CEOs request DOE loan guarantee change

By Susanne Retka Schill | January 04, 2010
Posted Feb. 3, 2010

Eleven CEO's of the nation's leading cellulosic ethanol companies sent a letter to U.S. DOE Secretary Steven Chu in anticipation of a Feb. 11 Senate Energy Committee hearing raising concerns about a key component of the DOE loan guarantee program that is making it difficult for the companies to qualify for loan guarantees.

While acknowledging the support for cellulosic ethanol development through the renewable fuels standard and grant funding, "it is widely recognized that the loan guarantee program will play a critical and even indispensable role in providing financing for a handful of pioneering, ‘first-of-a-kind' next-generation biofuels facilities at commercial scale," the letter stated.

Specifically, the loan guarantee program is requiring a long-term, fixed-price offtake agreement as a key determining factor in evaluating whether a project has a reasonable prospect of repayment as required in the law establishing the loan guarantee. "This approach," the CEO letter states, "Drives a systematic bias toward lending for power generation projects that can obtain state-sanctioned, long-term power purchase agreements due to the regulated structure of the electric power
industry. By contrast, the liquid fuels marketplace does not operate within such a framework; long-term, fixed-price forward contracting mechanisms, offering assurance of predictable future revenue streams, simply do not exist in our target markets."

In recent years, the letter notes, Congress has enacted a fabric of policies intended to promote the development and deployment of renewable fuels, and to ensure stable prices and market demand for them, including the renewable fuels standard. The CEO letter urges that the upcoming hearing be used as an opportunity to clarify how to interpret this fabric of policies for purposes of lending to next-generation biofuels projects. The letter points to a provision in the Energy Independence and Security Act of 2007 that allows for the establishment of a pricing provision for cellulosic biofuels credits in the event production falls short of renewable fuels standard targets. "For purposes of pricing credits, this provision sets a price target for cellulosic biofuel in the range of $3 per gallon (adjusted for inflation)," the letter states.

Signatories on the letter include the CEOs of Abengoa Bioenergy, BlueFire Ethanol, Coskata, Enerkem, Frontier Renewable Resources, Ineos Bio, Iogen, KL Energy, Mascoma, Range Fuels and Verenium.