally, yes. Had they operated in a pilot
plant? Sometimes. Had they operated at commercial scale?
Rarely. There were relatively few proposals that fit our
investment profile. In the end, the biggest chunk of our
capital was used to finance corn ethanol plants, a technology
well proven at large commercial scale for decades.
It was at this firm that I peered into the valley of death,
seeing there the remains of hundreds of abandoned energy
projects, projects based on exciting technologies supported by
DOE or venture capital firms, that worked well in pilot plants,
but died trying to get to commercial scale, from wind, solar,
biomass, and geothermal to advanced coal and natural gas,
transmission and distribution, nuclear power, and beyond.
We and most other private equity firms simply could not
shoulder the risk in the commercial scale-up of an energy
technology, where a single project, a single project, can cost
hundreds of millions or billions of dollars.
It was interesting landing next at Google, where engineers
spend months writing computer code for a new product, test it,
and then 1 day, in my simple terms, push a button and it's
deployed. There are certainly tough engineering challenges and
software products that fail. It's just that with software
products generally succeed and fail faster and more cheaply
than in the energy world.
In the energy technology world, months turn into years and
years into decades and billions can be spent on a single
technology before even one commercial plant or factory is
operating.
The Department of Energy loan guarantee program, to its
credit, has been working hard to address the investment
challenges of the valley of death, backing loans for innovative
projects as well as providing financial help to conventional
projects. Those of us watching from the outside have been
impressed with recent progress and professional skills of the
DOE team, but continue to be concerned about the multi-agency
review process and the uncertainty of the yearly budgeting
cycle.
I and many others across the energy technology spectrum,
from fossil to renewables to nuclear power, believe that as
long as the loan guarantee program remains as currently
structured inside DOE, it will continue to be subject to these
challenges. I and many other observers of the global clean
energy race believe that our country would be better served by
taking a new approach to the critically important task of
energy technology commercialization.
We support significant fiscal year 2012 funding for the DOE
loan guarantee program led by Mr. Silver to continue its
important work in the near term. However, over the longer term
supporting the financing of capital-intensive energy projects
with serious scale-up risks in close collaboration with the
private sector is not a good match for the current structure,
oversight, risk tolerance, and financial tools of the
Department of Energy.
Commercializing energy technology requires a new, more
effective approach, and that approach is CEDA. Mr. Chairman and
Ranking Member Murkowski, we have a limited window of
opportunity to develop and execute a clear U.S. strategy for
global leadership in the clean energy sector. We unfortunately
find ourselves caught flatfooted in the energy technology race
while clean energy investment in Europe and Asia charges on.
We need look no further than China to see the clean energy
technology industry, largely invented and once dominated by the
U.S., slipping away reactor by reactor, turbine by turbine,
panel by panel. As we have dithered in our country in setting
national energy and climate policy and addressing financing
needs, China has been working aggressively to become the
world's clean energy powerhouse, surpassing the U.S. on a
number of clean energy commercialization fronts, for example
recently becoming the world's largest producer of wind turbines
and solar panels.
In 2010, China attracted $54 billion of new clean energy
private capital, with Germany attracting $41 billion and the
U.S. $34 billion. These numbers do not reflect the major
additional investment made by the Chinese government or the
China Development Bank.
CEDA, in strong partnership with the private sector, could
more effectively support the scale-up of clean energy
technologies and U.S. clean energy competitiveness than the
current approach. CEDA would have an array of tools, such as
loan guarantees, insurance products and bonds, to accelerate
private sector investment. Initially funded with an
appropriation of $10 billion, CEDA would become a self-
sustaining entity, that is no additional appropriations, based
on mechanisms in the bill that would allow it to take a
financial stake in projects.
Also, while CEDA would be established as an agency within
DOE, it would have an administrator and board of directors and
enjoy an important degree of independence, like the Federal
Energy Regulatory Commission, an independent arm of the DOE.
Finally, CEDA would be a highly complementary mechanism to
a national clean energy standard that this committee is
currently considering and the Obama Administration supports.
Mr. Chairman and Senator Murkowski, Congress needs to enact
CEDA this year. Prioritizing the scale-up of innovative
technologies will help us reduce the cost of energy for all
Americans, enhance our national security, and combat climate
change. It will also position to U.S. to capture a massive
global market that is growing by the day and create large
numbers of good-paying jobs in the process.
Thank you for the opportunity to testify.
[The prepared statement of Mr. Reicher follows:]
Prepared Statement of Dan W. Reicher, Executive Director Steyer-Taylor
Center for Energy Policy and Finance, Stanford University, Palo Alto,
CA
Mr. Chairman, Ranking Member Murkowski, and members of the
committee, my name is Dan Reicher and I am pleased to share my
perspective on the proposal for a Clean Energy Deployment
Administration contained in Title I, Subtitle A of the American Clean
Energy Leadership Act of 2009. I am Director of Stanford University's
Steyer-Taylor Center for Energy Policy and Finance and a faculty member
of the Stanford Law School and the Graduate School of Business. I also
chair the board of directors of the American Council on Renewable
Energy and serve on the Board on Energy and Environmental Systems of
the National Academy of Sciences and the board of directors of the
American Council for an Energy Efficient Economy.
Prior to my role at Stanford, I was Director of Climate Change and
Energy Initiatives at Google. I also served on President Obama's
transition team where I helped develop the stimulus package for clean
energy. Prior to my position with Google, I was President and Co-
Founder of New Energy Capital, a private equity firm funded by the
California State Teachers Retirement System and Vantage Point Venture
Partners to invest in clean energy projects. Prior to this position, I
was Executive Vice President of Northern Power Systems, a venture
capital-backed renewable energy company.
Prior to my roles in the private sector, I served in the Clinton
Administration as Assistant Secretary of Energy for Energy Efficiency
and Renewable Energy, the Acting Assistant Secretary of Energy for
Policy, and Department of Energy Chief of Staff and Deputy Chief of
Staff.
overview
Mr. Chairman and Ranking Member Murkowski, the legislation you are
advancing would, in simple terms, create a financing entity with the
resources, tools and independence to help American clean energy
technologies--from energy efficiency and renewable energy to fossil
energy to nuclear power--cross the colorfully but accurately named
``Valley of Death'' that sits between the invention of an energy
technology and its full commercial deployment. By helping to reduce the
risk in crossing the Valley of Death, CEDA would substantially increase
private sector investment in energy technology development and
deployment and create a more successful and competitive U.S. clean
energy industry, with all the attendant economic, environmental and
security benefits.
If you'll indulge me for a moment, let me personalize the CEDA
story a bit. For about two decades I have walked the ups and downs of
the energy research, development, demonstration and deployment (RDD&D)
pathway. I started my journey at DOE under President Clinton where we
spent billions on research and development to advance the full range of
energy technologies. R&D was--and is--a high-risk enterprise where the
only certainty is that it almost always takes longer and costs more to
get a technology to a point where the private sector will take a
serious look at commercialization.
I left DOE and joined a renewable energy company that had recently
received significant venture capital investment. Our mandate was to
take this high-risk capital and use it to turn energy R&D into products
that had enough of a shot at commercialization that a bigger company
would want to buy our firm or we could take it public. It was tough
sledding at this company for several reasons, but in part because the
route to successful commercialization of energy technologies is so
challenging.
Proceeding down the RDD&D pathway, I helped form a private equity
firm, with capital from a large public pension fund and a venture
capital firm to invest in clean energy projects. We were the equity in
these projects and we worked with banks and other debt providers--as
well as engineering and construction firms--to get real energy projects
built and operating. It was in this firm that I reached the scariest
point along the energy RDD&D pathway.
Day after day our firm received investment proposals for energy
projects based on technologies with profiles that simply exceeded the
risk threshold of our capital. Had the underlying technologies been
proven in a lab? Generally yes. Had they operated in a pilot plant?
Sometimes. Had they operated at commercial scale for a decent period of
time? Rarely. We received so many project proposals but there were so
few where we could actually make an investment. So what were we left
with? Well, the not so little secret is that the biggest chunk of our
capital was used to finance corn ethanol plants--a technology well
proven at large commercial scale, for decades.
It was in my role at this firm--traveling down the RDD&D pathway--
that I first peered into the Valley of Death. Littering the valley
floor are the remains of hundreds--perhaps thousands--of abandoned
energy projects. Projects based on exciting technologies backed by DOE
or venture capital firms. Technologies that worked well in pilot or
demonstration plants but died trying to get to commercial scale. And we
saw advanced technologies of all sorts, from wind, solar, biomass and
geothermal, to breakthrough coal and natural gas, to nuclear power and
beyond. We and most other private equity firms simply couldn't shoulder
the risk inherent in the initial commercial scale-up of an energy
technology, where a project--a single project--can costs hundreds of
millions or even billions of dollars.
It was interesting landing next at Google, primarily a software
company where engineers spend months writing computer code for a new
software product, test it internally, and then one day determine it's
ready for initial commercial testing and deployment. In my simple
terms, they push a button and it's deployed. If the product needs
improvements then Google engineers make them and a new version is
launched. There are certainly very tough engineering challenges and
products that fail. It's just that with software my perception is that
a product generally succeeds--and fails--faster and more cheaply than
in the energy technology world.
In the energy technology world, months turn into years, and years
into decades, and billions can be spent on a single technology before
even one commercial scale plant is operating. And this of course is
where CEDA comes in. The book might be titled: ``CEDA: A Bridge over
the Valley of Death.''
The Department of Energy, to its credit, has been working hard to
address the investment challenges of the Valley of Death. The DOE Loan
Guarantee Program has been backing loans for innovative projects across
a broad spectrum of energy technologies under authority it gained in
the 2005 Energy Policy Act. And additional funding, resulting from the
American Recovery and Reinvestment Act, has given DOE the means to
provide loan guarantees for renewable energy, biofuels and transmission
projects that commence construction before September 30, 2011. DOE has
improved its performance in guaranteeing loans for large-scale projects
across a range of technologies under both of these programs. Those of
us watching the program from the outside have been impressed with the
recent progress and the professional skills of the DOE team, but
continue to be concerned about the multi-agency review process and the
uncertainty of the yearly budgeting cycle. As long as the loan
guarantee program remains as currently structured inside DOE, it will
continue to be subject to these challenges. We and many other observers
of the global clean energy race believe that the country would be
better served by taking a new approach to the critically important task
of energy technology commercialization.
We support significant FY 2012 funding for the DOE Loan Guarantee
Program to continue its important work in the near term. However, over
the longer term, supporting the financing of capital-intensive energy
projects with serious scale-up risks--with leadership from and in close
collaboration with the private sector--is not a good match for the
current structure, oversight, risk tolerance, and financial tools of
the Department of Energy. If the U.S. is to regain its competitiveness
in the global clean energy technology race, commercializing energy
technology innovations requires a new more effective approach--and that
approach is CEDA. I would also note that political support for--and the
ultimate success of--a national Clean Energy Standard, that this
committee is currently considering and the Obama Administration
supports, will be greatly enhanced if a complementary and comprehensive
financing mechanism, like CEDA, is also adopted.
We have a window of opportunity to develop and execute a clear U.S.
strategy for global leadership in the clean energy sector, but that
window won't be open indefinitely. In this nascent yet global market,
we unfortunately find ourselves caught flat-footed in the energy
technology race, hamstrung by a lack of focused policies, while clean
energy investment in Europe and Asia charges on. As I detail below,
China in particular has surpassed the U.S. in the last few years on a
number of energy commercialization fronts, for example recently
becoming the world's largest producer of wind turbines and solar panels
and also quickly accelerating public and private energy R&D. In 2010
China attracted $54B of new clean energy private capital, with Germany
attracting $41B and the U.S. $34B. These numbers do not reflect the
major additional investment made by the Chinese government or the
significant additional support provided by the China Development Bank
to enter key markets such as Brazil and India.
CEDA--with some independence from DOE and in strong partnership
with the private sector--would more nimbly and efficiently support the
scale-up of clean energy technologies, and U.S clean energy
competitiveness, than the current approach. As developed in the
American Clean Energy Leadership Act, CEDA would administer various
types of credit instruments, such as loan guarantees, insurance
products, and clean energy backed-bonds to accelerate private sector
investment in the commercial deployment of new energy technologies.
Initially funded with an appropriation of $10 billion, CEDA could
become a self-sustaining entity based on ``profit participation''
mechanisms that would allow it take a financial stake in the projects
it backs. Also, while CEDA would be established as an agency within DOE
it would be under the direction of an administrator, a board of
directors, and technical advisory council and would enjoy an important
degree of independence including, for example, from line reporting and
the Secretary's reorganization authority. The best analogy is the
Federal Energy Regulatory Commission (FERC), an independent arm of the
DOE.
Congress needs to enact CEDA this year. Prioritizing the scale-up
of innovative technologies will help reduce the cost of energy for all
Americans, enhance our national security, and address climate change.
It will also position the U.S. to capture a massive global export
market that is growing by the day--and create large numbers of good
paying jobs in the process.
the case for ceda
As I have testified before in this committee, there is an
established pathway for investment in clean energy:
It starts with government investment in early stage high
risk technology research;
It moves to corporate and venture capital funding of
technology development;
It then proceeds to actual deployment of technologies
through project finance and other mechanisms.
CEDA is focused on the final stage of this continuum--the
deployment of clean energy technologies at a scale significant enough
to actually address our energy-related challenges like climate change,
energy security, economic competitiveness, and job creation. However,
CEDA, as developed in the American Clean Energy Leadership Act has an
even more particular and critical focus: the point at which an energy
technology is ready for scale-up from a pilot project to a full-scale
plant. This problematic moment is often when many promising energy
technologies falter and a significant number die. In the clean energy
technology industry it is known as the ``Valley of Death''.
The Valley of Death looms large. Addressing it will be a particular
challenge for scale-up of promising technologies including, for
example, Carbon Capture and Storage (CCS), Enhanced Geothermal Systems
(EGS), advanced nuclear reactors, various on-shore and off-shore wind
technologies, Concentrating Solar Power (CSP), advanced batteries,
biomass power and fuels, and an array of efficiency devices. Failing to
bridge the Valley of Death has already cost us serious progress on many
clean energy technologies from renewables, nuclear and energy
efficiency to coal, natural gas and oil--technologies that have been
developed with U.S. government and private sector investment and that
could address our many energy-related challenges. In an increasing
number of cases investors from other countries have stepped into the
breach and the technology has advanced but we have lost the employment
and tax benefits of a company based in the U.S.
We need look no further than China to see the clean energy
technology industry--largely invented and once dominated by the U.S.--
slipping away: reactor by reactor, turbine by turbine, panel by panel.
As we have dithered in our country in recent years in setting national
energy and climate policy, China has been working aggressively to
become the world's clean energy powerhouse. The Chinese have:
Set standards for power companies to produce more clean
electricity;
Shut down more than 50,000 megawatts of old coal-fired power
plants and a substantial amount of outdated heavy manufacturing
capacity;
Established a program to improve the efficiency of its top
1,000 most energy-consuming enterprises;
Invested heavily in R&D;
Provided incentives for homeowners to install solar panels
and water heaters;
Made major investments in the electricity grid;
Set a target to reduce carbon intensity 40-45% below 2005
levels by 2020;
And most relevant to this hearing, provided low cost
financing for clean energy generating and manufacturing
projects.
With this attention to innovation, policy and investment the
Chinese are quickly becoming the dominant world player in clean energy
technology. Consider:
The Chinese are now the world's largest manufacturer of wind
turbines, having vaulted past several EU nations and the US in
this fast-growing clean energy technology business;
The Chinese also recently leapfrogged the West as the
world's largest manufacturer of solar panels, with six of the
top ten global solar photovoltaic manufacturers now in China;
The Chinese have 13 nuclear power plants operating today and
27 more under construction with the intention to raise the
percentage of nuclear-generated electricity from 1% to 6% by
2020, and make dramatic increases beyond that point.
Importantly, China is also becoming increasingly self-
sufficient in reactor design and construction;
The Chinese have plans for 140,000 megawatts of new
hydropower capacity by 2015;
China has approved the construction of GreenGen, an
integrated gasification combined cycle coal plant capable of
capturing and storing carbon dioxide and anticipated to be in
operation before the U.S. equivalent, FutureGen.
Major US companies have set up not only new clean energy
technology manufacturing facilities in China, but increasingly
are locating significant R&D facilities there. Thus the Applied
Materials Corporation, based in Silicon Valley and the world's
largest supplier of equipment for making semiconductors, flat-
panel displays, and solar panels recently decided to build its
newest and largest research lab in China.
And overall, while in 2004 the U.S. was the focus of
approximately 20% of total global clean energy investment and
China accounted for just 3%, in 2010, the U.S. saw 19% of
global clean energy investment, while China surged past our
nation with 20% of that investment.
Beyond China, other countries including Germany, Japan, South
Korea, and Denmark are forging ahead with ambitious clean energy
economic strategies and becoming top competitors in the vast emerging
global marketplace for clean energy technology. Significantly, all of
them are taking aggressive approaches to policy and investment. The
work of these countries is critical in mitigating climate change, but
their top motivation has often been their own economic self-interest
through the creation of vibrant new industries, significant new jobs,
and growing international markets in clean energy technologies and
projects. In contrast, the U.S. has largely stayed on the sidelines,
endlessly debating the need for and approach to a successful clean
energy economic strategy.
That's the bad news from a US competitiveness, security, and
environmental perspective. But the good news is that we can regain our
leadership in clean energy. As the President said in his 2010 State of
the Union address, we should ``not accept a future where the jobs and
industries of tomorrow take root beyond our borders...'' Aggressive
federal policy can drive private sector investment--measured literally
in the trillions of dollars--that will be required to move the nation
toward a more sustainable energy future. Among the solutions:
Adopt a national clean energy standard, following the lead
of many states that have set renewable energy and energy
efficiency standards. Political support for--and the ultimate
success of--a national Clean Energy Standard, being considered
by this Committee and supported by the Obama Administration,
will be greatly enhanced if a complementary and comprehensive
financing mechanism, like CEDA, is also adopted.
Increase our investment in energy R&D significantly. The
President's proposed 2012 budget is a good start with a one-
third increase in overall investment in clean energy
technologies compared to 2010;
Extend federal tax credits that have been so vital in
encouraging private sector financing of clean energy projects;
Improve energy project permitting and siting processes;
Reject the proposal to withdraw EPA authority to regulate
carbon emissions under the Clean Air Act. The Supreme Court
upheld this authority in 2007 and there is a significant and
increasing portion of the business community that seeks greater
certainty and reliability regarding carbon controls, and
supports a well-designed regulatory approach;
And most relevant to this hearing, replace the DOE loan
guarantee program with CEDA.
