U.S. Energy Dept. Revives the Loan Programs Office, a Tesla-Scale Decarbonization Tool

A key decarbonization asset in the U.S. gathered rust during the Donald Trump administration, and after two years of hard work, it is finally fit for duty again. That is the Department of Energy's Loan Programs Office, the small but highly influential government financial resource that counts an early loan to Tesla Motors among its success stories.

The facts behind the Loan Programs Office

The Loan Programs Office was established by the federal Energy Policy Act of 2005 during the administration of former President George W. Bush. It was tasked with providing loans and loan guarantees to innovative companies in the areas of fuel efficiency and clean energy.

The goal was to help bridge the gap between new, commercial-ready technology and the mass market. Its best-known success story is Tesla Motors, a company that seemed destined to languish in the luxury niche market when it first launched in 2006. Tesla only produced a total of 2,500 units of its first vehicle, the two-seat Roadster sports car, which it introduced in 2008 with a price tag that easily topped $100,000.

The picture was quite a bit different after 2010, when Tesla received a $456 million loan from the Loan Programs Office. By 2012, the company stopped production of the Roadster and was ready to produce the now-familiar Model S.

“Tesla's first vehicle, the Lotus-inspired Roadster, was first produced in 2008. This limited production model only sold 2,500 units. At that time, Tesla was a sleepy EV company – and it wasn't until 2012 with the Model S that the company was a household name. In the first year of production, Tesla sold 3,000 Model S units,” U.S. News and World Report noted last November in a recap of the company’s sales to date.

That particular article failed to mention the $456 million loan that launched the Model S, but it did note that Tesla jumped production up to 22,477 in 2014, and went on to produce millions. 

Despite the reputational chaos surrounding Tesla CEO Elon Musk in recent years, the company’s success is widely credited with setting the stage for other startups and legacy automakers to produce electric vehicles for the mass market, along with a growing ecosystem of battery innovators, charging station manufacturers and related stakeholders.

Although the Loan Programs Office focuses on startups, it also provides loans to legacy firms that are innovating in new areas. One notable success story in that area is Ford Motor Co. Ford refused federal Recovery Act funding after the economy crashed in 2008, but it did take a $5.6 billion loan from the Loan Programs Office for factory upgrades in 2009.

Ford went on to ramp up its electrification plans in 2015 and 2018, and it was the first mass market automaker to carve a path from electric sedans to light-duty trucks when it introduced the all-electric Lightening F-150 in 2021 to widespread acclaim. 

What happened to the Loan Programs Office?

The Loan Programs Office was launched under a Republican president, which should have sheltered it from partisan attacks. The financial success of the program creates more foundation for bipartisan support: Overall, interest on loans has more than offset losses from other recipients that went bankrupt.

In 2019, the Bipartisan Policy Center noted that “LPO projects have transformed American energy infrastructure and accelerated growth in clean energy and electric vehicle markets,” creating or saving thousands of jobs, with projects generating a total investment of more than $50 billion. 

“Further, LPO projects have prevented 34.7 million metric tons of carbon dioxide emissions and saved 1.7 billion gallons of gasoline and counting,” they added. 

That gasoline-cutting achievement explains why the office became a target for fossil energy stakeholders and their allies in Congress after President Barack Obama took office in 2009. 

The Republican party took control of the House of Representatives in the 2010 midterm elections, and promptly tried to withdraw funding from the program. They also ginned up public opinion against the program by flogging the bankruptcy of the solar panel manufacturer Solyndra in public hearings.

To the surprise of no one, the Loan Programs Office was practically mothballed after Obama left office in 2016. Upon entering the White House, former President Trump repeatedly announced his intention to defund the program. The sole exception was a multibillion-dollar bailout for the Vogtle nuclear power plant, which continues to suffer from delays and cost overruns.

$350 billion more for clean energy projects

Someone in the Loan Programs Office was looking forward to a new administration, though. In December of 2020, just a few weeks after Trump lost his re-election bid, the Loan Programs Office publicized new guidance on loan applications, with a focus on critical materials needed for electric vehicles, solar cells, wind turbines and other clean tech.

In March of 2021, shortly after President Joe Biden took office, the office issued a solicitation for companies to proposed projects for achieving Biden’s goal of 30 gigawatts in new offshore wind capacity.

Restoring trust in the office has been slow going, though. Last week, Bloomberg noted that the office has received more than 100 applications over the past two years but has made only four conditional loans or loan guarantees.

The head of the office, Jigar Shah, is seeking to raise awareness about the power of the program to vault innovators into the mass market. He has gotten a big assist from the Democratic members of Congress who voted for the 2022 Inflation Reduction Act, which passed into law with the support of exactly zero members of the Republican party.

As described by Bloomberg, the Inflation Reduction Act added another $350 billion to the office’s previous loan authority of $44 billion, for a total of $394 billon. In terms of success stories, that’s the equivalent of scores more Teslas, Fords and other innovators funneling new decarbonization technology into the U.S. economy.

Of particular note is a provision in the Inflation Reduction Act that removes a cap on the total amount of loans for auto manufacturing, under an existing division of the office called the Advanced Technology Vehicles Manufacturing Loan Program.

Aside from benefitting car makers, removal of the cap sets the wheels in motion for a previously unfunded provision in the Bipartisan Infrastructure Law to take effect. That provision expanded the Vehicles Manufacturing Loan Program to include medium- and heavy-duty vehicles, locomotives, maritime vessels including offshore wind vessels, aviation and hyperloop.

The Inflation Reduction Act also added funding for an entirely new program in the Loan Programs Office. The newly formed Energy Infrastructure Reinvestment Program aims to help “retool, repower, repurpose, or replace energy infrastructure that has ceased operations or to improve the efficiency of infrastructure that is currently operating.”

Some examples of qualifying projects could include converting fossil energy sites to clean technology, retrofitting older wind farms with more efficient turbines, and replacing conventional solar arrays with agrivoltaic systems.

The Loan Programs Office is poised for a rush of new business under the Biden administration. As for what happens after Election Day 2024, that’s partly up to those in the business community who lend financial support to candidates for office.

The run-up to the 2024 presidential election cycle is already looming into view. The choice of which candidates to support should be clear to every business that seeks to court the up-and-coming generation of consumers, clients and voters.

Image credit: Tesla (press use only)