Department of Energy Loan Programs Office Could Face Potential Defaults Inspector General Warns

The Department of Energy, (DOE) Inspector General (IG) warns of “massive new risks to taxpayers” associated with potential Loan Programs Office defaults in its November report on Management Challenges at the Department of Energy – Fiscal Year.

The rapid expansion of the DOE Loan Programs Office (LPO) authority over the past three fiscal also poses potential funding threats for the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR), mentor protégé program and other federally funded small business programs.

“The current situation brings tremendous risk to the taxpayers—the combination of standing up 72 new Department programs, a real risk of funding entities owned or controlled by foreign adversaries, and a historic expansion of the Department’s loan program.” the IG warned.

The LPO portfolio receives funding through the Infrastructure Investment and Jobs Act (IIJA), CHIPS and Science Act (CHIPS Act), the Inflation Reduction Act (IRA), the Puerto Rio Energy Resiliency Fund, and most recently, the 2023 Omnibus Appropriations Law (aka Continuing Resolution). During the past two years, these sources provided $99B in new appropriations, and $30.5B in new authorizations increasing the LPO authority to more than $400B. Within this portfolio, the office issues loans through four programs distributed among 11 sectors.:

• Title 17 Clean Energy Financing Program (Title 17) 
• Advanced Transportation Vehicle Manufacturing Program (ATVM): Tribal Energy Financing
• Carbon Dioxide Transportation Infrastructure Finance and Innovation.

 

 

 

 

 

 

 

 

 

According to the IG, this increased portfolio is more than 23 times larger than the balance of $17.2B in November 2021 when the IIJA was signed. As of September 30, 2024, the LPO reported $1.93B in actual and estimated losses (3% of total disbursements).

 

 

 

 

 

 

 

 

 

The current Portfolio Performance Summary includes:

• $43.9B Loan and Loan Guarantees Issued
• $24B Conditional Commitments*
• $34.8B Disbursed
• $15B Principal Repaid
• $5.4B Interest Paid

*The LPO defines Conditional Commitment loans as those whose amounts are subject to the applicant reaching critical milestones and subject to the completion of certain technical, legal and financial conditions that must be satisfied before DOE finalizes and funds the loan.

The loan guarantees within the portfolio are on accelerated schedules with $290B of expiring in September 2026. This represents about $8B per month over the next three years. Furthermore, an additional $50B in loans expire in 2030. Additionally, the projects financed through the LPO are innovation projects that typical market investors deem unacceptable. This along with the LPO’s authority to estimate its lending capacity for programs with and without statutory investment caps leads to the potential to “cut corners” resulting in:

• Difficulty establishing loan financial viability and increased risk for loan defaults
• Increased possibility of high-risk loans for innovative projects and bypassing more acceptable alternative projects
• Rushed and inadequate vetting of loan projects potentially inadvertently funding foreign adversary projects, especially through supply chain providers.

In November 2024, the agency received 212 new loan requests valued at $324.3B, a 13.3% increase since the beginning of Q3 FY 2024 and a record high for the financing office. 

 

 

 

 

 

 

 

 

 

 

Contractor Implications

The FY 2025 LPO budget request for $150M is nearly 2% below the FY 2024 enacted. However, in addition to loans, the DOE distributes funding for innovative research and development through Funding Opportunity Announcements (FOAs), SBIR/STTR grants, cooperative agreements and other financial assistance program awards. Of the $99B received through IIJA and IRA, the agency issued more than $67B in Funding Opportunity Announcements (FOAs) resulting in $50B in awards. Nevertheless, from FY 2021 to 2023, awards under all three SBIR phases declined, but activities within the LPO most likely impact the Phase I awards. 

 

 

 

 

 

 

 

 

 

An increased loan portfolio opens doors for businesses seeking financial support to enter the energy technology market or to fund new projects for existing firms. However, continued exposure to the risks the IG reported, could reduce the amount of funds available in the future, especially if the new administration amends or curtails the associated legislative actions. Those include potential:

• Reduced and/or redirected funding from BIL, IIJA, IRA and CHIPS Acts
• Delays or inactivity on loans in negotiation status or announced via FOAs
• Possible deobligations of previously appropriated funding under the current administration
• New regulations increasing difficulty for or prohibiting innovative small businesses seeking to enter the market
• Reduced SBIR/STTR opportunities for small businesses
• Reduced federal contracts resulting from the SBIR/STTRs and funding opportunities
• Reduced transition to commercialization.

Small businesses in financial assistance negotiations need to expedite finalization of their funding process. Those planning to apply should move quickly to get ahead of potential changes under the new administration. And those, already receiving financial assistance should proactively position themselves for potential changes in the new year including seeking alternative financing through partnerships and teaming opportunities.