CEDA, as established under the American Clean Energy Leadership
Act, would increase the capital available for clean energy projects,
thereby helping to mature the underlying technologies and move them to
scale.
Chairman Bingaman and Ranking Member Murkowski, we welcome your
bill and its innovative and attractive approach to improving clean
energy finance through the creation of CEDA. Below we describe what we
see as CEDA's key elements addressing the Valley of Death and provide a
few thoughts about how your bill might be strengthened.
ceda: key elements addressing the valley of death
There are typically two elements of energy project finance: equity
and debt. Federal tax credits have stimulated equity investment in
wind, solar, geothermal and other clean energy projects. Securing loans
for projects has been more problematic, especially for higher risk
projects. Bankers are generally reluctant to provide a loan for a
project involving a technology that has not been proven at commercial
scale. A common refrain from the bankers goes something like this:
``We'd be delighted to finance your third or fourth project. Come see
us after you've built the first couple of full-size plants and you've
got solid operating data proving that your technology works at scale.''
Bank financing plays a critical role because a commercial-scale
energy project can often cost hundreds of millions or billions of
dollars, generally beyond the capacity of venture capital investors who
have often advanced the technology through pilot scale. The projects
also generally have rates of returns well below what the venture
community expects. There are other sources of private equity beyond
venture capital but these players generally require the lower cost debt
provided by the banks to be part of the project finance deal in order
to meet their return thresholds.
Let me provide a bit of perspective on the scale of energy project
transactions and expected rates of return. Between 2005 and 2009
venture capital investment in wind, solar, biofuels, biomass,
geothermal, small hydro and marine energy companies was roughly $12
billion worldwide. In contrast investment in projects deploying these
technologies was more than twenty times this at about $275 billion. And
in very rough terms, venture investors expect average returns on a per
transaction basis to be 35-40% in a basket of deals ranging from ``home
runs'' to total losses. In contrast, returns for equity investors on
individual energy projects are roughly in the 8-12% range and 6-8% for
the banks providing debt, with the expectation that most energy
projects will perform as promised--and none will be outright failures.
The key point is that the Valley of Death projects sit precariously
between the venture capital and project finance worlds. They are
generally too big in terms of required capital and too small in terms
of returns for the venture capital community. And they are often too
risky for the project finance players, especially for the banks that
typically provide the great majority of a project investment. This is
where CEDA comes in.
CEDA would have a number of important characteristics that make it
particularly attractive to projects confronting the Valley of Death:
First, it would focus on the central element of the Valley
of Death problem, i.e. ``breakthrough technology'' with
significant potential to advance critical national energy goals
but that ``has generally not been considered a commercially
ready technology as a result of high perceived technology risk
or other similar factors.'' It is this breakthrough technology,
with its significant risk profile, that faces difficulties
raising capital for the first few commercial-scale plants--both
innovative energy generation projects and manufacturing
facilities.
Second, CEDA would provide a broad array of tools to
accelerate deployment of clean energy technology including
direct loans, loan guarantees, letters of credit, and other
credit enhancements. It would also have the authority to issue
bonds, notes, debentures or other obligations or securities.
These tools go well beyond the current loan guarantee program
that DOE is administering.
Third, upon transfer of current DOE loan guarantee functions
to CEDA, the new agency would be capitalized with $10 billion.
$10B is not a small sum, particularly in these budget-
constrained times, but it could leverage private capital many
times more and, as I explain next, with this initial
appropriation CEDA may well become self-sustaining, i.e.
require no further federal appropriations.
Fourth, CEDA, would have the authority to use ``alternative
fee arrangements'' such as ``profit participation'' and
``contingent fees.'' This is important to the success of the
program because it allows CEDA to be compensated for risk it
takes through a financial stake in successful energy projects
and companies. This will help meet the critical goal of making
the Clean Energy Investment Fund, which undergirds CEDA, self-
sustaining and more able to accommodate truly innovative
technologies. Other government entities like the U.S. Overseas
Private Investment Corporation (OPIC) currently have such
authority to be compensated in providing loans, guarantees,
insurance etc to U.S. private companies. In order to allow CEDA
to more completely address commercialization challenges at the
early stages of the Valley of Death, the Committee may want to
consider augmenting this important authority by more explicitly
allowing the agency to take equity positions through purchase
of warrants in the technology companies underlying its project
investments. CEDA would then benefit from the rising value of
companies that successfully commercialized their products with
CEDA support. CEDA could do this either directly or through a
fund in partnership with private investors. This might also
take the form of rights to invest in additional future projects
on favorable terms.
Fifth, CEDA would be established as an agency within DOE
under the direction of an administrator, a board of directors
and technical advisory council. It would, however, enjoy an
important degree of independence, including from Departmental
line reporting as well as the Secretary's reorganization
authority. The best analogy is the Federal Energy Regulatory
Commission (FERC), an arm of the DOE with significant
independence.
Sixth, CEDA would use a portfolio investment approach to
mitigate risk and diversify investments across technologies.
Its board of directors, as well as the technical advisory
council, will have the background and skills to help ensure
that the financial and technical risks of the agency's clean
energy project investments are adequately considered. The
current DOE loan guarantee program is limited in taking such a
portfolio approach, with each deal having to stand on its own.
CEDA, in contrast, could balance a lower risk but innovative
energy efficiency aggregation investment with an investment in
a higher risk first time scale-up of a new manufacturing
facility or generating project. The Committee may want to
consider an additional way to broaden the portfolio and
mitigate risk, that is for CEDA to bring together current clean
energy investment programs not only at the Department of Energy
but also at other agencies as well, including a biofuels
program at the Department of Agriculture, a major transmission
fund at the Western Area Power Administration, and several
funds at the Small Business Administration.
Finally, CEDA would have the authority to set its loan loss
reserve, which is the percentage of capital the agency should
keep as a buffer against potential losses. This is important
authority because the lower the loan loss reserve the more
loans CEDA can make for the same amount of appropriation. For
example, the current figures of $10 billion in appropriations
with a 10% reserve would provide about $100 billion in loans.
If the reserve percentage was reduced to 5% then about $200
billion in loans could be provided for the same $10 billion.
The loan loss reserve depends on a number of factors including
the quality of the deals selected and the structuring of the
transactions. The smarter the approach CEDA takes to these and
other tasks, under the direction of its Administrator and with
input from its board and advisory council, the easier it will
be to set a reasonable loan loss reserve. I would also note
that OMB oversight of CEDA investments, under the Senate bill,
would be narrowed to a review of the loan loss reserve,
compared with OMB's broader current oversight of the DOE Loan
Guarantee Program.
These and other core elements of CEDA, as developed in the Senate
bill, will create a financing entity with the resources, tools and
independence to successfully bridge the Valley of Death for critical
clean energy technologies--from efficiency and renewables to fossil
energy to nuclear power--with significant resulting economic, security
and environmental benefits.
conclusion
Mr. Chairman and Senator Murkowski, the legislation you are jointly
advancing obviously comes in the midst of significant national economic
and federal budget problems. But it is precisely at this moment--when
clean energy projects so vital to our economy, environment and security
are facing increasing difficulty getting financed--that your
legislation is so important. This is especially the case for projects
involving innovative technologies, from efficiency and renewables to
fossil energy to nuclear power, with higher associated risk--the very
technologies that may well hold the keys to addressing the climate
problem, our oil dependence, a deteriorating electric grid, and also
provide a major stimulus to the faltering economy and U.S.
competitiveness. And when the economy improves, these Valley of Death
projects will continue to need the critical financial support that this
bill provides. Finally, I truly believe that the nation that
successfully bridges the Valley of Death will lead the energy
technology race of the 21st century, with extraordinary resulting
benefits.
The Chairman. Thank you very much.
Ms. Yanosek, go right ahead.
STATEMENT OF KASSIA YANOSEK, FOUNDING PRINCIPAL, TANA ENERGY
CAPITAL LLC, NEW YORK, NY
Ms. Yanosek. Thank you, Chairman Bingaman, Senator
Murkowski, and other members of the committee, for the
opportunity to testify today. It is an honor to speak to you on
CEDA.
My name is Kassia Yanosek and I am a Founding Principal of
Tana Energy Capital, an energy investment and advisory firm. At
Tana I evaluate and execute investments in energy companies.
Prior to founding Tana, I was a senior investment professional
at a private equity firm called Hudson Clean Energy Partners
and have worked at Bechtel and BP investing in both traditional
and renewable energy.
As an investor, I see firsthand the need for funding clean
energy technologies at scale. Significant capital is needed for
moving technologies from pilots to deployment, capital that
does not fit the risk-return profiles of traditional investors.
These technologies are stuck in the commercialization gap. As
an investor, I find that term to be slightly more palatable
than ``the valley of death.''
The bill being discussed today, CEDA, would be an important
solution to this funding need. Today I will highlight the
following 5 key points:
No. 1, the flow of clean energy investment of recent has
weakened toward western markets;
No. 2, transitioning to a cleaner energy economy in a
volatile funding environment requires investing today in
tomorrow's winners;
No. 3, a key impediment for the private sector is funding
across the commercialization gap;
No. 4, CEDA would help bridge the commercialization gap;
No. 5, in a tight budget environment getting taxpayer bang
for the buck is critical. CEDA and its one-time capitalization
would deliver this.
No. 1, the flow of clean tech investment has weakened
toward western markets. Clean energy of recent has seen
tremendous growth. However, when you unpack the data a new
investment pattern is emerging. Much of the growth has shifted
to China. Furthermore, government stimulus, which provided 20
percent of clean energy investment last year, has masked the
true flow of capital. As these programs phaseout and budgetary
realities sink in, investors are faced with uncertainty and the
aftermath of a subsidy-driven cycle which has propped up the
industry.
No. 2, transitioning to a cleaner energy economy requires
investing today in tomorrow's winners. Only one-eighth of all
clean energy investment worldwide has gone to innovation. While
we need investment across the entire technology development
cycle, we have failed to prioritize funding the
commercialization of innovations that have a much better chance
of reaching cost parity with conventional energy.
No. 3, a key challenge is funding the commercialization
gap. I recently evaluated a first commercial biomass technology
in Europe, which will help utilities supplement their coal use.
This project and many other first commercial projects I
evaluate requires significant dollars to prove out their first
facility. In this particular case, $100 million was already put
into this technology, much from a European government. This
type of capital just doesn't exist without government support.
Coal-based utilities exposed to upcoming EPA regulations
are concerned about future generation mix and how innovations
will fit into their investment choices. My experience in
working with these utilities is that they too would benefit
from policies like CEDA.
No. 4, CEDA will help to bridge the commercialization gap.
By lowering financial risk to private investors, CEDA will
unlock hundreds of billions of capital off the sidelines. An
important aspect of CEDA is its broad array of financial tools.
Various debt products and the ability for CEDA to participate
as a member of an investor syndicate is important. These tools
expand DOE's ability to provide solutions for a range of
investments because, believe me, every investment is unique.
Structured as a separate administration within the DOE, CEDA's
substantial independence will provide a nimbleness which has
eluded DOE's loan guarantee programs.
Finally and importantly, CEDA is designed to become self-
sustaining. Profit participation is one mechanism which will
allow CEDA to be compensated for risk with up side in
successful investments. This and other fee-generating revenues
will reduce CEDA's dependence on budgetary outlays so it is
only needing a one-time capitalization. This in my view is
fiscally responsible and as a taxpayer I like to see this.
In closing with point No. 5, policies which give taxpayer
bang for the buck are critical. CEDA will put smarter, more
efficient government dollars to work in partnership with the
private sector. This evergreen program will provide taxpayers a
deal, particularly when compared to other programs which deploy
grants with no return. The section 1603 grant program, for
example, will approximately cost $10 billion through the end of
2011, which is about equal to CEDA's one-time capitalization.
CEDA presents an opportunity for Congress to act with
fiscal awareness and put the higher priority on innovating
today with an eye toward competitiveness, energy security, and
less-polluting energy for tomorrow. In this tight budgetary
environment, it's an opportunity we shouldn't miss.
Thank you.
[The prepared statement of Ms. Yanosek follows:]
Prepared Statement of Kassia Yanosek, Founding Principal, Tana Energy
Capital LLC, New York, NY
introduction
Thank you Chairman Bingaman, Senator Murkowski, and other members
of the Committee for the opportunity to testify today. It is an honor
to speak to you on CEDA and the importance of this legislation to the
clean energy investment community.
I am Kassia Yanosek, a Founding Principal of Tana Energy Capital,
an energy investment and advisory firm. As a principal of Tana, I
evaluate and execute investments in energy technologies. Much of my
work has been focused on investments in technologies of interest to the
electrical utility sector. I work with utilities around the country to
understand their perspective on innovative energy technologies and how
they expect to diversify their generation portfolios, and improve their
transmission systems. Prior to founding Tana Energy Capital, I was a
senior investment professional at Hudson Clean Energy Partners, a
billion dollar private equity firm focusing on renewable energy. I have
also worked at Bechtel and at BP, making investments in both renewable
and traditional energy.
the need for programs like ceda to advance u.s. clean energy innovation
leadership
As an investor and advisor to companies seeking capital for
deployments of clean energy technologies, I see firsthand the critical
need for funding to deploy clean energy technologies at scale.
Significant capital is often needed to move technologies from pilot
testing to deployment--capital that does not fit the risk/return
profiles of venture, private equity, or debt financing. As such, these
technologies and projects are stuck in the ``Commercialization Gap''.
The bill being discussed today--the Clean Energy Deployment
Administration (CEDA)--would be an important solution to this funding
need which I will describe in further detail.
In my testimony today, I would like to offer my observations on
capital flows for clean energy, the funding needs of the
Commercialization Gap, and my view on how CEDA would help to solve this
challenge and increase U.S. competitiveness. CEDA has a focused purpose
to promote affordable financing for clean energy technologies and
projects which would not get financing otherwise. CEDA will help to
improve U.S. competitiveness in clean energy and reduce the cost of new
energy technologies. Support for breakthrough technologies developed
and deployed domestically could strengthen U.S. clean technology
leadership and lay the groundwork for a competitive U.S. export market.
In this time of fiscal austerity, I see CEDA as a win-win for the
American people, legislators, and energy companies alike.
Today I will highlight the following key points:
The flow of investment in the clean energy sector has
strengthened towards emerging markets such as China, and
weakened towards Western markets, where flow is slowed by
policy uncertainties and low natural gas prices. Recent data
for Q1 2010 demonstrate this shift.
Accelerating our transformation to a cleaner energy
economy--and enabling the U.S. to compete abroad--requires the
adoption and scale-up of new technologies that have the
potential to compete dollar-for-dollar with conventional
technologies over the long haul.
A key impediment for the private sector is funding
innovative companies and projects that fall into the
``Commercialization Gap'': investments which are too capital-
intensive for venture capital, but too risky for private
equity, project or corporate debt financing.
As currently designed, CEDA would provide various types of
credit supports to stimulate private sector investment and help
bridge the commercialization gap.
In today's state of fiscal austerity and budgetary concerns,
getting taxpayer ``bang for the buck'' is critical. CEDA's
focus and structure would enable the program to be capitalized
only once, yet provide long-lasting benefit.
The current state of clean energy investment globally and in the U.S.
The global clean energy industry has seen tremendous growth in
recent years. According to Bloomberg New Energy Finance, 2010 was a
record year for invest investments worldwide, topping $243 billion. In
the past five years, growth rates have topped 25 percent. However, when
you unpack the data, it is clear that a new investment pattern is
emerging. Much of the recent investment growth has shifted from Western
economies to growth economies such as China. Last year, investment in
China was up 39% to $51.1bn, larger than any one country.\1\
Furthermore, 2010 investment was kept strong by temporary government
stimulus programs, which made up one-fifth of investment in clean
energy worldwide.\2\ As these programs phase out and budgetary
realities sink in, investors are faced with uncertainty which in turn
limits investment in both innovative clean energy technologies--such as
energy storage--as well as conventional clean energy projects such as
wind farms and nuclear plants. Early data showing investment trends in
the first quarter of 2011 demonstrate how policy uncertainty impacts
investment. Q1 2011 saw much weaker investments ($31bn) which is down
30% from Q4 2010.\3\ Much of this decline in growth can be attributed
to policy uncertainties in Europe, as well as low natural gas prices
which have impacted U.S. investments. For example, in 2010, the number
of new wind turbine installations in the U.S. fell by almost half.
---------------------------------------------------------------------------
\1\ Bloomberg New Energy Finance; Morgan Stanley.
\2\ Bloomberg New Energy Finance.
\3\ Ibid.
---------------------------------------------------------------------------
Accelerating our transformation to a cleaner energy economy requires
the adoption and scale-up of new technologies
Whether the fiscal realities will strengthen or weaken the clean
energy industry will depend on how policymakers prepare for it. In my
view, a root cause of today's investment uncertainty is a boom-bust
cycle of short term policies that have encouraged investment in
conventional clean energy projects. Nearly seven-eighths of all clean
energy investment worldwide has gone to deploying mature clean energy
technologies such as wind power. Only a tiny share focuses on
innovation. While we need both types of investment, more attention
should be placed on accelerating the adoption of innovative
technologies that stand a better chance of competing with conventional
energy over the long haul.
Accelerating the transfer of energy technology from the lab to
commercial deployment is critical for the United States, now more than
ever. Impending clean air regulations will require utilities to
retrofit or replace a significant number of coal-fired power plants
with cleaner options. Energy storage innovations are needed to support
intermittent energy sources such as wind and solar power, which only
produce power when the wind is blowing or the sun is shining. And grid
modernization is critical as ``smart-grid'' technologies come online
and nascent markets such as electric vehicles and customer-driven
demand-side management provide new challenges for managing the
electrical grid.
A key impediment for the private sector is funding for innovative
companies and projects that fall into the ``Commercialization
Gap''
It is vital that we find a solution to accelerate the
commercialization of new technologies and the requisite financing
needed for their full-scale deployment. Many commercialization
investments are stuck in a so-called ``Commercialization Gap'' (Figure
1). They are plagued by a lack of financing, technology adoption risks,
and poor coordination among product manufacturers, financial investors,
and the utilities that would deploy these technologies. Significant
capital is often needed to move technologies from pilot testing to
deployment--capital that most utilities and financial institutions are
unable or unwilling to put at risk. Furthermore, technology adoption
risks--driven, for example, by uncertainty around technical standards--
have held back deployment capital, particularly for investments in grid
modernization technologies.
