White House memo on Renewable Energy Loan Guarantees and Grants

This explosive memo authored by White House advisers Carol Browner, Ron Klain, and Larry Summers explains how "double-dipping" by wind developers is resulting in the total government subsidy for loan guarantee recipients exceeding 60% against small private equity, as low as 10%. The appendix included with the memo is excerpted below. The full memo can be accessed by selecting the link at the bottom of this page.

Appendix: Shepherds Flat Loan Guarantee

The Shepherds Flat load guarantee illustrates some of the economic and public policy issues raised by OMB and Treasury. Shepherds Flat is an 845-megawatt wind farm proposed for Oregon. The $1.9 billion project would consist of 338 GE wind turbines manufactured in South Carolina and Florida and, upon completion it would represent the largest wind farm in the country. The sponsor's equity is about 11% of the project costs, and would generate an estimated return on equity of 30%.

Double dipping: The total government subsidies are about $1.2 billion.

Subsidy Type


Approximate Amount

Federal 1603 grant
(equal to 30% investment tax credit)



State tax credit  


Accelerated depreciation on Federal
and State taxes


Value of loan guarantee  


Premium paid for power from state renewable electricity standard  







Skin in the game: The government would provide a significant subsidy (65+%) while the sponsor would provide little skin in the game (equity about 10%).

Non-incremental investment: This project would likely move without the loan guarantee. The economics are favorable for wind investment given tax credits and state renewable energy standards. GE signaled through Hill staff that it considered going to the private market for financing out of frustration with the review process. The return on equity is high (30%) because of tax credits, grants, and selling power at above-market rates, which suggests that the alternative of private financing would not make the project financially non-viable.

Carbon reduction benefits: If this wind power displaced power generated from sources with the average California carbon intensity, it would result in about 18 million fewer tons of CO2 emissions through 2033. Carbon reductions would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules).

Summers Renewable Energy Memo

Download file (1.39 MB) pdf

Source: http://www.ascension-publis...

OCT 25 2010
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