Podcast: The Successes and Value of the Loan Programs Office with Jonathan Silver

Taite McDonald: Hello everyone and thanks for joining today. My name is Taite McDonald and I'm a partner in Holland & Knight's Public Policy & Regulation Group in Washington. For the last 15 years, I've spent my entire career on the intersection of federal government and commercialization of energy and clean technology. Fortunately and unfortunately and all through it all the Loan Programs Office (LPO) at DOE has been a pivotal portion of that. Starting with early transactions, which will be named through this and then all the way up to dozens of transactions that we're working through today. And of course, in getting to where we are today in the Loan Programs Office and all of the press and excitement around the DOE loan program, I've made a good number of friends along the way. So today I am very pleased to be joined by Jonathan Silver, who was the first executive director of the loan programs office. Today our plan is to have an informative and insightful conversation, really starting at the beginning of the loan program and what's been accomplished and where we can go from here. So with that, Jonathan, can I turn to you to introduce yourself?

Jonathan Silver: Well, sure. I mean, my greatest qualification I'm delighted to know is that I'm one of the Taite friends. It's fantastic. No, as you pointed out, I was the first executive director of the loan program and ran it essentially from the beginning of the Obama Administration through to the first sort of two and a half years. By background, I'm a finance and investment professional. Currently, I sit on a number of public and private sector boards in and around the clean energy and clean tech space and I'm also a senior advisor at Guggenheim Partners.

Background on the Loan Programs Office

Taite McDonald: I mean really since your time leaving the LPO you've done such phenomenal work in advancing the clean tech industry as a whole. Today we're going to start with an op-ed that we included in the overview of the podcast that was written by you and Peter Davidson, another former executive director, about LPO. With regard to really where we are in the value of the Loan Programs Office. One of the last sentences of that op-ed says ten years ago, we were privileged to help launch the clean energy industry by directing billions of dollars of investment into a young industry. Not every investment succeeded, but most did, and they changed the world. This is one of my favorite things. This is a conversation we always have about really the impact that LPO had in their early years and how a lot of people don't really understand that and really understand the impact LPO had across all of the industries that are commercialized today. So can you just spend a minute or two and comment a little bit on that work and maybe some of the unknown portions of the value of LPO and everything great that's been accomplished there.

Jonathan Silver: You know, it's hard to remember perhaps looking back, because today there's so much interest in and an understanding, even more importantly, an understanding of how important clean energy and clean sustainability is and how sustainability efforts are. But 10 years ago, really no one was talking about this, or at least not very many people. Today, there's a tsunami of capital lined up to make investments in a wide range of these spaces, but 10 years ago really it was the capital deployed by the loan program that essentially turbocharged the growth of a whole, as you say, a whole series of sectors including solar, wind, geothermal and biofuels. We launched the first half dozen utility scale solar projects in and around CSP. We we did that. We provided the financing for what was then the largest wind farm in the world, the Caithness project. We provided and underwrote financing for the first nuclear power plant to be built in the United States in the last 30 years. That's the Vogel project in Georgia. And of course, we provided the initial capital for Tesla as well and many others.  

I think we did 33 or 34 transactions in a concentrated period of two or three years that really set the stage for what we've all been able to build on today.

Taite McDonald: And really I think what's most important about the history of LPO that's often ignored is the fact that the U.S. was the first to do that. Nobody else in the world had deployed that much in such a short period of time at that point in time and that story is often lost.

Jonathan Silver: Even though it was a subject of, as you know well, a subject of considerable political debate. It was the first time the U.S. government had made a material commitment to this long term, this generational change, in the energy sector that we are driving towards. It really set the stage for, and much as it was intended to set the stage for, the private sector to begin to pick up the reins and lead the investment charge from there. Which doesn't mean, of course, that there's not a huge role for the loan program today. In fact, just the opposite. It's that the loan program should constantly be serving technologies and communities at the edge of commercialization as we drive towards really solving this existential question around climate change.

Taite McDonald: Well, it's such an important point. I always say when we look at net zero initiatives and objectives, there is so much technology that needs to be commercialized. That remains to get to true net zero in goals across the U.S., as well as across the remainder of the world. And the loan program is really the only tool that is one of the, of course, we have a number of others, but one of the best tools to be able to fund it in a way that the government's just not putting capital at risk.

Jonathan Silver: For those of your listeners who may not be completely familiar with the process, I will admittedly oversimplify it, but I will simplify it by saying that essentially the government serves as a backstop to ensure that capital deployed by the private sector has some protection, some bumpers if you will, in making these early investments. Everybody's interested in making investments once a technology has been proven out. The trick is the question is how do you how do you get those technologies to scale such that the private sector will then pick up the ball and continue to fund? We've gotten there with solar, we've gotten there with onshore wind and we did it largely through these early investments by the loan program.