In my day-to-day work as an investor and advisor to energy firms, I
see these challenges first hand. For example, I have recently evaluated
a second-generation biomass technology in Europe which, if
commercialized at scale, has the potential to help utilities supplement
their use of coal with a product that is renewable, will significantly
reduce their ``carbon'' footprint, and do so with a pricing structure
for the product that is not too dissimilar to coal's pricing today.
This project and many other technologies I evaluate require significant
capital expenditures to prove out a first generation facility--capital
that is difficult to access without government support prior to proof
of commercial viability.
I also see the challenges that utilities face regarding the
commercialization gap. In contrast to venture or private equity,
utilities enjoy a low cost of capital. However, it is difficult for
them to justify risky commercialization investments to their
shareholders or ratepayers. For utilities with significant coal
portfolios subject to upcoming EPA regulations, there is a concern
about the future generation mix and how technological innovation will
fit into their investment choices. My experience in working with these
firms is that they also would benefit from policy moving towards
technological innovation instead of away from it. Some of these
utilities have announced plans to pursue clean coal projects with their
Chinese counterparts. These partnerships signal China's intent to
develop its capability and competitiveness in clean energy innovation.
[Note: ``Figure 1: Definition of the Commercialization Gap'' has been
retained in committee files.]
CEDA would provide various types of credit supports to stimulate
private sector investment and help bridge the commercialization
gap
To help close the commercialization gap, the U.S. government can
lower the financial risks the private sector faces in investing in the
deployment of breakthrough technologies. CEDA's credit support products
will do just this, improving the risk/return profile for these risky
yet capital intensive technologies and enable private sector capital to
move off the sidelines. Loan guarantees have already proven essential
to promising large-scale solar projects and to firms that test new
technologies to burn coal more cleanly. CEDA, as drafted, would
incorporate the existing loan guarantee program and improve upon it.
Important aspects of CEDA include the following:
Emphasis on breakthrough technologies.--This emphasis
addresses the Commercialization Gap funding challenge and
serves to move private capital off the sidelines by improving
the risk/return profile of commercialization-stage
technologies. CEDA's portfolio approach will pool risk and
diversify investments. This allows for losses on some
investments to be offset by gains on others.
A broad array of tools to accelerate the deployment of clean
energy technologies.--Credit support includes loans, loan
guarantees, insurance products, and debt instruments that allow
CEDA to participate as a co-lender or member of an investor
syndicate. CEDA may also provide indirect market support to
develop securitized products. These tools enhance and expand
the ability for the DOE to provide tools for a range of
technologies and projects.
A separate administration within the Department of Energy,
similar to FERC.--CEDA's separate Administrator and Board of
Directors would provide CEDA substantial independence within
DOE, much like FERC. This independence will likely help to
reduce lengthy review processes which have challenged the loan
guarantee programs.
Funding mechanisms which permit CEDA to become self-
sustaining.--Profit participation, as defined in the CEDA
legislation, will allow CEDA to be compensated for risk with
upside in successful companies and/or projects. This is one
mechanism by which CEDA could self-fund over time, similar to a
mechanism employed by the Overseas Private Investment
Corporation (OPIC) Fund Program. OPIC provides loan guarantees
to private sector funds in return for a preferred government
return. Achieving self-funding status is a significant goal as
it would permit CEDA autonomy from the appropriations process.
For my detailed analysis of CEDA in the American Clean Energy&
Leadership Act, passed by the Senate Energy Committee 6/29/2009, Please
see APPENDIX A,* ``The Clean Energy Deployment Administration (CEDA): A
comparison of the Senate, House and Green Bank Proposals, April 10,
2010.''
---------------------------------------------------------------------------
* Document has been retained in committee files.
---------------------------------------------------------------------------
In the current state of fiscal austerity and budgetary concerns,
getting taxpayer ``bang for the buck'' is critical. CEDA's focus and
structure would enable the program to be capitalized only once, yet
provide long-lasting benefit.
In closing, CEDA is a much-needed policy mechanism to provide
smarter, more efficient government dollars to work in partnership with
the private sector for technologies which have a chance to become cost-
competitive with conventional energy. The one-time $10 billion
capitalization needed for this evergreen program provides taxpayers a
``bang for their buck'', particularly when compared to other government
programs which have deployed capital for clean energy in the form of
grants with no return. According to PREF, the Section 1603 Treasury
Grant program is expected to cost approximately $10 billion through the
end of 2011, equal to the one-time capitalization needed by CEDA.
CEDA presents an opportunity for the U.S. government to enact a
fiscally responsible, sustainable policy that puts a higher priority on
innovating today with an eye towards competitiveness, energy security,
and less polluting energy for tomorrow. In this tight budgetary
environment, this is an opportunity Congress should not miss.
The Chairman. Thank you very much.
Mr. Guith, why don't you go right ahead.
STATEMENT OF CHRISTOPHER GUITH, VICE PRESIDENT FOR POLICY,
INSTITUTE FOR 21ST CENTURY ENERGY, CHAMBER OF COMMERCE
Mr. Guith. Thank you. Chairman Bingaman, Ranking Member
Murkowski, members of the committee: I am Christopher Guith,
the Vice President for Policy at the Institute for 21st Century
Energy, an affiliate of the United States Chamber of Commerce.
The U.S. Chamber is the world's largest business federation,
representing the interests of more than 3 million businesses,
organizations of every size, sector, and region.
In 2008 the Energy Institute issued its foundational policy
document, the Blueprint for Securing America's Energy Future,
where we laid out the structure of a truly comprehensive energy
policy ranging from increasing the efficient production and use
of energy to expanding access to America's energy resources,
like oil, natural gas, and coal, to ensuring that we are
producing the necessary engineers, scientists, and skilled
workers, not only to design and to build the infrastructure of
tomorrow, but also to maintain our existing infrastructure now.
We made nearly 90 actionable and substantive recommendations
that, if adopted, would secure our energy future.
One of the central themes of our blueprint is technology
deployment. Irrespective of regulatory regimes we decide to
impose in the future, it is clear that the development and,
more importantly, deployment of newer, more efficient and
cleaner energy technologies will be needed to secure our energy
future.
We often hear calls for Manhattan or Apollo Projects to
answer our energy prayers, but I would respectfully argue that
these proposals miss the mark because they fail to recognize
existing technology developed and do not address the structural
issues that hamper the deployment of any new technology.
The U.S. does not want for energy technology development.
As has been mentioned already, nearly every technology in use
or, frankly, even discussed today owes its invention,
discovery, or improvement to America's industry, national
laboratories and academic institutions. While we absolutely
need to maintain a commitment to robust R and D and encourage
novel approaches like ARPA-E, it is the initial deployment of
new technologies that is the biggest barrier to their
commercialization.
Unconstrained, markets operate in a risk-reward paradigm--
the higher the potential risk, the higher the potential
reward--and generally fall on the risk-averse side when
considering the development of new technologies, especially in
the energy industry.
Clean energy technologies face multiple structural
inefficiencies in financial markets, inefficiencies that limit
their ability to deliver their desired benefits of energy
security, environmental quality, and economic development.
These inefficiencies include financing bottlenecks along the
technology development pipeline, the inability of the market to
fully account for societal costs and benefits, and the current
infrastructure optimized for traditional energy sources.
Over the past 6 or 7 years, the Federal Government has
authorized an array of policy tools to overcome these
structural inefficiencies and accelerate clean energy
deployment. But the slow pace and sometimes intransigence of
the Federal bureaucracy limits to impacts of those existing
policies.
An entity like CEDA as included in ACELA in the last
Congress could provide the flexible financial risk management
tools currently employed to advance other long-term goals, for
example exports at the Export-Import Bank and emerging market
investment at OPIC, or the Overseas Private Investment
Corporation, and could add these to our capital-intensive clean
energy goals. This is why we supported CEDA in 2009 and
continue to support it today.
I realize that there have been various versions of clean or
green energy bank proposals considered. Often they are intended
to help any or all clean technologies or sometimes just a
select few. Mr. Chairman, this committee's version of CEDA is
eloquently tailored to address the primary problem of
commercializing technologies because of their newness and
inherent technological risk, while doing it in a technology-
neutral fashion.
I must be clear. The label ``clean energy'' is not reserved
solely for renewables, but must be accurately applied to any
and all new technologies and processes that reduce
environmental impact, whether it be clean coal, advanced
biofuels, natural gas vehicles, or natural gas as a
transportation fuel, advanced nuclear or energy storage, just
to name a few.
It is also important to point out that much has changed
since this committee reported ACELA last Congress. The
country's debt and deficit have grown to damaging and
unsustainable levels. We would encourage a broader discussion
of how to capitalize CEDA reflecting our fiscal realities.
Perhaps a quicker infusion of private capital through Federal
bond offerings could reduce budgetary impacts.
Additionally, CEDA must be structured to operate revenue-
neutral and could be required to pay any initial capital
infusion from taxpayers to the U.S. Treasury through successful
operation.
In summary, clean energy can provide many societal benefits
not easily captured by normal market forces. Independent
agencies have furthered national priorities in the past and
successfully carried out important roles that traditional
Federal agencies are not designed to fulfill. The urgency and
scale of energy security, environmental quality and job
creation requires greater access to the full Federal policy
portfolio to accelerate the clean energy investment necessary
to meet our national energy goals. CEDA combines a domestic
energy mission with sophisticated financial risk management
skills to bring emerging clean energy technologies to the
market significantly faster than would occur under current
market conditions.
Thank you.
[The prepared statement of Mr. Guith follows:]
Prepared Statement of Christopher Guith, Vice President for Policy,
Institute for 21st Century Energy, Chamber of Commerce
Thank you, Chairman Bingaman, Ranking Member Murkowski, and members
of the Committee. I am Christopher Guith, vice president for policy of
the Institute for 21st Century Energy (Institute), an affiliate of the
U.S. Chamber of Commerce. The U.S. Chamber of Commerce is the world's
largest business federation, representing the interests of more than
three million businesses and organizations of every size, sector and
region.
The mission of the Institute is to unify policymakers, regulators,
business leaders, and the American public behind common sense energy
strategy to help keep America secure, prosperous, and clean. In that
regard we hope to be of service to this Committee, this Congress as a
whole, and the Administration.
the deployment hurdle
In 2008, the Energy Institute issued its foundational policy
document, Blueprint for Securing America's Energy Future, where we laid
out the structure of a truly comprehensive energy policy, from
increasing the efficient production and use of energy to expanding
access to the America's energy resources like oil, natural gas, and
coal, to ensuring we are producing the necessary engineers, scientists,
and skilled workers not only to design and to build the infrastructure
of tomorrow, but also to maintain our existing energy infrastructure.
We made nearly 90 actionable and substantive recommendations that if
adopted, would secure our energy future.
One of the central themes of our Blueprint is technology
deployment. Irrespective of regulatory regimes we decide to impose in
the future, it is clear that the development and deployment of newer,
more efficient, and cleaner energy technologies will be needed to
secure our energy future. We often hear calls for a ``Manhattan'' or an
``Apollo'' project to answer our energy prayers, but I would
respectfully argue that these proposals miss the mark because they do
not address the structural issues that hamper the deployment of any new
energy technology.
The United States does not want for energy technology development.
Nearly every technology in use, or even discussed, today owes its
invention, discovery, or improvement to America's industry, National
Laboratories, and academic institutions. While we absolutely need to
maintain a commitment to robust research and development and encourage
novel approaches like Advanced Research Project Agency--Energy (ARPA-
E), it is the initial deployment of new technologies that is the
biggest barrier to their commercialization.
Unconstrained, markets operate in a risk-reward paradigm--the
higher the potential risk, the higher the potential reward--and
generally fall on the risk averse side when considering the deployment
of new technologies, especially in the energy industry. Clean energy
technologies face multiple structural inefficiencies in financial
markets, inefficiencies that limit their ability to deliver the desired
benefits of energy security, environmental quality, and economic
development.
These inefficiencies include: financing bottlenecks along the
technology development pipeline; the inability of the market to fully
account for societal costs, and benefits; and a current infrastructure
optimized for traditional energy sources. Over the past six years, the
federal government has authorized an array of policy tools to overcome
these structural inefficiencies and accelerate clean energy deployment,
but the slow pace, and sometimes intransigence, of the federal
bureaucracy limits the impact of those existing policies.
A quasi-governmental agency like the Clean Energy Development
Administration (CEDA), as included in the American Clean Energy and
Leadership Act of 2009 (ACELA), could provide the flexible financial
risk management tools currently employed to advance other long-term
goals (e.g. exports at the Export-Import Bank and emerging market
investment at the Overseas Private Investment Corporation) to our
capital-intensive clean energy goals. This is why we supported CEDA in
2009 and continue to support it today.
I realize that there have been various versions of clean or green
energy bank proposals considered. Often, they are intended to help any
and all ``clean'' technologies, or sometimes just a select few. Mr.
Chairman, this Committee's version of CEDA from ACELA is elegantly
tailored to address the primary problem of commercializing technologies
because of their newness and inherent technological risk, while doing
it in a technology-neutral fashion. I must be clear, the label ``clean
energy'' is not reserved solely for renewables, but must be accurately
applied to any and all new technologies and processes that reduce
environmental impact, whether it be clean coal, advanced biofuels,
natural gas vehicles, advanced nuclear, or energy storage to name a
few.
The ability to acquire financing is not the only hurdle to clean
energy deployment. Our existing siting process has proven to be an
absolute obstacle for dozens of clean energy projects. Without
substantive reform to the current National Environmental Policy Act
(NEPA) process, clean energy deployment will not reach its potential.
The same applies to the siting of necessary infrastructure to support
greater deployment (and cost reduction) of clean energy, such as
interstate transmission siting.
It is also important to point out that much has changed since ACELA
was reported out of this committee. The country's debt and deficit have
grown to damaging and unsustainable levels. We would encourage a
broader discussion of how to capitalize CEDA reflecting our fiscal
realities. A quicker infusion of private capital through federal bond
offerings could reduce budgetary impacts. Additionally, CEDA must be
structured to operate revenue-neutral and could be required to repay
any initial capital infusion from tax-payers to the U.S. Treasury
through successful operation.
financing bottlenecks
Limited access to capital is the primary impediment to the timely
market penetration of clean energy infrastructure. While the price of
clean energy has significantly declined over the past 30 years due to
research and development investments, meeting national energy goals
implies accelerated market penetration and greater capital investments
in the raw materials of the concrete and steel necessary to build the
infrastructure needed to generate power, produce alternative fuels, or
manufacture batteries.
Before advancing national energy goals, an energy technology must
evolve from a discovery, to a laboratory experiment, to a technology
venture, and to an infrastructure development project. The private
sector often struggles to overcome the unique challenges of
transitioning between each stage. Incremental research and development
funding improves the quantity and quality of technologies coming off
the lab bench, but does not address the unique risks between a
technology venture and a large-scale infrastructure project.
Project finance investors, who manage access to large volumes of
low-cost capital, are riskaverse as they seek to protect and grow their
investments. In general, investors will give small amounts of capital
to risky projects in hopes of high returns, but offer large volumes of
capital to lower risk opportunities in expectation of secure,
predictable returns.
Multi-billion dollar energy projects face multiple risks, including
engineering risks, construction risks, commodity risks, execution
risks, resource risks, technology risks, permitting risks, and policy
risks. While clean energy projects can mitigate a majority of these
risks using normal project development processes, overcoming the
technology hurdle will take years if left to business-as-usual market
processes. Mitigating technology risk traditionally takes years of
waiting for the empirical results of a pilot project, a demonstration
facility, a semi-scale facility and then a full commercial scale
project. This lengthy process has resulted in multiple technologies
demonstrating promising laboratory results but failing to meet national
energy goals because they never reached full commercial scale.
Before the recent financial crisis reversed the upward trajectory
of clean energy investment, the market began to respond to the need for
clean energy capital investment, with worldwide investment more than
doubling in recent years. The baseline, however, is quite small, and
unprecedented growth is required. CEDA could offer tools aimed at
catalyzing private market investment, and thereby accelerate the
maturity and large scale delivery of clean energy.
undervalued benefits
Clean energy possesses to various degrees and in various ways three
societal benefits the free market has difficulty pricing: energy
security, environmental quality, and economic development. Competitive
markets efficiently deliver optimized results for the costs and
benefits directly assumed by the buyer and seller. Competitive forces
will yield optimized societal results if all of the costs and benefits
of the transaction are solely assumed by the buyer and seller. If costs
or benefits are imposed on or enjoyed by parties other than the buyer
and seller, competitive forces will depart from the optimal societal
outcome, as is the case in clean energy.
Energy Security.--Oil is not traded in a free market. The members
of the Organization of Petroleum Exporting Countries (OPEC) control 67%
of proven oil reserves and 40% of current production. The United States
is 95% reliant on oil for transportation and consumes approximately 25%
of the global oil supply on an annual basis. While the U.S. is the
world's third largest oil producer, our domestic production only covers
approximately 40-50% of our demand. The remaining 60% we import largely
from countries in the western hemisphere. But since petroleum from any
country can be refined into gasoline, the price we pay is set by the
world market's supply and demand balance.
Everything else being equal, the proliferation of free trade and
oil market globalization has lowered the average price of petroleum and
decreased the magnitude of volatility caused by domestic disruptions
(e.g. Hurricane Katrina or Alaskan pipeline maintenance) but has
increased the frequency of volatility as international disruptions now
affect our markets. While these disruptions may be the result of
natural causes, this inter-linkage exposes our energy, national, and
economic security to terrorist acts on foreign oil assets and the
intentional manipulation of the oil market by OPEC.
OPEC, a self-proclaimed international cartel, benefits from both
the highs and lows of oil markets. They capture large profits during
periods of high prices and capture market share during times of low
prices as higher-cost producers leave the market (e.g. like we have
seen recently in the U.S. biofuels industry). Anti-trust laws in the
United States restrict anti-competitive collusion to protect free
market forces, but national jurisdictional boundaries limit the tools
available to counteract international collusion.
Recent developments in the oil and natural gas exploration and
production provide a fitting example to how quickly and profoundly
technology can change the landscape and improve our energy security.
Commercial utilization of advanced seismology, hydraulic fracturing,
and horizontal drilling have enabled the country to increase
domestically produced oil for the first time in years. The potential
for further increasing domestic production is tremendous as these new
technologies are utilized at larger scales. One of the only limiting
factors to this positive trend is access limitations.
Mitigating exposure to oil market volatility requires energy
resource diversification and the availability of ready oil substitutes.
While such mitigation presents strong benefits to society atlarge, the
downside risk of low prices impacts alternative energy producers.
Alternative energy reduces oil dependence and price volatility by
harnessing domestic resources such as natural gas, electricity,
advanced biofuels, and coal.
