On March 6 of this year I wrote in this column about the need for the Department of Energy’s Loan Program Office (LPO) to assist distributed energy projects, including distributed energy storage projects, rather than dedicate all its financial resources to energy megaprojects.  NAATBatt International proposed that the LPO do this by guarantying the performance warranties of manufacturers rather than the loans of large financial institutions.  I pointed out that the LPO has the statutory authority under Energy Policy Act of 2005 to do this.  A formal proposal made by NAATBatt to the LPO in April received no response.

Earlier this week, I was surprised and gratified to hear President Obama announce at the National Clean Energy  Summit in Nevada that the LPO would issue new guidance to potential applicants concerning the types of distributed energy projects it would support. The President’s announcement seemed a belated recognition that the future of renewable energy and energy storage lies out closer to energy consumers, on electricity distribution systems or behind-the-meter, rather than in large centralized power plants.

But the Supplement to Renewable Energy and Efficiency Energy Projects Solicitation that the President referred to and which was issued on August 24, does little to address the needs of distributed energy projects and in particular their need to reduce technology risk of innovative projects to electricity consumers (which is the very point of the LPO program). All the Supplement does is clarify that if a developer can aggregate a large number of distributed projects together and obtain a project finance loan, the LPO may be there to provide credit support.  This may be good news for Tesla, which undoubtedly has plans to aggregate, package and sell its home energy storage systems in the financial markets.  But it leaves much of the real future of the energy storage industry out in the cold.

As currently constructed, the DOE’s LPO program:

  • Does nothing to support distributed projects that are not aggregated into billion dollar pools. These include storage projects that might be deployed by commercial entities, coops, small utilities or large utilities not yet ready, perhaps, to go all-in on storage in their service areas.  A project, whether comprised of a single facility or an aggregate of multiple facilities, must still be of sufficiently large size in order to carry the considerable transaction costs involved in obtaining a loan guarantee from the LPO.
  • Does nothing for entities financing distributed storage projects off of a balance sheet or by rate basing a project. Unless there is project leverage involved, the LPO will lend no support to the project.
  • Does nothing to protect the electricity customer from the technology risk of the project. If a guaranteed project fails, it is the lender that the LPO holds harmless, not the electricity customer.  One of the principal challenges that energy storage companies (or any new energy technology company) face is that customers hesitate to buy a new technology if they must assume the risk of the technology will not performing as expected.  This is the risk that the LPO is supposed to address.

The better approach is for the LPO to guaranty the warranty obligations of qualified advanced energy manufacturers.  This approach would put credit support right where it is needed: in the hands of the electricity customers who are ultimately being asked to assume the risk of using new energy technology.  If the DOE really wants to help support deployment of new energy technology on distribution systems and behind-the-meter, that is how it should be done.