The Importance of the Loan Programs Office

Taite McDonald: No, without a doubt. Let's let's go right to the last sentence of the op-ed, and then we'll have a little bit more of a discussion about just where the loan program is and why companies should still be looking at it. So the last sentence is, "as in baseball, you don't get on base every time you're up to bat, but you cannot hit unless you swing. It's important that the government continue to take swings at that because the climate crisis is both an existential issue and one of the biggest investment opportunities in general." Before I turn it over to you, I will say throughout the majority of my career, I think this is so important to keep in mind right now and especially with regard to the loan program, because really what we've seen other governments do. It wasn't until 2010 that the Chinese government really started to invest in more technologies. We've really seen the immense amount of investment from Europe and other countries in the wake of the COVID-19 pandemic. The investment has been significant and there's been significant risk across those investments. That's why this is important to me and I've stayed with the loan program and improving it and helping companies navigate it for so long, despite the ups and downs which we'll talk about a little bit more. Why is it so important to you that the loan program operates in a manner that swings back and can that continue when you rent it too? I think that's important.

Jonathan Silver: Well first let me say that you and your colleagues have been instrumental in improving and refining and streamlining the program and you all are due enormous kudos for your work in this area. I mean the program has gotten started off well and has only gotten better. But you and your team have really been, you know, a moving force in that process. So my personal thanks to you on that. Why is this program important? It's important because in order for us to solve the climate change problem, technology and public policy have to work together. Neither on its own is going to address the issue in a sufficiently timely manner to solve the problem. And so it's only by bringing both fields together that we really stand a chance of making this work, and the loan program is almost the perfect example of the intersection of public policy and technological evolution because the loan program is fundamental mission is to help commercialize promising innovative technologies that directly address climate change. If the program is really working on a huge problem. The second is that solving this problem is going to take a long time. There is no overnight fix. There's no quick cure here. And so it is only by the annual application of, no pun intended to applicants, but the annual focus on new technologies financing them, building them to scale, putting them out in the public that we can really begin to build a robust response. But the other reason it's important is because it actually serves as a bridge to financing entirely by the private sector, which is all of our collective goals. So the government's loan program is not intended to replace private sector investment. It's intended to supplement it and support it. By bringing, for example, the skills of our national labs to the due diligence process. By bringing our expertise in structuring financings for innovative technologies to the table, we make it easier for the private sector to pick up the ball and run with it.

It's [LPO] important because in order for us to solve the climate change problem, technology and public policy have to work together. Neither on its own is going to address the issue in a sufficiently timely manner to solve the problem.

Taite McDonald: Well I always say too so many of the transactions in the space are missing that 10 percent gap in terms of funding and just risk mitigation. They're so close to the finish line, but there's still a gap, and the flexibility of the loan program helps to fill that gap, whatever it is, and this actually goes immediately to the next question that I want to just comment on and talk through because risks are different across every company. One solar company and next generation solar company versus a CC West versus hydrogen all have different risks that we need to mitigate. The beauty of the loan program is that you use one tool to mitigate all of those risks, to mitigate the remainder of the risk and that gap in the risk, whatever it is for that bridge to bankability, which I'm so glad Jigger Shaw is finally is continuing to say in the public, because that's really what this is a bridge to bankability. But keeping all of that in mind, I mean, we know a lot of companies listening today are likely to be considering an application to the loan programs office and even though the loan program has been operating at a profit, there hasn't been a significant...

Jonathan Silver: We should definitely make note of that.

Taite McDonald: We should make note of that. We can't leave this without making note of that, you know.

Jonathan Silver: I mean, I think that the loans, which are themselves written and under market rates, which means that it's hard to make a profit have already generated, you know, several billion dollars of profit for U.S. taxpayers since inception. I mean, the program has been very successful in that regard. I'm not sure people have followed it closely enough to understand that, but in point of fact, this program has paid for itself, you know, several times over.

Advice for Applicants

Taite McDonald: Without a doubt. And that's what applicants don't understand, right? So a lot of applicants and investors are and are hesitant to go through the application process. But for those companies considering and of course, there's a lot of excitement around there now, and we're really excited and thank you for the kind words because my team has worked so hard on getting the legislative improvements that we have moving forward, as well as just making sure the program is there and the benefits of the program are known more broadly why we're doing things like this. But for those companies moving into the process or maybe held up in a little snag in the process, what words of wisdom would you impart upon them as they enter and proceed? Because we both know this is a challenge.

Jonathan Silver: Well, my first piece of advice is like any expedition, don't go on it without a guide. So you do need a good, you know, a good legal team behind you, whether it's yours or somebody else's, you do need good legal advice. More broadly, I would say, you know, the loan program professionals, almost all of whom are career professionals are there to help. They're there to help guide applicants through the process, streamline it wherever they can, make it as palatable as possible. And so I would suggest that you engage with an applicant, engage with them early and listen to what they have to say. I want to make one other comment as well, and I saw this in my own experience, admittedly, and this was our collective first pass through. We were all inventing it, you know, as we go, folks working on the program and applicants alike. But don't stop growing your company because you have filed an application for a loan guarantee. You can only enhance your ability to get a loan or a loan guarantee by demonstrating that the company is continuing to make progress. It can only help. I have seen applicants make me get the application and then stop, waiting for the results before they go forward. That's not a good strategy. A better strategy is listen to what your legal team has to say, listen to what the professionals there have to say. File the application as they help you describe it and continue to grow your own business. The last piece is, despite the fact that this is a is a federal government program and a D.C. based program. Lobbying is not really very effective here. There are applicants from every congressional district and every state. Everybody, you know, can get the same kind of support. This is really done based on technical due diligence, legal and environmental due diligence as anything else with really solid professionals. So the focus should be on the quality of your application more than anything else.