Environmental Quality.--While reliable and affordable energy raises
society's standard of living, methods of energy production often incur
environmental costs not naturally priced by the free market, and these
costs are not always integrated into the cost of energy production. The
environmental costs of clean energy technologies are in many cases
lower than those of conventional energy sources.
Economic Development.--Free market economics encourage producers to
seek the lowest cost of production. Multi-national corporations often
benefit from the cost savings of more favorable regulatory environments
and lower cost labor in developing nations, but corporate accounting
does not allow them to capture the indirect benefits of the economic
development in their home nation caused by local job creation. The
global goals for clean energy require substantial job creation in
industries currently on the margins of the economy. Creating a more
favorable regulatory environment and utilizing American labor will
create domestic economic development by displacing imported products
and creating new export industries.
overcoming incumbent infrastructure
Clean energy also faces an incumbent infrastructure specifically
designed to maximize efficient production, delivery, and consumption of
.traditional energy. Historical U.S. energy policy primarily focused on
delivering low-cost, reliable energy. To advance those goals we have
built an infrastructure of pipelines, pumps, transmission lines,
refineries and generating stations. Today, each new unit of fossil
energy production and delivery is made dramatically cheaper by the
trillions of dollars of infrastructure investment made decades ago.
While clean energy can leverage some of the existing
infrastructure, most of the assets are geographically optimized to
connect rich fossil regions and centralized generation stations with
demand centers. Clean energy's distributed, intermittent, and often
remote resource profile requires a different infrastructure design.
While economically feasible in some markets, clean energy's
infrastructure build out is slowed by the lengthy permitting processes.
The stable flow of capital to clean energy projects, enabled by CEDA,
would encourage infrastructure developers to enter the lengthy
permitting process by providing the expectation that clean energy
projects will be financed and built.
restrictive federal agency management
The magnitude and complexity of the challenges associated with
emerging energy technologies demands professional and dedicated
financial risk management. While investment in clean energy
technologies is wholly consistent with the mission of the Department of
Energy (DOE), the cumbersome rules, leisurely pace, and bureaucratic
intransigence of traditional federal agencies, especially the Office of
Management and Budget, restrict the management flexibility and
acquisition of skills necessary to manage financial risk intelligently
and in a consequential timeframe. An independent, quasi-governmental
agency, such as CEDA, would be able to more effectively administer
energy financial services and would avoid the improbable task of
reforming an existing Federal entity, such as DOE.
Existing quasi-governmental agencies possess sophisticated capital
risk management expertise, and have established a strong track record
of furthering national goals. Existing entities, however, would need
substantial changes to their charters to accommodate the task of
domestic energy investment and lack deep energy domain expertise. A new
quasi-governmental agency modeled after successful examples, such as
the Export-Import Bank and the Overseas Private Investment Corporation,
could combine a domestic energy focus with the necessary management
flexibility.
Given the potential energy security, environmental quality and
economic development benefits potentially generated by clean energy,
the government can play a unique role by supporting firstof-a-kind
commercial scale faculties that mitigate technology risk for future
project developments by providing an empirical reference case. Such
support, though, must be done responsibly through intelligent, flexible
and swift mechanisms absent in traditional federal agencies. CEDA could
advance national energy goals by filling financing gaps with the
professional risk management of financial products designed to support
the scaling of clean energy projects.
conclusion
Clean energy possesses the societal benefits of energy security,
environmental quality and economic development not easily captured by
normal market forces. Independent, quasigovernmental agencies have
furthered national priorities in the past and successfully carried out
important roles that traditional federal agencies are not designed to
fulfill. The urgency and scale of energy security, environmental
quality, and job creation requires greater access to the federal policy
portfolio to accelerate the clean energy investment necessary to meet
our national energy goals. CEDA combines a domestic energy mission with
sophisticated financial risk management skills to bring emerging clean
energy technologies to the market significantly faster than would occur
under current market conditions.
The Chairman. Thank you very much. Thank you all for your
excellent testimony.
Let me start with a few questions. Mr. Silver, first let me
ask you. You talked about some of the lessons that have been
learned with the current loan guarantee program and what you've
achieved there. You also I think talked about how CEDA would
provide additional flexibility and tools to achieve some of the
results that we're all agreed upon are important. Could you
elaborate a little bit on that as to what are the lessons
particularly that this new flexibility or these new tools would
help to respond to?
Mr. Silver. Sure. Thank you for the question, Senator. The
3 or 4 topics I made reference to with respect to early lessons
learned were around timeframes, the limited utility of project
finance as the sole financing vehicle, the unique requirements
that small businesses face as well.
I might add a couple of other lessons learned to that. One
is that obviously ensuring that we have the capability of
hiring folks with deep expertise in the analysis and
negotiation and structuring of these transactions is essential
and speaks to a certain extent to special hiring authorities,
as well as a revisit of the procurement process by which we
bring consultants in.
I would only note, not specifically vis a vis CEDA, which
as you know the administration does not have a formal position
on, but I would note that in the private sector folks working
on transactions in this space frequently are able to make use
of other risk mitigants which they have at their disposal.
Among them and in no particular order of importance would be
various kinds of hedging strategies, leveraged leasing
structures, insurance wrappers, warrant structures, which play
a kind of de-risking role as well.
So there are certainly other tools in the arsenal that are
potentially available and would lead to the most appropriate
and most tailored results for any individual project.
The Chairman. Mr. Reicher, you also talked about how, as
you see it, CEDA would allow for the use of some--I think you
referred to insurance products, bonds, some other tools. Did
you want to elaborate on any of that as to what you think is
not being done now that could be done effectively in this area?
Mr. Reicher. Mr. Chairman, loan guarantees, as I said, as
Mr. Silver said, is one of a number of tools that we need in
the arsenal to get these projects through the valley of death.
Sometimes in my experience, having financed projects, a loan
guarantee won't get the job done and an insurance product,
which are increasingly being developed for these kinds of
things, could in fact be a good substitute. Bond offerings to
back these projects.
I think the ability of this new entity actually to engage
in what's known under the legislation as profits participation,
pay itself back, continue to fund the operation of the entity,
I think that's a very attractive element of this. The simple
answer, Mr. Chairman, is that the current loan guarantee
program is a good but limited tool, and it's pretty
straightforward if you talk to folks in the finance industry
that if you could add to the arsenal of tools and provide this
entity with a variety of flexibilities we could be doing a lot
more, a lot faster, and arguably at less cost and with less
risk, and finally again, and this is very important in these
fiscally challenged times, not have to come back to Capitol
Hill for an additional appropriation.
The Chairman. Let me ask one other question here. You've
done a comparison of the Senate and the House and the green
bank proposals. I think that's part of your testimony. Ms.
Yanosek, maybe you could just summarize what you concluded with
regard to the merits of this CEDA proposal the way we have it
here before the committee?
Ms. Yanosek. Thank you, Mr. Chairman. The chairman is
referring to a paper, a white paper that I wrote for the ACELA
legislation from last year which compared the proposals from
last year. The conclusion that I made in this comparison was
that the Senate CEDA--and this is my personal view--is very
well developed and is very well articulated to, frankly, give
the opportunity to have the biggest bang for the buck.
I do believe that having an arm's-length relationship from
the DOE is important. I also believe that the opportunity to
have a range of financial products that CEDA would be able to
administer is important. As I mention in my testimony, we
have--every investment is different and so having that ability
is really critical, and I believe that having the ability to
have profit-generating mechanisms is important so that CEDA may
continue to be able to self-fund itself.
Thank you very much.
The Chairman. Thank you very much.
My time is up. Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
Based on what all four of you have said and just repeated
again here in response to the chairman, Mr. Silver, Mr.
Reicher, I conclude that you view CEDA as yet one more tool,
that it is not necessarily something that replaces loan
guarantees or replaces tax credits or the other financing
mechanisms or opportunities out there, but that it is yet
another way that we can offer a process. Is that a somewhat
correct summation?
Mr. Reicher. Senator Murkowski, I would say that the way
you've wisely written the bill, it would in fact incorporate
the loan guarantee program as one of its several tools, and in
fact those authorities, the funding would be transferred over
to CEDA upon its creation as I understand the setup of the new
organization. That I think is very smart.
Then added to that is this independence. But I would also
echo something you mentioned as well. There is a separate array
of tools that we need outside of CEDA, for example the tax
credits. Those have been very effective, both investment tax
credits and production tax credits, for driving investment in
these technologies. They do need to be reauthorized when they
come up in 2012 and 2016.
But CEDA as you've designed it, incorporating the loan
guarantees and adding to that loan guarantee authority a whole
host of additional tools, is really what we need to get these
technologies from nuclear to coal to gas to renewables to
efficiency through this valley of death.
Mr. Guith. Senator Murkowski, if I might.
The Chairman. Mr. Guith.
Mr. Guith. I think this partially goes back to Chairman
Bingaman's first question on the difference between House and
Senate versions of CEDA, in that the version reported out of
this committee, the scope is much more limited. The version out
of the House committee--I'm sorry. The version that was passed
in Waxman-Markey was applicable to virtually, as I noted in my
testimony, any technology that meets the definition, including
mature technologies, whereas the version that you passed last
Congress was neatly tailored to address, as was mentioned in
various forms, the valley of death, the nascent technologies.
So to your question, I would say that the loan guarantee
program in Title 17 at DOE right now fits that same valley of
death model. So it very easily should be incorporated, not
impacting existing guarantees. But the other tools that are out
there should be debated on their own merits, because they
generally apply and are, frankly, used by mature technologies
and mature technologies only, and I would argue that CEDA
should not be open, should not be used, should not be allowed
to crowd out those nascent technologies by mature technologies.
Senator Murkowski. Mr. Silver.
Mr. Silver. Senator, first I'd like to just make clear that
my comments were really simply an observation that there were
tools available in the private sector. It didn't address
directly the question of CEDA one way or the other.
But I would make--I would add to that litany one other
general observation about private sector investment and
investment strategies. That is the use of a portfolio strategy,
a portfolio approach. As currently structured, the loan
guarantee program addresses each individual application, each
individual transaction, on a standalone basis. As I think my
colleagues here on the panel will describe to you based on
their private sector investment experience, that is not
traditionally the way that is handled, and it does have
implications for the risk profile and therefore by extension
the speed and nature of the projects that one finances.
Senator Murkowski. Let me ask the question, because I think
when we look at tax credits--and I know several of you have
mentioned that there's uncertainty with those because you never
know what we here in Congress are going to do. Are they going
to continue or are they not? Can you bank on them?
But, having said that, when you think about the tax
credits, you think about the grants, it's easier to assign a
value to them than you might be able to with a loan guarantee
or other financial instruments. Can you quantify the benefit of
a loan guarantee program in CEDA as we're discussing here, or
at least discuss kind of in a broader sense how much these
higher installed cost figures--how they could possibly be
lowered with Federal involvement in borrowing for the projects?
When people look at this CEDA, looking at it and saying,
well, this is a good approach, but $10 billion? How we get
around that? I appreciate your comments, Mr. Guith, about
perhaps some suggestions there as to how we might deal with the
financing of this, a Federal bond offering. But is there
something that can be done with regards to the loan guarantee
or with CEDA just as we talk about the numbers, the dollars
that are involved?
Mr. Silver. Senator, with respect specifically to the loan
guarantee program, which is really all I'm qualified to
discuss, I think that it's important first to step back and
look at what the objectives of the loan guarantee program are,
which are essentially to drive innovative technologies to scale
and to bring them to market in ways that attract private
capital in. I think the 27 projects we've been able to do, to
invest in or support across the 3 programs that we administer,
lends support to that observation.
In some respects, the intent is to demonstrate that the
technologies, innovative technologies at scale, work and change
the risk-reward profile that one of my colleagues here made
reference to in such a way that it continues to entice and
bring private capital to bear.
As part of the mechanism by which we operate, it seems to
me our responsibility is to leave those sectors once private
capital has been sufficiently incentivized and to move on to
other technologies, new and innovative technologies which need
to be brought to scale.
The second part of that answer is that the levelized cost
of energy which in a sense you're referring to is made up of a
variety of different components, if you will, and many of these
technologies address independent parts of them. A recent solar
project we supported changed the mechanics by which you install
solar paneling. Another provides a unique set of features
related to the aperture and the management of the apertures,
and on and on.
So we're trying to bring a series of these new elements to
bear because at scale--and this is the point I'm trying to
drive to--at scale, that drives down the cost of these. The
reason to focus so explicitly, it seems to me, on commercial
deployment is because at scale commercial deployment drives
down unit costs. As unit costs are driven down, we more
successfully build out our supply chains, and the more
aggressively we build out our supply chains the more
aggressively and successfully we can compete at cost around the
world.
Mr. Reicher. Senator Murkowski----
Senator Murkowski. I'm way over my time, but, Mr. Reicher,
if you want to.
Mr. Reicher. Very, very quickly, I just wanted to add,
reflecting another aspect of your question, that we've talked
today about a $10 billion capitalization of CEDA and I think
you were asking what could that drive in terms of investment.
The numbers are quite extraordinary, depending upon how you set
the so-called loan-loss reserve. If you set it at 10 percent,
you'd be driving on the order of $100 billion worth of
investment. You set it at 5 percent, on the order of $200
billion worth of investment.
So you get huge, huge leverage out of this. Compared to
lots of other tools that we use today--grants, as much as I'm a
big fan of them in certain circumstances, you don't get much
leverage at all. This would be the biggest source of leverage
we could find as far as the Federal Government getting money
deployed for these innovative technologies.
Mr. Silver. May I add just one other comment, Senator? I
think what Mr. Reicher said is deeply important. It's important
also to remember that the loan programs as structured and
potentially as envisioned going forward are in fact self-
sustaining. That is to say that we charge administrative fees,
both application fees and monitoring fees, which cover our
operating costs.
Perhaps most importantly, it's important to remember that
these are not grants; they're loans, and as structured we
expect them to be repaid, and we work to ensure on a monitoring
basis going forward that they are in fact repaid. So they are
among the most leverageable of imaginable programs, provided we
do our work correctly.
Senator Murkowski. Thank you all.
The Chairman. Senator Manchin.
Senator Manchin. Thank you all. I thank all 4 of you for
your presentations.
If I may, Mr. Silver, ask you. On the past experience as
far as CEDA, percentwise what part of your loans are given to
the so-called renewables versus the mature, such as fossils?
Mr. Silver. Senator, the number of applications is driven
in part by the number of applications we receive and in part by
the funding available for the projects. Actually, advanced
fossil projects fall into a different bucket, financing bucket,
if you will, than the renewables do.
To give you an overview, we have whatever $2.4 billion of
credit subsidy will generate in the 1705 program, which is
targeted to renewables and particularly to commercializable
renewables. There is an $8 billion bucket of funding available
for fossil projects, and in addition--and not to get too deep
into the weeds--$2 billion of what's called mixed no-use money,
which is also available for that, for fossil.
Senator Manchin. It just seems to me that, with the
dependency that we have on fossil--in West Virginia we do a
little bit of everything. We have the largest wind farms. We do
an awful lot of wind. Solar has not been that great as far as
development in our State. But of course, you know, coal and of
course Marcellus shale, natural gas.
Also, from the DOE we noticed that funding was cut back on
the deep shale fracking. In a time when we're looking to be
more--less dependent on foreign oil, it seems like that was an
unwise move. Do you have any input on that at all or are you
stepping in to fill the void?
Mr. Silver. No, Senator. The loan programs focus
specifically on the financing structures to support emerging
clean technologies, and so I can't speak for the other
decisions or discussions around financing elsewhere in the
Department.
What I would say is that we do have an active pipeline of
projects in the advanced fossil space, both in terms of various
kinds of gasification efforts as well as carbon capture and
sequestration. As I indicated in my testimony, we just actually
this past week issued our first term sheet for a very
significant project, a very, very large fossil-related project.
Senator Manchin. If I could ask any of the 3 of you to
chime in on this one. Tax credits. I know you've been talking
back and forth on the credit systems that we have, offsets and
credits. I know you know there's a large debate going on about
that with the oil credits. Do any of you believe that there
should be a trigger mechanism on credits, to where they
basically at a certain price level, take oil at $25 a barrel or
$50 a barrel, that basically the credits go off and come back
on, to basically--and still there would be a large amount of
investment made when prices fall, market prices fall, whether
it be traditional coal, gas, and oil?
It seems one size fits all and when prices are $100 a
barrel or $75 a ton of coal or $14 an mcf, the credits just
keep marching right on. Do you think there could be another way
of rearranging that?
Mr. Guith. I certainly do, but let's be careful what we
call credits. What the Finance Committee has proposed or is
about to propose includes very direct excise taxes, and yet
it's called elimination of tax treatment. Raising taxes is
raising taxes, and that's frankly what folks on both sides of
the Hill are considering right now.
I would also----
Senator Manchin. It's not raising taxes. I think we're
talking about putting fairness to the system, as it needed it,
at certain prices. Do you think the credits or the taxes are
still needed when markets hit certain prices?
Mr. Guith. Certainly we've discussed the potential of
perhaps phasing out the blender's credit for biofuels once it
is economically competitive with gasoline, exactly as you're
discussing. But I would note that that leaves on the table
technologies or projects that are, frankly, never competitive
and never reach their threshold. The question is should they be
in existence in perpetuity because they never reach a point of
competition?
Senator Manchin. I can tell you that credits on thin seam
coal or the credits on tight sands for drilling basically when
it goes to $12 and $14 an mcf might not still be needed. But if
it's around $2, $3, $4 an mcf, you've got to continue to
stimulate that market so they'll continue to explore.
If you would, please?
Ms. Yanosek. I'll just take it to a higher level, which is
essentially a tax or a cap or something of that nature isn't a
very efficient mechanism. The question is what is the goal that
you're going after? Is it energy security, is it lower carbon?
It really depends on the goal.
I think there's a distinction that needs to be made
between, as my colleague said, the difference between
technologies that are actually going to be, have the potential
to be cost competitive, and those that will not, that just
won't get there. I think that what we've seen with the ITC and
the PTC and some of these mechanisms is that, frankly, we've
gotten that industry to a quite developed stance and where the
real need is is for us to actually focus on what we're talking
about today, which is the commercialization gap.
Actually, when Senator Bingaman asked me the difference
between the 2 proposals, the green bank and the CEDA one, the
biggest one--and it's kind of an oversight because I just focus
on the commercialization gap and I kind of forget that CEDA
could potentially focus on some of these technologies that are
already mature--is that that's a big difference.
Now, certainly the credit subsidy cost is lower for these
more conventional technologies like wind, like solar. So you
could argue that CEDA could leverage more private sector
dollars. But I don't think that's solving the problem that we
have today, which is actually thinking more long-term about
persistent financing challenges for the part of the energy
technology development cycle where no private capital is going
to go.
