The DOE this week issued its first loan guarantee for a geothermal power project, a $78.8 million guarantee for a $98.5 million loan made by John Hancock Financial Services to a subsidiary of Nevada Geothermal Power (NGP), to develop a 49.5MW geothermal project in Nevada. The blended interest rate for the loan (the combined rate on a loan where parts are charged different rates) has been determined at 4.14% and the loan was assigned a BB+ credit rating by Fitch Ratings.

The Nevada Blue Mountain project is the first to close under the Financial Institution Partnership Program (FIPP), a programme funded by the American Recovery and Reinvestment Act that the DOE hopes will be the financing mechanism for additional projects. In a FIPP financing, a long-term lender holding at least 20% of the credit exposure of the project applies for a loan guarantee on behalf of the project sponsors or developers, with the DOE guaranteeing up to 80% of the loan. 

FIPP was designed to expedite the loan guarantee process for renewable energy generation projects that use commercial technologies and to expand credit capacity for financing US projects. By the time the lender applies for the loan guarantee, the financial institution has conducted extensive due diligence that brings the application closer to DOE standards.

"John Hancock is very pleased that Blue Mountain is the first project to have closed a DOE loan guarantee through FIPP,” said John Anderson, head of power & infrastructure finance at John Hancock. “We have been working very hard to develop FIPP financings over the last year and are delighted that NGP is the first company to reach this impressive milestone."

The key change in FIPP is that the US government and commercial lenders now share the risk on projects, he said. Under the 2005 loan guarantee programme, the government would be repaid first in the event of a default, which did not make it an attractive financing option for lenders.

John Hancock has already filed FIPP applications to finance projects totalling more than $1 billion, he said. "I’m hopeful we can do maybe another five or six projects through this," Anderson said, adding that he also expects other lenders to utilise FIPP.  

The Blue Mountain project consists of a geothermal well field and fluid collection and injection systems that enable energy to be extracted from rock and fluid below the Earth’s surface, and a power plant that converts geothermal energy into electricity free of greenhouse gas emissions and other air pollutants.  The plant is currently producing 36-38MW and the company is continuing development work to achieve full capacity. The project has a 20-year power purchase agreement to sell electricity and renewable energy credits to Nevada Power Company.

The Blue Mountain project had the added benefit of being based on federal lands so the project was compliant with a programme requirement for an environmental review under the National Environmental Protection Act (NEPA), Anderson said. The requirement for time-consuming NEPA evaluations has been a barrier to utilisation of the loan guarantee programme.

The DOE’s loan programme office has closed or offered conditional commitments for loan guarantees on a total of 14 clean energy projects. 

Gloria Gonzalez