When President Obama arrived in office in 2009, he was desperate to stabilize an economy in free-fall. His new man at DOE, Chu, moved to speed up the loan-approval process and in March 2009 – nearly four years after the program became law – DOE finally gave conditional approval to a loan guarantee. But bureaucratic fixes were only part of the change the Obama Administration brought: The American Recovery and Reinvestment Act added Section 1705, which would soon become the heart of the loan guarantee program.

Aimed at “certain renewable energy systems, electric power transmission systems and leading edge biofuels projects that commence construction no later than September 30, 2011,” Section 1705 represented a big shift in that it moved the loan guarantees beyond innovative technologies, opening the field to commercially viable renewable projects like solar and wind in the hope of creating jobs immediately. And to make that happen, Congress appropriated $6 billion to cover what are called “credit subsidy costs” for the loan guarantees.

image via Siemens

The original Energy Policy Act simply authorized the Department of Energy to back billions in loans, but because Congress appropriated no funds for the program, loan recipients were required to pay a premium – the credit subsidy cost – of around 10 percent of a loan’s value. The idea was that if a few loans went bad, the pool of credit subsidy costs from the entire portfolio would cover the government’s losses. With the Recovery Act, the government itself was offering to step in and pay that credit subsidy cost.

“The appropriation for credit subsidy costs was and is extremely important,” explained Richard W. Caperton, a senior policy analyst at the Center for American Progress, a progressive Washington-based think tank. “By covering that additional cost of the loan, the loan guarantees are made substantially more attractive.”

The new administration pushed through some lingering applications in 2009, most notably ones to aid Tesla, Fisker, Ford, Nissan and GM (which later decided not to participate). These came under a program sometimes referred to as Advanced Technology Vehicles Manufacturing (ATVM), sometimes as Section 136. Intended to spur the manufacture of more fuel-efficient cars, it had its own appropriation, predating the Recovery Act, of $7.5 billion to back loans totaling up to $25 billion. But there was still widespread concern that loans weren’t being processed in an efficient, smart and fair manner, and in fall of 2009, Chu called on Silver, a veteran venture capitalist, to head the Loan Programs Office.

“Silver brought real VC experience and understanding, and a can-do attitude,” said Graham Noyes, who helps guide companies through the loan-guarantee application process as a lawyer in the Energy Practice Group at the firm Stoel Rives. Silver also brought a lot of badly needed bodies into the Loan Program Office; staffing zoomed from a mere 14 people in January 2009 to “170 or 180 now,” Silver said in a recent interview at Green:Net 2011.

Complaints that the program is cumbersome and unpredictable haven’t disappeared; the Detroit Free Press recently detailed the frustrations of several Michigan companies trying to get loans. But Silver said the additional staffing, combined with smarter organization and a streamlined process, has allowed the program to hit its stride. “Between 2005 to 2009 there were zero deals done,” he said at Green:Net. “From 2009 to today, we’ve done 27 transactions equivalent to just over $30 billion in loan guarantees with total project costs of $45 billion.”

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