Senator Manchin. It's not going to go because of the return
on investment. Basically, if the market's not there and the
price is so high, we're going to keep plowing money in for
something that's never going to be competitive.
Ms. Yanosek. To the point where the risk-return profile
doesn't make sense. So I will tell you that----
Senator Manchin. So we've got to continue to give it tax-
supported money to make them viable?
Ms. Yanosek. For wind and solar, a good percent of that
return on investment is coming from a government subsidy.
Senator Manchin. Absolutely. Thank you.
Mr. Silver. Could I just quickly add? No. 1, on your
initial question about the relative proportion of funding
across renewables, fossil, and the like in the loan guarantee
program, one of the beauties of CEDA is in fact, as you've
heard, it could take a portfolio approach. It would not be--it
would not be subject to these narrow categories, you should
spend X on this and Y on that. So it could look out and say,
what are the needs in this energy innovation area, and act
accordingly, just like a smart investment manager would. That's
No. 1.
No. 2, with respect to how to help energy technologies move
forward, I do think the production tax credit and the
investment tax credit continue to have a role in helping
current technologies come down the cost curve--wind, solar,
geothermal, biomass, a whole host of traditional technologies
as well.
But, having said that, like my colleagues here, I think we
do need to look very hard upstream of that, earlier at this
innovation stage, and ask what else is coming that we really
need to back if it's going to ever see initial deployment.
So I think we need to look carefully at the whole set of
incentives that are out there and, depending upon where we are
in research, development, demonstration, and deployment, adjust
the dial accordingly.
Senator Manchin. Thank you.
The Chairman. Senator Hoeven, we were just getting to you.
Senator Hoeven. Sorry, I've got to go.
The Chairman. You've got other plans.
Senator Portman.
Senator Portman. Thank you, Mr. Chairman, and I thank the
witnesses this morning. I've got so many questions and I'm
going to try to stick to my time in deference to my colleagues.
First, Mr. Reicher, thank you for being here today. Mr.
Hoeven had to leave. He'll try to come back. But he's a
graduate of your college, year 1979, as you and I are. So what
a coincidence 3 of us ended up here together.
Mr. Reicher. Mr. Portman, I will not tell any stories.
Senator Portman. Thank you. I appreciate that. You're under
oath probably, so that makes it particularly problematic for
me.
[Laughter.]
Senator Portman. Listen, thank you for helping us on the
energy efficiency bill. As you know, we're working on this bill
with Senator Sheehan. She's not here today, but we appreciate
your working with us on helping to deploy energy efficiency
technologies across all sectors of our economy. We think we've
got some good commonsense stuff in there. A lot of it comes out
of the work that Senator Bingaman and Senator Murkowski have
done over the years, and I think that this is something that
hopefully on a bipartisan basis we can move forward on.
One of the stated energy technology development goals with
CEDA I saw is the transformation of building stock of the
United States to zero net energy consumption. What does this
mean? Would CEDA be able to help facilitate this transformation
on the efficiency side, too? Would these loans go directly to
consumers or would they go to developing energy efficiency
technology?
Mr. Reicher. Let me take a stab at that. First of all, CEDA
as I read it and I think as the committee intends it would in
fact apply to energy efficiency, innovative approaches to
energy efficiency. So that's No. 1 and I think that's
important.
It would allow, for example, something that we really need
in the efficiency world and that is how do you take lots and
lots of small efficiency opportunities, say across a company
with many, many different manufacturing plants, aggregate
those, bring in an innovative new technology to address those
efficiency problems, and get it financed. I think that's a very
attractive element of CEDA, being able to aggregate what often,
as you know, in the efficiency world are small opportunities,
but taken together and financed in a smart way could really
drive energy efficiency forward.
The beauty of energy efficiency is, we say that the low-
hanging fruit actually grows back. We're continuing to develop
new approaches to energy efficiency, but those, just like
supply side technologies, need to be proven in the market, and
CEDA would help us do it and I think help U.S. manufacturing
and help U.S. commercial and residential buildings.
Senator Portman. I think that's an important point that
wasn't raised earlier and I look forward to continuing to work
with you and others on the efficiency side, CEDA or no CEDA.
Mr. Silver, I appreciate your working with me on the loan
guarantee program issues. You and I have had this conversation
before, but, as you know, I'm very concerned about where we are
with the American Centrifuge Project. There are 2 others in
Ohio, as you know, the CODA project, and now there's a new one
in Mansfield, Ohio, Calley Solar, all of whom have applied for
loan guarantees. If these loan guarantees don't come through,
it means the loss of thousands of jobs in Ohio. If they do come
through, it means the addition of even more thousands of jobs.
So it's a big deal for us in Ohio and incredibly important for
our energy security going forward with regard to the uranium
enrichment capacity at the Piketon plant. So thank you for
working with us on that.
My question to you today has to do with OMB. It might sound
funny coming from me, but one of my big concerns is that
tradeoff from your office to OMB. I understand with regard to
the American Centrifuge Project there has now been a handoff
and I appreciate that. But can you talk to us a little about
that handoff to OMB, how that relationship works, and then
specifically how a new Clean Energy Deployment Administration
proposal might improve or change that DOE-OMB relationship?
Mr. Silver. Yes, Senator, absolutely. Although I didn't go
to college with you, I'm from Ohio, so I'll be happy to address
the question.
Senator Portman. Welcome. We have another Buckeye on the
panel.
[Laughter.]
Mr. Silver. You are correct that the project in question
has been transferred. Perhaps to provide some background to the
process, we issue a solicitation, essentially a request for
proposals, and applications come in. We screen them for
eligibility and completeness and, assuming they meet that
initial screen, we then bring them in house for due diligence.
As we undertake our due diligence on a sort of a parallel
track, we begin to negotiate the terms of a potential
agreement. Assuming that we can reach terms with an applicant,
we prepare the project to move into the review and approval
process.
The first thing that happens is that an application is
reviewed internally at the Department of Energy by something
called, a group called the credit committee, made up of finance
professionals and others within the Department, who look at the
underlying credit instrument. At the same time, we release it
for review through an inter-agency process. A number of
different agencies are involved in reviewing it to ensure that
it meets our obligations to fully protect taxpayer funds and as
the natural course of events ask us a series of questions about
these projects. We answer and there's a good healthy back and
forth.
Once that project--that process has concluded, it comes
back inside the Department of Energy to what's called the
credit review board, made up of the most senior officials in
the Department, who review it once again.
We have worked assiduously with our related agencies to
ensure that the process is as streamlined as it can be. We're
now trying to work on--we are now working on an expedited
schedule, which I'm hopeful will have positive benefits in that
regard. So we are all I think quite clear-eyed about the need
to make this work as efficiently as possible.
Senator Portman. Thank you. If you could maybe in writing,
because my time has expired, give me some sense of how CEDA
might change that process in relationship particularly to the
credit subsidy issue and the relation to DOE and OMB.
Thank you, Mr. Chairman.
[The information referred to follows:]
Under the Federal Credit Reform Act (FCRA), the subsidy cost
reflects the best estimate of the long-term cost to Government of the
loan or loan guarantee, excluding administrative costs. As with all
other federal credit programs, OMB's responsibility for determining the
credit subsidy cost associated with DOE's loan guarantees is found in
Section 503 of FCRA, which states that the Director of OMB is
responsible for credit subsidy cost estimates. Under the oversight
authority in Scection 503, OMB delegates the modeling of credit subsidy
costs to agencies, and issues implementing guidance to ensure
consistent and accurate estimates of cost. For new programs or programs
where actual experience is not available, such as the Title XVII
program, OMB works closely with agencies to create or revise credit
subsidy models. DOE has worked with OMB to develop the credit subsidy
estimation methodology used for the Loan Programs, and OMB approved
DOE's credity subsidy cost model in 2008. Title XVII loan guarantees
generally support diverse investments in a wide variety of underlying
projects, each of which has unique risks and contract terms. Because
the specific projects and contract terms vary substantially, these loan
guarantees, to date, have been scored on a loan-by-loan basis.
The Chairman. Senator Franken.
Senator Franken. Thank you, Mr. Chairman.
Thank you all for being here, and I'd like to thank the
chair and the ranking member for making the issue of energy
finance a priority.
Since joining this committee, I've traveled all across
Minnesota to meet with our clean energy leaders and innovators.
Last week I was at a roundtable with researchers at the
University of Minnesota, who are doing all kinds of cutting
edge work on a range of energy issues. The one thing I heard
over and over again is the need for financing to bridge this
valley of death problem that we've been talking about, and with
China and other countries moving ahead, financing is a critical
piece of our clean energy future that we have to get right.
Senator Portman was talking about energy efficiency in
buildings and, Mr. Silver, I want to thank you. The Department
of Energy helped with a loan to Sage Electrochromics, which
makes these incredibly energy efficient windows. One issue that
came up was whether they were renewable or efficiency, and
since buildings consume about 40 percent of our energy--again,
they lead the world in this cutting edge technology of blocking
out the sun during the summer and letting it all in, all the UV
in, in the winter.
One of the issues that came up was credit subsidy fees. As
I've learned from that experience, that fee can potentially
prevent innovative technologies from benefiting from loan
guarantees.
So, Mr. Silver, in your experience are we doing a good job
of determining the appropriate level of credit subsidy to
offset risk for the government when issuing loan guarantees?
Can that--can we be modulating that rate that these companies
pay in order to promote the innovation that we want to do?
Mr. Silver. Senator, that issue comes up in the context of
the fact that there are 2 programs currently that provide loan
guarantees to renewables projects: one the 1703 program, which
has as its focus innovative energy technologies; and one the
1705 program, which, as you know, came into being through the
Recovery Act of 2009.
The reason I bring this up is because the 1703 program
until recently did not in fact have credit subsidies
appropriated to enable us to support the more innovative
projects that would struggle with that issue. It is a self-pay
program. By contrast, 1705 has $2.4 billion of credit subsidy
available.
I don't know that the issue is as much what the credit
subsidy is as to whether or not it is feasible or possible for
an applicant to pay it. It comes as no surprise, I think, to
anybody that we have been challenged to make the 1703
renewables program work in the absence of credit subsidy for
innovative technologies, in part because if you want to
substitute a phrase for ``innovative technologies'' you might
substitute the phrase ``early to mid-stage, relatively thinly
capitalized,'' often venture-backed companies, as opposed to
more robust applications introduced by larger sponsors with
more robust balance sheets.
That also ties into my earlier observations about the
various kinds of financing tools and what works and what
doesn't work. With only project finance, which as I indicated
requires us to be able to identify cash-flows to match
repayment schedules, we are challenged to make that work.
The good news in all of this is that the CR which you have
approved through the end of this fiscal year provides for the
very first time credit subsidy, appropriated credit subsidy, in
1703 and would be available for projects like the one you refer
to.
Senator Franken. So it's sort of a trigger, not a sliding
scale rate? It's either one or the other; it's either you get
it or you don't, as opposed to determining what the level of
the credit subsidy would be depending on the need, the
determined need?
Mr. Silver. To be more specific, we do in fact identify
specific credit subsidy scores for particular projects and
those do in fact--those are----
Senator Franken. OK.
Mr. Silver. They're based on the specifics of the
particular transaction. The riskier they are, not surprisingly,
the higher credit subsidy. What I was referring to was whether
or not credit subsidy funds were actually available to support,
to pay for that credit subsidy, irrespective of what it was.
Senator Franken. I have run out of time. Can I ask? No?
The Chairman. Sure, go right ahead. But Senator Portman was
very meticulous about not taking additional time.
Senator Franken. He was. He was. You know what? I'm going
to submit to----
The Chairman. Why don't you go ahead with your question.
Then we'll call on Senator Portman to finish his line of
questioning, and then anybody else.
Senator Franken. Mr. Reicher, in your testimony you
outlined 6 other policy areas. Now I'm looking at this and it
might have a long answer, so why don't I submit it for the
record in writing.
The Chairman. That's fine. If that's your preference, we'll
be glad to do that.
Senator Franken. It isn't really.
The Chairman. Then, go ahead and ask the question.
[Laughter.]
The Chairman. We don't want any resentful members of this
committee.
Senator Franken. I know, and that's a problem of mine.
OK. Mr. Reicher, in your testimony you outline 6 other
policy areas that are important for clean energy
commercialization. We can't think of a single energy policy in
a vacuum. Among them are a national clean energy standard,
investments in R and D, protecting EPA authority to regulate
greenhouse gases, and extending Federal tax incentives for
clean energy technologies.
Which of these are most critical to have in addition to
CEDA to make this green bank most effective, and how effective
would CEDA be if none of these other policies were to be
enacted? Is that a really long question?
Mr. Reicher. No. We need to look at this as an entire
spectrum, research, development, demonstration, and deployment,
if we're really going to compete internationally. So the care
and feeding of R and D at the Federal level is very important.
We need to do what many other countries are doing, which is to
put serious money into energy R and D.
I do think in some fashion at some point, sooner rather
than later, we've got to put a price on carbon emissions. There
is no doubt about that, Senator Franken. I don't think that's
likely to happen in this session, but we need to get to that.
I do think--and I will stress this--to the extent this
committee and the Senate moves down the road toward a clean
energy standard, it would be far, far more effective if it was
complemented by a financing mechanism like we're talking about
today. If you want to make that an affordable clean energy
standard, we really need to drive these innovative technologies
into greater use, drive costs down.
I think the politics of that will be better. People will
see this as cheaper to comply with a clean energy standard.
That's why I am, to be honest, frustrated with the Obama
administration not stepping up in support of CEDA as a
complement to the clean energy standard which it is strongly
supporting and advocating.
Mr. Silver. Let me just add one thing to that, Senator, if
I may. There is a tendency, I think, to view investments in one
or the other as both binary and linear, whereas I think of them
as a virtuous circle. An investment in innovation leads to
commercialization, but commercialization in turn leads to
future innovation. One without the other is incomplete.
Senator Franken. Thank you.
Thank you for your indulgence.
The Chairman. Sure. Thank you.
Senator Portman indicated he does not have a need to go
ahead with additional questions. Let me call on Senator Coons
for his questions.
Senator Coons. Thank you, chairman, and thank you for
holding this hearing today. It's a fascinating topic and I
agree well deserving of our attention.
Mr. Silver, I just wanted to ask, if I could, first with
you. Given your experience and tenure as the head of the Loan
Guarantee Office, you witnessed some of the significant
challenges in moving projects along, and you've mentioned a few
lessons learned from the loan guarantee program in your
testimony, if you were designing this program again from the
ground up, which I know we're not, but if you were, what would
it need to accomplish, and can you give us some more examples
of the lessons learned? If it was established, did CEDA respond
to them, and what suggestions do you have for how we might
apply those lessons learned in moving forward with CEDA?
Mr. Silver. That's not a short answer.
Senator Coons. In 3 minutes or less.
[Laughter.]
Mr. Silver. I think the loan guarantee efforts have been
substantial and quite successful under the circumstances under
which we work. Because I don't have the luxury of starting from
scratch, we work with what we have.
I think, as I outlined a little bit in my testimony and in
other conversations, I think there are 3 or 4 basic elements to
a successful loan guarantee program. The first, of course, is
the ability to attract and retain highly competent, highly
experienced professionals with deep energy-specific project
finance experience. Again, our work is only project finance.
Obviously, to the extent we had other tools available to us we
would have other expertise as well. But clearly a deep
expertise is necessary in several different areas--origination,
which is really the review and negotiation of the transaction;
credit and credit analysis, which gets to the issues in the
underlying credit instrument; obviously technology because we
are funding innovative technologies. We certainly have
benefited from our relationship with the DOE lab system and
others, and more.
We have, in the loan program we have a very strong legal
team with deep background in corporate transactional work. We
have a NEPA team that looks at those issues as well.
So the ability to bring on those folks and retain them gets
to the issue of how you hire them. It gets to procurement and a
whole set of issues, part 1.
Part 2: I think the greatest amount of clarity we can
provide in the solicitation process is very, very important. In
some respects, I'd describe it as the difference between a
broadcast and a cable vision of the world, and I think
increasingly as we have experienced, gone through this process,
more narrow and targeted approaches are I think highly
desirable because the amount of work is so significant on each
project.
Which leads me to my third observation, which is that there
is an important distinction between small projects and large
projects, a corollary to that, between well-funded and less
well-funded projects, between projects with existing
technologies in a field for which there is data and those which
are simply emerging, and each of those buckets needs to be
handled somewhat differently.
So those are 3 of the most basic ways I think one would
think about structuring.
Senator Coons. Thank you. One of my concerns, for anyone on
the panel who wants to answer, one of my real concerns is the
sort of mishmash of incentives and signals that we're sending
to a rapidly growing marketplace. So I have supported extension
of the R and D tax credits, the 48 [c] manufacturing credits,
the 1603 Treasury grants program. I have wondered whether
offering another signal, longer-term power purchase agreements,
might be another constructive way.
How important is it, in your view, for us to have longer
term rather than routinely and briefly extended tax credit or
Treasury grant or other market signals, and how will CEDA fit
into that as a potential solution? Any member of the panel who
wishes to address it.
Ms. Yanosek. I can take that. I think that it's critical
that we have longer term policies. As an investor, I'm very
challenged by the fact that I can't see into the future about 2
years from now whether or not Congress is going to extend
something. That impacts investment dramatically.
We just saw the Q1 figures come out for global investment
and they're down 30 percent from fourth quarter of last year.
That's mostly due to government subsidies cutting back. It's
also due to the fact that, with the 1603 grant program, folks
were rushing in to get that grant because they didn't know if
there was going to be an extension or not.
I find this boom-bust cycle to be unsustainable. As a
taxpayer, it bothers me. As an investor, I don't want to be a
part of investments that have that political and regulatory
risk associated, or policy risk associated with it.
My view is actually to some of the clean energy community
somewhat provocative. My view is that if we're not focusing on
the breakthrough technologies I think we should just go home,
frankly. I believe that something like 30 to 50 percent of
returns that are going to wind and solar projects are made up
of government subsidies, and in my view CEDA must focus on the
breakthrough technologies.
I do believe that a portfolio approach is important because
you can leverage more outside dollars. I believe that CBO came
up with a number that if you include nuclear projects that fund
their own credit subsidy costs you can add another additional
$100 billion to the leverage that you would get out of CEDA.
So I do think that a portfolio approach is important, but
the end goal has to be about funding this gap where the private
sector won't go, and that's really, really critical in my view.
Thank you.
