The Geothermal Loan Guarantee Program:
Need for Improvements
EMD-80-26: Published: Jan 24, 1980. Publicly Released: Jan 29, 1980.
- Full Report:
The purpose of the geothermal loan guarantee program is to encourage and assist commercial development of useful energy from geothermal resources. The program is also intended to develop normal borrower-lender relationships which will in time encourage the flow of credit to assist geothermal development without the need for Federal assistance. The program is managed by the Department of Energy's (DOE) Assistant Secretary for Resource Applications. The Manager of the DOE San Fransisco Operations Office has been delegated national operational authority for the program since most of the geothermal resources expected to be developed by 1985 are in the western half of the United States. Under this delegation, the Manager: accepts, evaluates, and recommends approval of project applications based on priorities DOE has developed for the selection of projects; monitors project status; and coordinates activity in default situations. Final project approval authority rests with the Assistant Secretary for Resource Applicatitions.
The program has had only limited effect on accelerating geothermal energy development and DOE has approved only four projects since the program's enactment in 1974. One reason for the limited progress is the technical and economic uncertainties of developing geothermal resources. DOE has never developed and implemented a comprehensive strategy for the program and there have been a number of management problems. As a result, it is highly unlikely that the program will meet its objectives, particularly its goal to establish normal borrower-lender relationships when the program's legislation expires in 1984. Other results have been reactive decisionmaking and the selection of projects not meeting the program's highest priority needs. The program has also been plagued by administrative delays due to redundant review and selection procedures, which may discourage potential applicants. Other delays, including decisions on the use of the Federal Financing Bank and interest differential payments have resulted from the Department's failure to settle unresolved policy issues in a timely manner.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: To provide clearer direction for the geothermal loan guarantee program and greater assurance that the program meets its primary objective and goal, the Secretary of Energy should develop and implement a comprehensive strategy. As a minimum, the strategy should include: amendments to regulations and any other mechanisms that may be needed to allow lenders to assume greater responsibility for project administration and monitoring, thereby minimizing Government involvement; project selection factors in terms of geographical area, project type, project size, technical innovation, and borrower category; ways to solicit industry involvement and to seek out and select projects that best meet program needs; and means to evaluate program progress and to modify program activities as circumstances change. To ensure that further administrative delays do not occur, the Secretary should take immediate action to ensure that regulations are issued in a timely manner and to streamline project selection and milestone review procedures. Further, the Secretary should delegate authority to the Department's San Fransisco Operations Office Manager to approve projects within an established ceiling and to approve restructured milestones when they conform to basic project objectives. To ensure that the program is achieving maximum participation, the Secretary should vigorously pursue resolution of the interrelated questions on the use of the Federal Financing Bank and interest differential payments with the Office of Management and Budget and the Department of the Treasury.