Federal loan guarantees for clean energy projects: Additionality and commercialization

The US federal government began using loan guarantee programs to support the commercialization of clean energy technologies in the mid-1970s.  The programs were implemented as part of a broader energy policy initiative that was influenced by the growing environmental movement and triggered by energy security concerns in the wake of the 1973 Arab Oil Embargo.   The primary goal of such loan guarantee programs has been to reduce commercial deployment timelines by inducing private sector lenders to provide credit to projects incorporating targeted classes of energy technology.  Although multiple studies concerning clean energy loan guarantee programs have been conducted, those studies have largely focused on secondary factors such as default costs, employment estimates, specific project outcomes, and critiques of program management.  The analysis presented in this paper fills a gap in the literature by presenting a test for the primary means and end of the programs: inducing credit market additionality to accelerate technology commercialization.

The work to be presented reviewed past and present clean energy loan guarantee programs in the United States and evaluated those programs in terms of the likelihood that a given program succeeded in both generating credit market additionality and aiding the commercialization of a given energy technology.  Eight clean energy loan guarantee programs, going back four decades and encompassing 56 different projects, were identified and evaluated.  Of those 56 projects, eight were found to represent likely instances of credit market additionality in support of commercialization.  Although further study is recommended, the results suggest that loan guarantee programs have played a minimal role in bringing new energy technologies to market and may not generate the social benefits necessary to justify program costs.