Mr. Reicher. Senator, if I could just add one quick
example. Do you have a moment? When I was at Google before
moving over to Stanford, we made an early stage investment
along with Marubeni and Good Energies in a project to build a
high voltage DC transmission line from the New York-New Jersey
border down to the Carolinas under water off the Atlantic coast
to hook up what will hopefully be large amounts of offshore
wind.
Senator Coons. Hopefully go just off the coast of Delaware.
Mr. Reicher. Yes, your very State. You know the project
well.
That project is moving forward. Permitting is moving
forward, discussions with the Federal Energy Regulatory
Commission, with the State public utility commissions. But it
is indeed an innovative project, and it is hard to know,
looking out 1 year, 2 years, 3 years, what kind of Federal
tools will in fact be there at that moment when the big money,
literally measured in billions of dollars, needs to be put
together to build that very innovative project.
So we have a real serious problem in this country today,
which are signals that we send that are very unreliable to the
investment community at whatever stage, from venture all the
way down to the big banks on Wall Street.
Senator Coons. Thank you very much, Mr. Chairman.
The Chairman. Thank you.
Senator Murkowski, did you have additional questions?
Senator Murkowski. I don't have additional questions. I'm
just pondering what Ms. Yanosek said about the importance--you
don't call it the valley of death. You call it your
commercialization gap, I guess. You know, our problem around
here is once we get something started we can't pull it back. We
can't, whether it's an investment--well, we have the investment
credits and they're good for a couple years. But once we seem
to get something in place, then you develop that reliance, and
how we then wean those who have taken advantage of these
opportunities, how we get them off it then, is another part of
our problem that needs to be addressed here.
So hopefully something like a CEDA would allow us to just
focus on these new developing technologies, give them that
kick-start that they need, and then they're on their own,
theoretically.
Ms. Yanosek. I definitely agree with you wholeheartedly. I
think that the difference between this proposal and some of the
others that were out there, like the green bank proposal last
year, really was focusing on the amount of capital that could
be leveraged off the sidelines from the private sector. But at
the end of the day, if you're just addressing a short-term
financing challenge, which was the argument for investing in
these conventional energy technologies, that credit gap has
moved on. We've moved on past that short-term financing need,
and this is a persistent financing need that the government
needs to step in and play a role in.
Thank you.
Mr. Silver. Senator, I'd like to put in a word for what I
would call innovative but nonetheless commercial projects,
because I think the issue of scale is critically important. In
the loan programs to date, we have provided financing support
for the world's largest wind farm, the world's 2 largest solar
thermal plants, the first nuclear power plant to be built in
quite a long time. We've really changed the face of
concentrated solar power by doubling it.
Projects at scale are almost definitionally commercially
based, but there are innovative features to each. As I said
earlier, I believe the significance of driving down unit costs
and building out supply chains should not be underestimated in
terms of its ongoing importance.
Mr. Guith. If I may, I think your point is well taken. If
you look at--I think it was mentioned already. If you look at
what has happened in Germany in the last year, when they had
to, because of austerity conditions, trim their feed-in tariff,
the solar industry has been decimated globally, because they
had become so dependent upon that handout. Frankly, investors
will make money anywhere they can, whether it's off of a
central government in Europe or whether it's off a trading
market.
It's clear in that instance that not only has it become
overly dependent, but that it stifled innovation, from the
standpoint that manufacturers will only do what they need to do
in order to qualify for the feed-in tariff. There's no
incentive to move beyond that.
Where CEDA fits in--and a plug for my written testimony. I
put a graph in here that I stole from DOE, that we created when
I was there, that shows the deployment process. CEDA fits in
that very unique gap that is not here right now. All the other
tools we're talking about are much further down the line. I
think they need to be discussed. To your original point and I
think your ultimate point about offsets, that should be
discussed and, frankly, has to be discussed as part of this
overall concept.
But it's vitally important to realize that what the CEDA
that this committee reported is talking about is solely getting
those nascent technologies, the first, second, third, whatever
it might be, fifth, basically following the loan guarantee
concept and helping those get to that next stage where private
investment will come in. It's not, rightfully so--and I commend
the committee for this--it's not trying to get the 50th and
500th of a kind technology out there. Frankly, even from a
scaling perspective, I think there are other tools for that,
but CEDA is probably not the best one for it.
Mr. Reicher. I would only add, Senator Murkowski, that you
make a logical argument, but I would caution you on 2 aspects.
One, we do have to look from a competitiveness standpoint at
what other countries are doing in this clean energy race. Many
of them are in fact providing an array of support beyond this
innovation stage.
The innovation stage is absolutely critical. It is where
everything else flows from, and CEDA is a great answer to that.
But we are in fact in a very heated race and other countries
are providing a lot of support downstream of that, No. 1.
No. 2, if we were to pull back with these downstream sort
of incentives post-CEDA in a sense, I think we'd need to be
fair about how we did it across the entire range of energy
technologies, including conventional ones. To pull back from
renewables, for example, and leave other incentives in place
for more traditional supplies I think would further torque this
market in an unfortunate way.
Senator Murkowski. Thank you all.
The Chairman. Senator Coons, did you have additional
questions?
Senator Coons. If I could, Mr. Chairman, just one last
question.
You raised to me a fascinating point about competitiveness
and the tools that our global competitors are using. How would
CEDA compare? Are there comparable structures? I mean, I'm
relatively new to the whole concept of how our competitors are
financing their investments in either emerging or breakthrough
technologies in this space. How would CEDA compare? In your
view, since I think there's broad agreement on the desirability
of the challenges it's funding, how important is this to making
America competitive in the next decade?
Anyone who seeks to leap in?
Ms. Yanosek. This is an area that I have spent a long time
trying to find the answer to. I think it's a big enigma what's
going on in China. But I would say that, unlike the process by
which we go through here to assign credit subsidies to certain
investments and the long process we go through with the DOE and
OMB, I think that essentially China doesn't have to manage the
democracy that we have in this country. So therefore the
investments are going by direct loans from the banks and the
banking community in China. Free real estate and buildings for
a lot of these facilities.
There is obviously a much more nuanced relationship between
government and business, and therefore China is able to put
capital, low-cost capital that's coming from the government in
many forms, into these investments. They range from the
breakthrough technologies to the wind farms.
Now, China also has other problems, so certainly we saw $50
billion worth of investment going into China last year. If you
go there you'll see that about 50 percent of the wind turbines
are not connected to the grid. So there has been this huge
movement of capital into the country for jobs, job creation,
for developing of the manufacturing businesses, but I also
think that we're not going to necessarily see the sustainable
growth there either.
So I do think that our approach here to think very
carefully about the right mechanisms is critical. But in terms
of specific other programs that we can look at like CEDA, there
are other green banks that are being put together or thought
about in Europe. In my view, I think CEDA is a much better
mechanism because it is focused on breakthrough technologies
and solving a real problem. I don't necessarily see that
happening with the U.K. green bank, for example.
Mr. Reicher. The only thing I would add to that answer is
that we do have a number of companies struggling in this
country to build project No. 1 as a result of this lack of
CEDA. As much as the loan guarantee program is helping, it
can't fill the entire bill and it doesn't have all the tools.
China is the No. 1 option for many of them. There is in fact,
as Kassia said, an array of low-cost financing. There is a
willingness to take on some risk in getting this first plant
built.
So we have to be very mindful that that's a very likely
place where plant No. 1 of a particular technology gets scaled
up and we lose a lot of benefits as a result.
Senator Coons. I'm very concerned about that loss of early
market leadership and intellectual property that seems to be
going on whole-scale across whole families of technologies.
Mr. Reicher. Including, I would say, in offshore wind. Lots
of development there and we still haven't seen project No. 1
built.
Ms. Yanosek. Also, one more thing on China actually, just
very quickly, which is that what we're also seeing is that
utilities here in the United States are desperate for seeing
technology scaleable in their own country. They're having a lot
of trouble doing that here with the loan guarantee program and
otherwise, so they're actually partnering with firms in China,
particularly around coal gasification. If you talk to the CEOs
of these utilities, they will tell you: We're looking to bring
back that technology into the United States.
So it's something we need to be very conscious of moving
forward.
Senator Coons. Thank you.
Thank you very much, Mr. Chairman.
The Chairman. Thank you all very much. I think it's been a
useful hearing and we appreciate your excellent testimony.
[Whereupon, at 11:36 a.m., the hearing was adjourned.]
[The following statements were received for the record.]
U.S. Department of Agriculture,
Office of the Secretary,
Washington, DC, May 24, 2011.
Hon. Jeff Bingaman,
Chairman, Energy and Natural Resources Committee, U.S. Senate, 304
Dirksen Senate Office Building, Washington, DC.
Dear Mr. Chairman:
I take this opportunity to inform you of the U.S. Department of
Agriculture's (USDA) contributions to renewable energy as you continue
your discussions on the proposal for a Clean Energy Deployment
Administration as contained in Title I, Subtitle A of the American
Clean Energy Leadership Act of 2009 as offered by S. 1462 of the 111th
Congress.
USDA's support for renewable energy is an important part of a much
broader commitment to a cleaner and greener future, an energy policy
that reduces our dependence on imported oil, and a strategy that
promotes jobs and economic growth in the United States. USDA's
commitment has included investment in energy efficiency, clean energy
production through biofuels, biomass, wind, solar, geothermal, and
hydroelectric power, as well as basic scientific research into second
and third generation biofuels.
USDA has many programs to assist fanners, forest owners, rural
businesses, rural residents, and the Nation respond to energy-related
issues and opportunities. These programs range from basic scientific
research to the development and commercialization of new technologies.
Specifically, we have focused on outreach and education, technical
assistance programs, financial support for infrastructure, and the
adoption of energy-saving products by USDA itself.
For example, USDA supports the modernization of the rural electric
grid and the deployment of smart grid technologies in order to
modernize rural electricity and facilitate the use of clean energy into
the grid. From more efficient farming techniques, wind farms, and
ethanol plants to biochemical and genomics research, USDA is deeply
involved in and committed to the Nation's quest for clean energy and
energy security. In fiscal year (FY) 2010 alone, USDA invested over $1
billion in clean energy. USDA has a number of clean energy investments,
activities, and programs that are listed on the enclosure.
The Administration recently put forth a Blueprint for a Secure
Energy Future, focusing on the development of domestic clean energy
supplies to help harness America's clean energy potential. Recognizing
the promise of commercial development of cellulosic and advanced
biofuels, their potential contribution towards reducing our oil
dependence, and the current challenges to bringing those technologies
to scale, the President has set a goal of breaking ground on at least
four commercial-scale cellulosic or advanced biorefineries over the
next 2 years. In addition, the President has challenged USDA, the
Department of Energy, and the Department of the Navy to investigate how
to speed the development of drop-in biofuel substitutes for diesel and
jet fuel.
President Obama has set an ambitious goal of reducing oil imports
by one-third from 2008 levels by 2025. Increasing both biofuel
production and the use of biofuels are important parts of achieving
that goal. The Administration is working on an integrated research
strategy to overcome barriers to increased use of today's biofuels and
to accelerate the development and commercial deployment of next-
generation biofuels. This strategy includes targeted investment in
biofuels distribution infrastructure, support for research, development
and early-stage deployment of promising next-generation biofuels
technologies, and implementation of the Renewable Fuels Standard and
other key components of the regulatory framework.
USDA's commitment to renewable energy is longstanding. While there
are urban and suburban sources of renewable energy, renewable energy is
largely rural energy. Biofuels and bio-based products rely primarily on
farm and forest feedstocks. Due to siting challenges, large-scale wind
and solar farms, as well as geothermal plants, may be located in rural
areas. In addition to its environmental, energy security, and national
security implications, renewable energy is an important source of jobs,
economic growth, and tax revenue in rural communities across the
country, while biofuels and biomass offer exciting new opportunities
specifically for American agricultural producers. Our Nation's future
depends on out-innovating, out-investing, out-educating, and out-
building our competitors in an ever-more integrated world economy.
Renewable energy is clearly one of the sectors in which we must win the
future. Furthermore, the President has set a clean energy goal of 80
percent of the Nation's electricity coming from clean energy resources
by 2035.
USDA has entered into Memoranda of Understanding related to
renewable energy with the Department of the Navy and with the Federal
Aviation Administration (FAA), and we work closely with many partners
in academia and the private sector as well. The aviation industry is a
prime example of a sector that is pressing forward to transition to
renewable jet biofuels.
The accelerated deployment of renewable energy is a high priority
for the Obama Administration, as it has been for Congress as well, on a
bipartisan basis, for many years. We are partners in this effort, and
welcome this opportunity to inform the Committee of USDA's role in
helping to build a cleaner, more secure, more sustainable, and
domestically-produced energy sector for future generations. A similar
letter is being sent to Senator Murkowski.
Sincerely,
Thomas J. Vilsack,
Secretary.
enclosure.--clean energy investments, activities, and programs
Research in Renewable Energy
USDA's Office of Energy Policy and New Uses recently
released a seminal report titled, Renewable Power Opportunities
for Rural Communities, on the potential for renewable energy in
rural America.
SDA completed a Biofuels Roadmap identifying barriers to and
proposed plans of action to meet Congressionally-mandated
Renewable Fuel Standard (RFS2) goals for national biofuels
production and use, with detailed information by region.
(http://www.usda.gov/documents/
USDA_Biofuels_Report_6232010.pdf)
USDA has established five regional research centers (led by
the Agricultural Research Service and the Forest Service)
working on the scientific research necessary to ensure reliable
and profitable biofuels can be produced from a diverse range of
feedstocks across the nation. The latest genetic methods and
natural resource management tools are being used to find the
most sustainable ways to produce the feedstocks needed for the
next generation of biofuels.
In 2010, the National Institute of Food and Agriculture
(NIFA) Agriculture and Food Research Initiative Sustainable
Bioertergy Challenge awarded approximately 50 grants totaling
$40 million. The grants fund research, education, and outreach
supporting the development of regional systems for the
sustainable production of biofuels, biopower, and biobased
products. These grants are implemented through regional
Coordinated Agricultural Projects (CAPs) that focus on five
dedicated energy crops aimed at producing advanced non-ethanol
fuels and biobased products. The CAPs also provide innovative
education programs for bioenergy workforce development; and
sustainable bioenergy research projects targeting biofuel
conversion co-products, carbon sequestration, and feedstock
crop protection.
From 2008 to 2010, approximately 30 grants totaling about
$30 million were jointly awarded by NIFA and the Department of
Energy (DOE) to accelerate fundamental genomic research of
cellulosic bioenergy feedstock crops, such as fast-growing
trees, shrubs, and grasses.
NIFA has also funded research through the joint USDAJDOE
Biomass Research and Development Initiative. In 2009, USDA
funded nine projects with approximately $18 million, and, using
2010 dollars, is about to award approximately $35 million to 7
awardees, along with DOE's awarding a $6 million grant. These
funds focus on near-term research and development of
technologies and methods to produce biofuels, bioenergy, and
high-value biobased products. Projects must address the
environmental, economic, and social impacts of the technologies
as they are developed. Advanced biofuels produced through 2010
funding are expected to reduce greenhouse gas emissions by at
least 50 percent as compared to fossil fuels. Earlier this
month, USDA and DOE announced grants of $42 million that funded
eight research and development projects to support the
production of biofuels, bioenergy, and high-value biobased
products from a variety of biomass sources.
The National Agricultural Statistics Service (NASS) collects
valuable information on agricultural practices and production,
which are further analyzed by the Economic Research Service
(ERS) to assess the economic implications of biofuel production
on commodity prices, use and conservation of land,
environmental outcomes, greenhouse gas emissions, and markets
for biofuel by-products.
In February 2011, NASS also released the ``On-Farm Renewable
Energy Production Report'' which provides on-farm bioenergy
production data for wind, solar, and methane digesters
Investments in Renewable Energy Production
We are investing in advanced biofuels and biomass energy
projects in each of the five regions of the country identified
by our Biofuels Roadmap, funding construction and updates to
production facilities as well as feasibility studies in 27
States and the Western Pacific.
The Bioenergy Program for Advanced Biofuels made payments
worth nearly $30 million to more than 120 recipients in 34
States.
We are supporting potential biorefineries for advanced biofuels in
Michigan, Florida, Georgia, Mississippi, and New Mexico, an
investment totaling over $302 million through loan guarantees.
In 2 years, the Forest Service' Woody Biomass Utilization
Grant Program invested $11.5 million and $19 million in
leveraged dollars to fund 41 projects, saving or creating more
than a hundred jobs and using hundreds of thousands of green
tons of woody biomass from forest restoration activities for
renewable energy generation and use at bioenergy facilities.
In April 2011, USDA announced a clarification of one of our
most popular energy programs, the Rural Energy for America
Program (REAP), so that it was clear to our stakeholders that
flex fuel pumps for biofuel dispensing were eligible for
funding.
We have made investments in more than 270 wind energy
projects over the last 2 years under REAP.
USDA has invested $152 million in smart grid over the last
year and is preparing to do more in the coming year.
Since 2003, through USDA Rural Development's energy,
business, and utility programs, have invested in clean energy
and have created or saved 15,064 jobs, reduced greenhouse gases
by over 19 million metric tons of CO2, and
generated/saved over 15 billion kWh in energy, according to
USDA's Rural Business-Cooperative Service' ``FY 10 Energy
Report.''
Support for Growers and Producers of Renewable Energy Feedstocks
Under the Biomass Crop Assistance Program (BCAP), USDA
provides up to 75 percent of the cost to establish new energy
crops, annual payments as the crops mature, and matching
payments to transport the crops to bioenergy facilities.
BCAP will reduce the financial risk for producers who
support emerging biofuels markets by growing and producing
renewable energy crops such as switchgrass, miscanthus, fast-
growing woody poplar, jatropha, algae, energy cane, and
pongamia.
Biomass must be collected and harvested only with an
approved conservation, forest stewardship, or similar plan to
protect soil and water quality and preserve land productivity
into the future. Further, biomass harvest cannot occur on
native sod, and all crop collection, harvesting, and
transportation must be in accordance with invasive plant
species protections.
BCAP will also kick-start liquid cellulosic biofuels to meet
Renewable Fuel Standard targets by providing bonus incentives
for the cultivation of cellulosic biofuels that have 60-percent
lower lifecycle greenhouse gas emissions.
Support for Energy Efficiency and On-Farm Energy Generation
From 2009-2010, under REAP, USDA helped nearly 4,000 rural
small businesses, farmers, and ranchers save energy and improve
their bottom line by installing renewable energy systems and
energy efficiency solutions that will save a projected 4.3
billion in kWh--enough energy to power 390,000 American homes
for a year.