But don't stop growing your company because you have filed an application for a loan guarantee. You can only enhance your ability to get a loan or a loan guarantee by demonstrating that the company is continuing to make progress. It can only help.

Taite McDonald: In the process, I mean, just to add to that before I want to go back to another point or two. I tell applicants all the time, it's the strategy, it's the process, it's what we put together in the forefront, how we react to how quickly we react every single time we are asked questions, the substance we provide them. The one thing I'll reiterate from your point that I think is really important to know. The reason why we've consistently stayed with the program, even when it was hung up on different items, whether political or whatever, like there is a lot of backlash in the wake of Solyndra and then since the markets moved, a lot of people don't realize that it's been difficult to close transactions because the markets moved away from 30 year offtake contracts, which were the majority of the transactions when you were running the office. But now I always say we have so many other tools through corporate adoption, broader market adoption, just where the world is going to mitigate that risk to get to a transaction that we can move forward. But even we were at a point where we knew things would continue to stall in the program, it might be a challenge to move to programs. The applicants that took parallel paths to commercialize technology through the loan program, as well as through the private sector, are the big name companies we see out there today that have commercialized.

Jonathan Silver: Yeah, I agree with everything you're saying and applicants should understand the loan program exists to provide loans. It doesn't exist to deny loans, right? So help them help you.

Taite McDonald: Exactly, work through the tools work through filling the gaps. What we're seeing a lot now that I think is really important is creative solutions to de-risk outstanding areas. We're not going to decrease all risk. That's not what the program was for. The program is for taking on some risk and moving technology forward, but we also need to make it a strong enough transaction to do that.

Jonathan Silver: So I totally totally agree with that, and it's important that applicants understand that this is not a place to come for a Hail Mary pass. This is a place to come to turbocharge your own business growth.

The Success of The Loan Programs Office

Taite McDonald: Yes, and alignment with your broader business objectives. But I just can't stress enough that the applicants we've seen most successful, we don't plan to talk about this today, but like always, things like this come out that we agree on. But the applicants who have been most successful and have enjoyed the process the most will get a complimentary build parallel paths to market. What we see now, actually, and we have transactions moving forward like this, building parallel paths to market is going to encourage the LPO to really give you a deal to work on a deal at the end of the day that can catapult your company forward. So I think it's really important that we stress that just from both of the last 10 years of experience as well as throughout the ups and downs of that. So in our last minute, minute and a half, I know the folks tuning in can probably tell this has been a labor of love for all of us throughout the years. There's a small group of us in Washington and in parallel paths and a lot of us came together just to get the program to where it is now, which is really bipartisan acceptance on the hill. And hopefully that will remain even though it's a partisan climate. So the one thing I want to leave off with is I know we agree that the LPO is an integral tool to commercialization, innovation, American leadership, but anything else that you want to talk about, about the importance of the learning program or anything else you want to leave with folks tuning in today who have interest in the program, either from a health perspective or a company perspective?

Jonathan Silver: Sure a couple of things. First is I think by now it's pretty clear that the program is a proven success. It wasn't 10 years ago because we just were starting out. It wasn't proven. But I think now that case has been made clearly and comprehensively. What matters most for a program like this is continuity so that loans are being issued, underwritten and issued, and capital is being deployed year in and year out because every year there are new and emerging technologies that are relevant to the program that would benefit from the program and that, most importantly, would potentially provide or become part of the solution to the much bigger issue that all of this is meant to address because it is a financing program and has financing mechanisms. So these loans actually charge interest. They make money for the program and for the federal government and by extension, for the U.S. taxpayer. So it's hard to imagine a more efficient or more effective vehicle for demonstrating important innovative technologies at scale, which also then reimbursed the taxpayer for the risk taken such that the net is a win-win.

Taite McDonald: Well, that's what's key. That really, I think is the best place to end this. As a taxpayer, I've always been comfortable speaking up for the program because at the end of the day, the is actually structured to overcome losses to a specific degree.

Jonathan Silver: Right. And it's important, I think, for your listeners to know that loan losses on this program, which are, I believe, still sub three percent are absolutely on par with the loan losses for almost any major commercial bank working in this or any other area in their portfolio.

Taite McDonald: Exactly. Yeah. So thank you so much, I don't want to take any more of your time. I think this was such a productive conversation that we covered just a ton on and hopefully it was helpful to listeners thinking through applications. Any other questions? Of course, folks can feel free to forward to us, but just thank you for your time today and look forward to just continuing to change the world.