The worlds of policy, finance and science have combined to form a promising platform for the development of much-needed technologies that will provide sustainable and clean energy for decades to come. In times of strong economic growth, the oxygen of this economic system -- capital -- flows freely to good ideas, ensuring we stay on course to head off our energy and environmental challenges.
The hard economic times we are now facing have threatened that system, constricting capital and leaving us two steps back in addressing our critical needs. Each week brings news of another clean technology company shelving its expansion plans or shutting down altogether for lack of financing.
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The shame of it is the money is there. Over the past
three-and-a-half years, Congress authorized the Department of Energy to
guarantee a combined $42 billion worth of loans to companies developing
technologies that help avoid, reduce or sequester harmful air
pollutants like carbon dioxide. This funding, which excludes another $6
billion from the economic stimulus, would deliver immediate, meaningful
relief to companies trying to expand and deploy their technologies into
the marketplace. But it has been 42 months since the initial funding
was approved, and only now are the first checks getting signed.
As Energy Secretary Steven Chu has indicated, a tangled web of red
tape is responsible for the holdup, and that blame should not be
assigned to the DOE's loan guarantee office. Chu has vowed to slash
through the red tape and speed up the approval process, but we must
face the reality of a backlog of financing requests so great that the
flow of funds will likely amount to little more than a trickle.
What can our political leaders do to solve this systemic problem?
Members of Congress are working on a long-term fix by laying the policy
groundwork for a new "clean energy bank" or a "clean energy investment
fund." Creating these institutions, though, will take time, and each
week we delay adds another company to the scrap heap.
While these longer-term repairs are taking shape, we believe a more immediate solution is available.
The Energy Department can take action right now by taking a page out
of the playbook of the Overseas Private Investment Corporation. For
years, OPIC has turned over certain of its financing program functions
to private lenders and fund managers with expertise in a variety of
fields and geographies, along with proven track records for managing
risk and credit decisions and making successful loans.
OPIC's structured finance department, for instance, has long had a
formal process for delegating credit approvals to financial
institutions through lending facilities or investment funds. The agency
issues a request for proposals from these institutions, and then
carefully screens the applicant firms' credit policies and lending
track records. The key to ensuring quality approvals is that OPIC and
these institutions share in the risk of default; substantial private
sector capital is always at risk alongside OPIC's investment.
To be sure, many segments of the clean energy sector are so young it
may prove difficult to find financial institutions with a deep bench of
expertise in certain fields. But spreading these bets over a wide range
of technologies, along with adequately pricing the loans, will give
rise to a system where successful loans more than make up for those
that sour. Furthermore, partnering with private sector capital with
expertise in working out problem loans will minimize the number of
loans that are irretrievably lost.
We have always believed that government's most effective role is in
fostering a healthy competition among private companies in areas of
national interest. With America's electricity demand poised to grow 25%
by 2030, and a growing public awareness that we need to produce and
consume energy in much more efficient ways, supporting the development
of clean and domestic energy solutions must be a national priority. The
Obama administration and Congress have their hearts in the right place,
but the government has the capacity to provide only so much breathing
room. For the oxygen we need, the nation must open up the windows of
opportunity to capital markets.
Craig Cogut is a co-managing partner and the founder of Pegasus
Capital Advisors LP. With more than 27 years of private equity
investing, complex financial restructuring and legal advisory
experience, Cogut was a senior principal and one of the founding
partners of Apollo Advisors LP and Lion Advisors LP.
Paul Dickerson is an adviser to Pegasus Capital Advisors and
serves as leader of the cleantech practice group at Haynes and Boone
LLP. Dickerson was formerly appointed by President George W. Bush to
serve as chief operating officer of the Department of Energy's Office
of Energy Efficiency and Renewable Energy.