Working with the Innovation Center for U.S. Dairy, USDA is
implementing key strategies from an MOU signed in December 2009
to cut greenhouse emissions from U.S. dairy operations by 25
percent by 2020 through increased use of anaerobic digesters.
See below:
USDA Assistance Awarded to Anaerobic Digester Systems in FY2010
------------------------------------------------------------------------
Awards to Awards to Dairy
Program Digesters Digesters
------------------------------------------------------------------------
9007 Rural Energy for America 18 10
Program (REAP)
------------------------------------------------------------------------
9007 REAP Feasibility Study Grants 22 14
------------------------------------------------------------------------
Value-Added Producer Grants (VAPG) 4 2
------------------------------------------------------------------------
Rural Business Enterprise Grants 1 1
(RBEG)
------------------------------------------------------------------------
Environmental Quality Incentives 6 5
Program (EQIP)
------------------------------------------------------------------------
Total 51 32
------------------------------------------------------------------------
______
Statement of Ray Rothrock, General Partner of Venrock and Board Member
of the NVCA
My name is Ray Rothrock. I am a 23 year General Partner of
Venrock--one of the oldest venture capital firms in the United States.
I am also a member of the Board of Directors of the National Venture
Capital Association (NVCA), on whose behalf I am pleased to submit this
testimony today. Attached to this testimony is a related letter sent to
the President of the United States on June 29, 2010 by many of my
colleagues at the NVCA and other significant business and financial
leaders.*
---------------------------------------------------------------------------
* Signatures have been retained in committee files.
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During the last decade, the venture capital industry has committed
a tremendous amount of time and resources to identifying the most
promising innovations in the renewable energy sector and bringing those
technologies to market. In just the last five years, U.S. venture
capitalists have invested more than $14 billion in an estimated 1,000
American companies in the clean technology industry. I can testify
first hand to the promise of this emerging economy in terms of
innovation, revenue growth and job creation.
My colleagues and I on the board of the NVCA can certainly
understand how reasonable people can disagree on elements of U.S.
energy policy. The importance of U.S. clean energy technology
leadership in a global marketplace, however, should not be one of them.
America must lead the world in the development of low-carbon and
renewable energy technologies if it intends to maintain its global
economic primacy. Trillions of dollars and millions of U.S. jobs depend
on it--not to mention our national security and the health of our
planet.
Sadly, political paralysis on Capitol Hill is risking U.S.
leadership in the race to shape the world's energy future. The data are
coming in to illustrate this slippage in real time. For example,
Bloomberg financial data shows that as early as 2009, the US slipped
behind China for the first time ever in terms of overall clean energy
finance and investment. And the accounting firm Ernst & Young reported
in September of 2010 that China beat the US for the first time in the
firm's annual rankings of 27 countries in terms of their attractiveness
for renewable energy investment. The report cited in particular US
failure to enact supportive national clean energy policy. It is not too
late to change this course of events.
That's why Congress must act now to pass an energy bill that
directly addresses the primary challenge in successfully developing and
deploying innovative energy technologies: financing promising ideas
from inception all the way to the marketplace.
This can prove exceptionally difficult for clean-energy technology
innovations because they can require hundreds of millions or even
billions of dollars to scale up to large-scale commercial facilities
from small pilot projects which are often funded by venture capital
investment or government grants. During this process, months can turn
into years and years into decades. The time frame alone can kill even
the most fragile and promising startup company. A single technology can
consume billions of dollars before even one commercial-scale plant goes
online. The risks to private investors to undergo this financing
challenge so far is too great.
It's no wonder that so many promising energy innovations die on the
vine, so to speak, during this scale-up process. This period or phase
in development of these promising companies has been dubbed ``the
valley of death.'' The investments require too much capital for venture
capital funds, and the scale-up process involves too much risk for
traditional players like commercial banks and private equity firms. So
the floor of the valley of death is littered with energy technology
carcasses ranging from renewable energy to cleaner fossil fuel
technologies to nuclear.
Fortunately, the Senate Energy Committee in 2009--on a bipartisan
basis--devised a way for the federal government to help bridge this
critical financing gap, bridging the ``valley of death''--the Clean
Energy Deployment Administration (CEDA). CEDA, while organized within
the Department of Energy, would enjoy a healthy degree of independence.
Most importantly, it would create an attractive investment environment
for the full-scale deployment of new clean energy technologies. At this
time, such a vehicle is essential to regain U.S. leadership in energy
deployment.
CEDA would do so by managing an initial $10 billion fund to provide
loans, loan guarantees, and other credit enhancements to private
investors, as well as provide secondary-market support to develop
products such as clean energy-backed bonds that would allow less
expensive lending in the private sector. In terms of cost, CEDA has
been designed to pay for itself through a blend of returns on its loans
and investments, royalties from patents and technology transfers, and
fees for other services it will offer.
To some critics, CEDA may look like just another expansion of
government, or an attempt by bureaucrats to pick winners and losers.
It's not. In fact, CEDA aims to get billions of private-sector dollars
flowing toward the most promising clean energy companies as identified
by private investors. In effect, CEDA would help U.S. companies with
proven technologies to get their first few large-scale plants up and
running and then get out of the way--letting the private sector finance
the rest of those companies' growth. CEDA would follow the private
sector, not lead it, in picking promising management teams and
technology.
Perhaps most importantly, the billions in private investment that
CEDA aims to unleash would help spur the creation of millions of jobs
immediately. The job creation generated from venture-backed companies
is well documented. According to a 2011 reporter by HIS Global Insight,
companies that received venture capital in their formative years today
account for 12 million jobs or 11 percent of U.S. private sector
employment. Armed with the confidence that CEDA will be there to help
bridge the ``valley of death'' for their portfolio companies, enactment
of CEDA legislation would by itself prompt venture capital and private
equity firms to start investing right now in breakthrough clean-energy
technology companies. The establishment of CEDA, the provision of
CEDA's initial funding and then self-sustaining financial engine, and
the implementation of its professional and independent management
structure would provide exactly the kind of stable, long-term,
dependable policy mechanism that investors and businesses need to grow
in the United States.
The alternative course of action--failure to enact CEDA--could
cripple the competitive global economic posture of the United States in
energy. Other countries, from China to Germany to Japan, have already
put an array of measures in place to help their nascent clean
technology industries grow into global leaders. A September 9, 2010 New
York Times article highlighted the myriad ways that China has done
this, including providing debt financing at critical junctures in the
growth cycle of these companies. The United States has a strong
research and development system and a highly entrepreneurial culture,
but unless new American clean energy companies can find the capital
they need to bridge the ``valley of death'' here in the U.S., they will
have to go where the money is which is abroad.
I cannot emphasize this point enough. Given the willingness and
ability of other countries to provide financing to new clean-technology
companies, U.S. companies (and their investors and investment bankers)
must do a very sober assessment of the pros and cons of locating their
next facility in those foreign countries. In fact, it is becomingly
increasingly common for potential investors and investment bankers to
ask companies not about WHETHER they might consider locating operations
in China, but rather about what their current plan IS to locate
operations in China. Recent anecdotal evidence bears this out. Within
just two hours of receiving an email sent to NVCA clean energy firms
inquiring whether they knew of U.S. innovative companies that made
moved facilities to China for financing for their commercial
facilities, those members named and told the stories of 15 companies
that had done precisely that.
It is not realistic to suppose that the United States will
appropriate government dollars to deploy clean energy facilities and
plants in amounts sufficient to match the expenditures of a country
like China. Bloomberg News reported on July 20, 2010 that China is
planning to invest $738 billion over the next 10 years. The hope for
the U.S. to compete with these vast expenditures is to spur comparable
private-sector investment in the deployment in clean technology
facilities in the U.S. And CEDA is the public policy mechanism to
accomplish that objective and to realize that hope.
In the alternative, if the U.S. fails to enact CEDA and regain the
lead in clean energy technology deployment, we will likely see U.S.
innovators take their promising technologies abroad, at the expense of
developing and commercializing them here at home to say nothing of the
loss of domestic job opportunity. If that happens, we will have made a
mistake of historic proportions at a critical point in America's
economic history. We will--by inaction--have consciously ceded to other
nations, economic growth, millions of high-paying new jobs, and global
leadership that goes hand-in-hand with one of the most important
industrial sectors of the 21st century.
Thank you for accepting this testimony in conjunction with the
hearing on May 3, 2011 of the United States Senate Energy and Resources
Committee.
attachment
June 29, 2010.
The President,
The White House, Washington, DC.
Dear Mr. President: When we first wrote you on January 21 of this
year, we were 13 entrepreneurs, investors, and industry stakeholders
active in the transition to a low-carbon energy economy, urging you to
work with Congressional leaders to craft a jobs package that includes
the immediate creation of a Clean Energy Deployment Administration
(CEDA). We have now been joined by many others in this letter to
reiterate our strong belief that CEDA's swift enactment will both spur
the creation of jobs in 2010, and position the U.S. as the global
leader in the development and deployment of clean energy technologies
for years to come.
The need to enact CEDA is now all the more urgent as part of the
comprehensive clean energy bill you have called for. The tragic oil
spill in the Gulf of Mexico highlights the critical need for investment
in the deployment of breakthrough clean energy technology--the core
focus of CEDA--to better position the U.S. to reduce its oil
dependence.
In our first letter, we explained that the Senate Energy and
Natural Resources Committee had adopted bipartisan legislation to
create CEDA, and how the Senate's version of CEDA would create a
financing entity with the skill, flexibility, and independence to
effectively provide the necessary credit support for the development
and deployment of clean energy technologies throughout the economy.
Most importantly, we highlighted the focus of the Senate's CEDA bill on
innovative technologies and how it will help America's emerging clean
energy technology companies cross the so-called ``valley of death''
between the invention of a technology and its full commercial
deployment. We argued that this focus would substantially accelerate
and increase the private sector investment necessary to position the
U.S. as the global clean energy leader.
It has become apparent that to create high-paying jobs now, we need
to enact the Senate's version of CEDA now. Venture capital funds and
other private investors are ready to invest in clean energy
entrepreneurial companies today if they know that the government is
poised to help finance the scale-up of these companies' technologies
when they are ready to build their first commercial facilities
tomorrow. These investments--and the jobs that they will create--need
not wait until CEDA is actually up and operating. The swift enactment
of CEDA will significantly increase confidence necessary to spur these
investments right now. By expeditiously enacting the Senate's CEDA into
law we will not only accelerate the flow of investment into
technologies that will reduce our dependence on foreign oil, but we
will also contribute to significant job creation here in the U.S.
In conclusion, this now larger group of entrepreneurs, investors,
and industry stakeholders once again extends an offer to discuss this
matter in more detail with Administration officials. Thank you again
for your consideration and your leadership in the emerging clean energy
economy.
APPENDIX
Responses to Additional Questions
----------
Responses of Kassia Yanosek to Questions From Senator Bingaman
Question 1. Critics would say that other technologies have
traversed the Commercialization Gap you mentioned in your testimony
without government intervention. From your perspective as a market
participant, what is different about energy that requires government
intervention? Is it just the competitive pressure of other governments
that are providing support, or is there something fundamentally
different about energy?
Answer. Significant capital is often needed to move technologies
from pilot testing to deployment--capital that does not fit the risk/
return profiles of venture, private equity, or debt financing. As such,
these technologies and projects are stuck in the ``Commercialization
Gap''. Traversing this gap is critical for accelerating new
technologies from first-commercial demonstration to widespread adoption
and deployment by the private sector.\1\
---------------------------------------------------------------------------
\1\ See Appendix A for a description of the risk/return profiles of
the staages of energy technology innovation. [Note: Appendix A has been
retained in committee files.]
What is unique about energy is that the private sector is
often unable to realize enough of the available economic
benefit to warrant the costs of traversing the
Commercialization Gap. Unlike ``capital-light'' sectors such as
information technology, the energy sector often requires high
capital expenditures for first commercial projects.
Furthermore, these high upfront investments coupled with
venture capital-like risks, warranting high internal rates of
return for private sector investors. Such returns can be
elusive in the energy sector--particularly for electric power
innovations--due to the limited returns electricity can provide
its end seller, often a regulated utility limited by the price
---------------------------------------------------------------------------
it can charge for innovative power.
Utility-scale concentrated solar power generation provides a case
study for the role for government intervention--a role that
CEDA could play in helping such a technology traverse the
Commercialization Gap. First-commercial, utility-scale solar
power projects, often requiring billions in initial capital
investments, are plagued by a persistent financing challenge as
the risk/return profile of such projects are undesirable for
private investors. Unlike innovations in industries such as
consumer electronic products which can be rewarded by high
price points driven by consumer demand, such incentives do not
exist for the electric utility sector. Price points (e.g.
prices set by power purchase agreements) are driven by
conventional fossil fuel alternatives and/or are capped by
regulators.
Figure 1* shows the value chain for the solar energy production--
from the mining of the silicon to the sale of electricity to a
consumer--of utility scale solar power. Each link in this value
chain requires an enterprise to produce a product and take a
margin on the sale from the next link in the value chain. At
the end of the chain, when the utility sells the generated
electricity to the consumer, the utility will have to charge a
high enough rate that it recovers--at a minimum--the sum of the
margins charged across the value chain. For many new
technologies, this allowed rate is not high enough to cover the
cost of the value chain--and the margins necessary to justify
the risks, compared with other alternatives. (Note that a
combined cycle gas plant can be built for $1,000 per kilowatt
of installed capacity, while a solar plant requires $3,000 per
kilowatt). The most challenging piece of the value chain from a
financing perspective is that of the project developer, who
must arrange for billions of dollars of capital to develop and
construct such a facility. For a project which has not yet been
proven commercially at scale, government intervention is
necessary to either underwrite the risk or underwrite the
return of this asset in order to successfully bring private
sector equity and debt providers to invest in the project's
development and construction.
---------------------------------------------------------------------------
* Figure 1 has been retained in committee files.
Persistent funding support for clean energy innovation by
other governments--and inconsistent funding support by the
U.S.--will ultimately result in a reduction in U.S.
technological innovation and competitiveness. While it is
difficult to parse out how other governments are funding clean
energy technologies in the Commercialization Gap, it is clear
that much of the overall clean energy investment growth has
shifted from Western economies to growth economies such as
China, as demonstrated by 2010 investment data. Last year,
investment in China was up 39% to $54bn, larger than any one
country.\2\ This investment has in part gone to growing China's
manufacturing capabilities as a supplier of clean energy
technologies, particularly in wind and solar. Starting in 2008,
Chinese solar module suppliers have consistently acquired
market share from U.S. and European manufacturers.
Historically, such manufacturers aimed for 30-40% gross margins
on modules; Chinese suppliers as of recent have been willing to
sell for 20-30% margins.\3\ While margin erosion brings down
the overall cost of installing solar (and is a good thing for
consumers), U.S. suppliers will continue to see their market
share erode without innovations or cost reductions that allow
them to compete with their Chinese competitors. Chinese
supplier market share has grown from 5-15% in 2008 to 56% as of
Q4 2010. Figure 2* illustrates suppliers of solar PV modules to
the California market from 2007-2010:
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\2\ Bloomberg New Energy Finance
\3\ Bloomberg New Energy Finance 3 Power advocate, http://
marketing.poweradvocate.com/webfm--send/476
* Figure 2 has been retained in committee files.
Question 2. You've spent some time looking at what other countries
have done to provide financing for clean energy projects. Can you
compare the scale of those programs with what we're contemplating here
with CEDA? Do we need to match their investments?
Answer. Comparing CEDA--which would prioritize financing the scale
up of breakthrough technologies--to other like-minded government
programs is difficult. Much of the government-backed clean energy
financing activity in the U.S., Europe, China and elsewhere has been
dedicated to project financings of conventional renewable technologies
such as wind farms and solar parks, rather than first-commercial
projects. In 2010, the China Development Bank made $35bn available in
credit facilities for six domestic wind and solar companies. In
contrast, the U.S. government Federal Financing Bank provided $2bn in
financing to the clean energy sector.\4\
---------------------------------------------------------------------------
\4\ Bloomberg New Energy Finance.
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U.S.-China partnerships are an indication that U.S. firms see the
potential for developing first-commercial technologies first in China.
In January 2011, a number of U.S. firms announced partnerships with
Chinese firms to pursue technology developments in areas such as coal
gasification. General Electric and China Huadian Corporation confirmed
a joint venture on gas turbines for China. GE also announced a deal
with Shenhua to develop coal gasification technology in China. Alcoa
and China Power Investment Corp. announced a project for aluminum and
clean energy projects in China. Duke Energy and AEP respectively
announced MOUs with Chinese energy firms for joint demonstrations of
clean coal technologies.
The U.S. may not need to match China's investments dollar for
dollar. China's macroeconomic policies to maintain GDP growth have led
to inefficient uses of investment capital, demonstrated by the fact
that 50% of wind farms remain unconnected to the grid. However, China's
capital and labor cost advantages will continue to pressure export
markets and the U.S.' ability to compete, unless the U.S. shifts its
policy priorities to providing intervention where it is needed most--
financing the scale up of more innovative technologies.
CEDA is designed to put efficient government dollars to work in
partnership with the private sector, for financing technologies which
have a chance over time to become cost-competitive with conventional
energy. The one-time $10 billion capitalization needed for this
evergreen program provides taxpayers a ``bang for their buck'',
particularly when compared to other government programs which have
deployed capital for clean energy in the form of grants with no return.
As a comparison, the Section 1603 Treasury Grant program is expected to
cost approximately $10 billion through the end of 2011, equal to the
one-time capitalization needed by CEDA.
Question 3. Fundamentally, CEDA is taking on risks that private
banks are not interested in taking. An economist might say this means
the market is telling us the investments are not worth making. How do
you react to this criticism? Is there some type of market failure here
that is keeping these investments from happening?
Answer. The economist would only be right if he or she is solely
considering conventional clean energy technologies, and ignores the
``breakthrough'' technologies that have yet to be commercialized. The
market failure is the ``Commercialization Gap'' characterized by a
persistent financing challenge that the private sector cannot address
alone. The benefits of commercializing new clean breakthrough energy
technologies that can compete in an open market with fossil-based fuels
are well documented; there is limited disagreement on this vision in
developed economies around the world. Government intervention is worthy
of intervention in this regard. The rationale is less justifiable for
intervening on behalf of technologies that will perpetually require
subsidies to be competitive in an open marketplace.
To help close the Commercialization Gap, the U.S. government can
lower the financial risks the private sector faces in investing in the
deployment of breakthrough technologies. CEDA's credit support products
will do just this, improving the risk/return profile for these risky
yet capital intensive technologies and enabling private sector capital
to participate. Loan guarantees have already proven essential to
promising large-scale solar projects and to firms that test new
technologies to burn coal more cleanly. CEDA, as drafted, would
incorporate the existing loan guarantee program and improve upon it.
Important aspects of CEDA include the following:
Emphasis on breakthrough technologies. CEDA addresses the
Commercialization Gap funding challenge and serves to move
private capital off the sidelines by improving the risk/return
profile of commercializationstage technologies. CEDA's
portfolio approach will pool risk and diversify investments,
allowing for losses on some investments to be offset by gains
on others.
A broad array of tools to accelerate the deployment of clean
energy technologies. Credit support includes loans, loan
guarantees, insurance products, and debt instruments that allow
CEDA to participate as a co-lender or member of an investor
syndicate. CEDA may also provide indirect market support to
develop securitized products. These tools enhance and expand
the ability for the DOE to provide funding solutions for a
range of technologies and projects.\5\
---------------------------------------------------------------------------
\5\ See Appendix B for a description of potential CEDA financial
products. [Note: Appendix B has been retained in committee files.]
---------------------------------------------------------------------------
A separate administration within the Department of Energy,
similar to FERC. CEDA's separate Administrator and Board of
Directors would provide CEDA substantial independence within
DOE, much like FERC enjoys. This independence will likely help
to reduce lengthy review processes which have challenged DOE's
loan guarantee programs.
Funding mechanisms which permit CEDA to become self-
sustaining. Profit participation, as defined in the CEDA
legislation, will allow CEDA to be compensated for risk with
upside in successful companies and/or projects. This is one
mechanism by which CEDA could self-fund over time, similar to a
mechanism employed by the Overseas Private Investment
Corporation (OPIC) Fund Program. OPIC provides loan guarantees
to private sector funds in return for a preferred government
return. Achieving self-funding status is a significant goal as
it would permit CEDA autonomy from the appropriations process.
______
Responses of Christopher Guith to Questions From Senator Bingaman
Question 1. The thrust of your testimony is that CEDA can greatly
accelerate the development of new technologies and bring them to the
commercial market faster. I agree that the goals of energy security,
environmental quality, and job creation are urgent. I think you'd also
agree that this is a growing global market. Can you speak to how urgent
this accelerated development is to maintain international
competitiveness as well?
Answer. Technology development and deployment are one of the keys
to maintaining and improving America's competitiveness in the global
market. This is true in medicine, information technology,
biotechnology, and defense to name a few, and it is no less so
regarding energy technology. While there is most certainly a value in
developing and marketing new applications or devices at home and around
the world, the primary economic benefit energy technology development
delivers is by providing a stable, reliable, and affordable supply of
energy.
The last decade has made this point abundantly clear in the
petrochemical industry, where a self-imposed supply shortage in the
U.S. drove natural gas prices to historic levels very quickly. Between
2000 and 2008 prices increased 460%. The petrochemical industry is very
dependent upon natural gas, not only as a source of processing energy
but also as a hydro-carbon feedstock to produce everything from
pharmaceuticals to plastics. The staggering price increases quickly
made it unprofitable to operate in the U.S., contributing to the
industry shedding more than 120,000 jobs, many of them relocated to
countries with much less restrictive natural gas production laws and
thus, more stable and affordable prices.
However, technology development and deployment has now enabled us
to gain access to one of the largest proven natural gas reserves in the
world. The combination of decades-old hydraulic fracturing technology
with the newer horizontal drilling technology made access to and
production from formations rich with natural gas not only possible but
profitable. Prices have receded to levels not seen in nearly a decade,
and the petrochemical industry is cautiously optimistic that it can
grow again in the U.S. if this trend continues.
The ability to develop and deploy technologies that will ensure
stable and affordable energy prices is directly tied to economic health
and competitiveness. The creation of a tool like the Clean Energy
Deployment Administration (CEDA) would be a positive step towards
bringing new technologies to market and achieving this important goal.
Question 2. Do you have any data on investments by international
competitors in this sector, or any other measurements of market
potential that could help us get a sense of if the scale of CEDA is
sufficient to the task?
Answer. We are currently measuring and gathering quantitative data
on the energy investments of other nations. While we are not finished
with this activity, it is clear that other countries, while investing
heavily in traditional sources of energy, are also investing heavily in
advanced energy technologies. It is also clear that nation's with the
greatest economic growth are not limiting investment into any one
technology, but rather are investing in any and every technology that
meets the goal of supporting economic growth and bringing reliable and
affordable energy to millions who currently lack such basic resources.
We do not think CEDA should be seen as the only tool to promote
energy technology deployment. Fundamental certainty of regulatory and
fiscal policy has historically had the greatest impact on energy
technology deployment investments. Similarly, looking at the tremendous
siting and permitting barriers that have evolved under the National
Environmental Policy Act since its inception 40 years ago, removing
regulatory hurdles must be at least as high a priority as financing new
technologies, if not greater. Policy tools like CEDA will help to draw
capital to technologies with prohibitively high technological and
economic risk, but if siting and permitting a project remains an
unpredictable gamble, CEDA will not--indeed, cannot--be as effective as
it could be.
Responses of Christopher Guith to Questions From Senator Sanders
Question 1. Does the U.S. Chamber of Commerce believe that CEDA
should be a ``permanent financing platform'' for nuclear power as is
advocated by the Nuclear Energy Institute?
Answer. The U.S. Chamber of Commerce supports CEDA's limited scope,
as embodied in the version reported out of the Energy & Natural
Resources Committee in 5. 1462, the American Clean Energy Leadership
Act, in the 111th Congress. The goal of CEDA--and the reason the U.S.
Chamber supports its creation--is to address the structural financial
barriers that inhibit new energy technology deployment. These barriers
are prohibitively high technological and economic risk. As drafted,
CEDA is not designed to scale any technology, whether it be nuclear or
wind. But some versions of these technologies certainly fit within
CEDA's scope (e.g. off-shore wind or advanced nuclear), but not
indefinitely. Once a particular technology or application has reached a
certain threshold, it should no longer qualify for CEDA consideration.
Question 2. Does the U.S Chamber of Commerce believe that there
should be a limit on the total amount of credit support CEDA can
provide to ensure it does not over-extend itself and leave taxpayers on
the hook?
Answer. The U.S. Chamber of Commerce feels that a diversified
portfolio of technologies is crucial to achieving its public policy
goals and to mitigate risk to tax-payers. CEDA's compliance with the
Federal Credit Reform Act coupled with its proposed structure and focus
on diversification will protect tax-payers.
Moreover, requiring recipient projects to pay operational costs
through fees as well as any credit subsidy costs will further mitigate
risk. Additionally, an expeditious issuance of public bonds and
requiring CEDA to ultimately repay the initial federal capitalization
should be considered.
Question 3. Does the U.S Chamber of Commerce believe mature
technologies such as conventional coal plants and nuclear plants should
be excluded from CEDA financing since CEDA is focused expressly on
helping breakthrough technologies scale up and make it past the
``valley of death''?
Answer. The U.S. Chamber supports CEDA because it does focus on new
or breakthrough technologies. As drafted, CEDA is not designed to scale
technologies. This is true for existing nuclear and conventional coal
technologies, as well as traditional wind and photovoltaic technology.
CEDA is crafted to overcome technological risk barriers, which is not
evident in any of these technologies. However, clean coal (e.g.
supercritical, IGCC, and CCS) and advanced nuclear (e.g. generation 3+
and Small Modular Reactors) clearly fit within CEDA's defined scope
today, as would concentrated solar thermal and offshore wind. If and
when a technology is deployed to the point where technological risk has
been mitigated, it should no longer be eligible for CEDA consideration.
Question 4. Does the U.S. Chamber of Commerce recognize and accept
the scientific finding, as stated by the U.S. Global Change Research
Program which includes the Departments of Commerce, Defense, Energy,
Interior, State, Transportation, Health and Human Services,
Agriculture, as well as EPA, NASA, The National Science Foundation, and
the Smithsonian Institution, that ``global warming is unequivocal and
primarily human-induced''?
Answer. As noted in my written testimony: ``Irrespective of
regulatory regimes we decide to impose in the future, it is clear that
the development and deployment of newer, more efficient, and cleaner
energy technologies will be needed to secure our energy future.''
One of the primary reasons we support CEDA is that it is
simultaneously focused on improving the country's energy security and
reducing environmental impact of energy production, transmission, and
use.
Question 5. If the answer to question number 4 is yes, does the U.S
Chamber of Commerce support action by this Committee to add clearly
defined metrics to ensure that CEDA only finances projects that lower
carbon pollution relative to conventional technology?
Answer. The U.S. Chamber supports CEDA's definition of clean energy
technology. The creation of the Department of Energy's Title 17 loan
guarantee program demonstrates that allowing agency flexibility in such
endeavors is preferable to proscriptive statutory language. CEDA itself
should be able to produce the rules that establishes metrics by which
technologies are evaluated, whether it be for financial risk or meeting
the statutory definition of ``clean energy technology'' through the
regulatory rule-making process.
______
Responses of Jonathan Silver to Questions From Senator Bingaman
Question 1. CEDA is intended to provide a flexible platform, with a
number of financial tools to address the problems associated with
commercialization of advanced clean energy technologies. In other
words, the objective is to provide aid in bridging the ``Valley of
Death'' several people have referred to in this hearing. This naturally
implies taking on some risk that the private sector has been unable to
shoulder and providing for novel financing arrangements in areas, such
as building efficiency, that have been largely neglected.
A primary criticism of the loan guarantee programs has been that
the inter-agency review process and the multiple layers of review have
led to support for larger, lower-risk projects, at the expense of some
of the more innovative or entrepreneurial endeavors that will be very
important in the coming decades. CEDA seeks to address this both by
creating a mechanism for portfolio investing and by giving flexibility
in how the agency can recover costs through fees.
Understanding that the Administration has not taken a position on
the legislation, can you provide a technical review of the language
we're considering today with an eye towards ensuring it achieves the
results we envision? Without changing the fundamental structure of the
Federal Credit Reform Act, is there a way to make sure the reviews from
the Office of Management and budget are focused on the administration
of the fund and the process by which support is provided rather than
project-by-project review?
Answer. Under the Federal Credit Reform Act (FCRA), the subsidy
cost reflects the best estimate of the long-term cost to Government of
the loan or loan guarantee, excluding administrative costs. As with all
other federal credit programs, OMB's responsibility for determining the
credit subsidy cost associated with DOE's loan guarantees is found in
Section 503 of FCRA, which states that the Director of OMB is
responsible for credit subsidy cost estimates. Under the oversight
authority in Section 503, OMB delegates the modeling of credit subsidy
costs to agencies, and issues implementing guidance to ensure
consistent and accurate estimates of cost. For new programs or programs
where actual experience is not available, such as the Title XVII
program, OMB works closely with agencies to create or revise credit
subsidy models. DOE has worked with OMB to develop the credit subsidy
estimation methodology used for the Loan Programs, and OMB approved
DOE's credit subsidy cost model in 2008.
Title XVII loan guarantees generally support diverse investments in
a wide variety of underlying projects, each of which has unique risks
and contract terms. Because the specific projects and contract terms
vary substantially, these loan guarantees, to date, have been scored on
a loan-by-loan basis.
Question 2. It seems that certain technologies such as advanced
biofuels, smaller scale projects, and manufacturing have been a
challenge for the loan guarantee program. Are there issues with the
structure of the loan guarantee program that naturally lead to this? Do
you have any thoughts on the how CEDA may be able to treat these type
of projects differently?
Answer. As I discussed in my testimony, loan guarantees are
appropriate for some, but not all types of projects. At its most basic,
project finance is about matching future cash flows to repayment
schedules. This works well for projects that have predictable future
cash flows, such as those stemming from defined offtake arrangements
like power purchase agreements. However, advanced biofuels and
manufacturing projects sell products and, thus, do not have clearly
defined and predictable revenue streams, which makes it more difficult
to ensure any loan guarantee they received would have, as the statute
governing Title XVII requires, a ``reasonable prospect of repayment.''
DOE is committed to supporting advanced biofuels and manufacturing
projects through the loan programs. We have already issued several
conditional commitments for loan guarantees for such projects, and we
expect to issue more in the near future.
Question 3. The 1705 loan guarantee program will end in October of
this year and I understand you will be informing applicants about their
status within that program and if they are likely to be able to reach
completion by that time. There will certainly be a group of applicants
that may be worthy of a loan guarantee but, for various reasons, cannot
reach the end of the process before the end date. Those projects can be
transferred into the original 1703 program and Congress has recently
appropriated $170 million for subsidy costs for those projects. Can you
estimate how much of those projects could go forward using that $170
million and how much additional subsidy cost funding might need to be
provided to allow the remaining projects to go forward after the
September 30th date arrives?
Answer. The $170 million in credit subsidy currently appropriated
to the 1703 program would support an estimated $1.1 to $1.7 billion in
loan guarantees. As you note, DOE recently informed a number of the
1705-eligible applicants that their applications were being placed on
hold because of the pending sunset of that program. The applications
placed on hold are seeking over $17 billion in loan guarantees, though
as in the private sector, it is likely that not all of these projects
would ultimately reach financial close.
Responses of Jonathan Silver to Questions From Senator Sanders
Question 1. Does the Department of Energy support Congress passing
the Clean Energy Deployment Administration legislation as contained in
S. 1462 from the 111th Congress, and if not why not?
Answer. The Administration has not established a position on S.
1462 introduced in the prior term of Congress. However, loan programs,
properly structured, can be an important element of federal policy to
accelerate the deployment of innovative clean energy technologies at
commercial scope or scale, which in turn creates jobs, drives down unit
costs, creates new supply chains, and incentivizes future research and
development efforts. The 2012 Budget proposes $200 million in credit
subsidy to support an estimated $1 to $2 billion in loan guarantees for
innovative energy efficiency and renewable energy projects and up to
$36 billion in loan guarantees to support construction of nuclear power
facilities under the Title 17 Innovative Technology Loan Guarantee
Program.
Question 2. Should the Committee put a limit on the total amount of
credit support CEDA can provide, in order to ensure it does not simply
become a ``permanent financing platform'' for new nuclear plants, as
has been advocated by the Nuclear Energy Institute?
Answer. The Department of Energy does not support authorizing
unlimited credit authority for any institution.
Question 3. Should the Committee prohibit the financing of
conventional coal and nuclear plants under CEDA, which are clearly not
emerging or breakthrough technologies but rather mature technologies,
since the express purpose of CEDA is to support breakthrough
technologies and help technologies get to scale while avoiding the
``valley of death''?
Answer. If the Committee seeks to support breakthrough technologies
and help technologies reach commercial markets, then the terms of
eligibility enacted by Congress in the EPAct 2005 Section 1703 loan
guarantee program may be a useful point of reference.
Question 4. Does CEDA need stronger, more detailed metrics, for
what constitutes a ``clean energy'' project, to ensure that CEDA only
finances projects that reduce carbon pollution relative to conventional
technology, and if so what metrics do you suggest?
Answer. The Administration has not established a position on S.
1462, including analyzing what metrics might be used to determine what
constitutes a ``clean energy project.''
______
Responses of Dan W. Reicher to Questions From Senator Bingaman
Question 1. There are those that would say that as long as the
market incentives, such as tax credits or standards such as a CES or an
RFS, are sufficient to allow deployment, the market will take care of
financing. Your experience seems to be that even in those cases,
financing of innovative technologies doesn't happen. Can you expand on
why you think this is the case?
Answer. The problem is that mechanisms to drive deployment, like
tax credits or standards, are largely focused on technologies that have
already been proven at commercial scale. They do little to help
technologies that have yet to cross the often vast ``Valley of Death''
that sits between an energy technology demonstrated at pilot scale--
often with government and venture capital funding--and its deployment
at full commercial, often with traditional energy project finance. CEDA
is designed to address this challenge in a way that tax credits and
standards simply cannot.
Question 2. You've spent some time looking at what other countries
have done to provide financing for clean energy projects. Can you
compare the scale of those programs with what we're contemplating here
with CEDA? Do we need to match their investments?
Answer. I worry that we are increasingly getting beaten in the
energy technology race by the European Union and Asia, in particular
China. Thus while in 2004 the U.S. was the focus of approximately 20%
of total global clean energy investment and China accounted for just
3%, in 2010, China saw 20% of that investment and the U.S. 19%--and
this investment gap is widening rapidly.
And the stakes are very large. The International Energy Agency
(IEA) forecasts that over $5.7 trillion will be invested in renewable
energy globally over the next two decades. 2010 alone saw over $127
billion invested globally in renewable energy project financing.
Unfortunately it is looking less and less likely that investment will
be here in the U.S. As Will Coleman, a venture capital investor in
clean energy companies, said in a recent Senate Energy and Natural
Resources Committee hearing: ``We are not only seeing companies start
here in the U.S. and then move overseas, but we are increasingly seeing
companies start overseas and stay overseas.''
Responses of Dan W. Reicher to Questions From Senator Sanders
Question 1. As currently drafted in S. 1462 from the 111th
Congress, what assurances are there that a Clean Energy Deployment
Administration will not become a ``permanent financing platform'' for
new nuclear plants as the Nuclear Energy Institute has advocated?
Answer. I am comfortable that CEDA, as currently drafted, would
take a portfolio approach to its investments. The new agency, under a
Senate-confirmed director, would need to take a broad technology
approach to the application of its many financial tools, from
innovative approaches to bundling small efficiency projects into larger
financeable packages to new ways to back advanced renewable energy
projects to financing support for early next generation nuclear power
plants. Without a broad portfolio approach CEDA risks taking
unsuccessful financial stakes in a narrow range of technologies and
therefore not being at least partially self-sustaining, as contemplated
by Congress.
Question 2. Should the Committee put a limit on the total amount of
credit support it can provide, in order to ensure it does not simply
become a ``permanent financing platform'' for new nuclear plants?
Answer. The Committee should not put specific limits on credit
support for specific technologies.
Question 3. Should the Committee prohibit the financing of
conventional coal and nuclear plants under CEDA, which are clearly not
emerging or breakthrough technologies but rather mature technologies,
since the express purpose of CEDA is to support breakthrough
technologies and help technologies get to scale while avoiding the
``valley of death''?
Answer. I think it will be clear from its statutory mandate that
CEDA's focus is on innovative technologies. The Committee report
language on the bill could stress this.
Question 4. Does CEDA need stronger, more detailed metrics, for
what constitutes a ``clean energy'' project, to ensure that CEDA only
finances projects that reduce carbon pollution relative to conventional
technology, and if so what metrics do you suggest?
Answer. I don't think the bill as written needs more detail about
what constitutes a clean energy project. Report language on the bill
could provide some qualitative guidance on this subject.