DOE: How Not to Waste Taxpayer Dollars

The Department of Energy has been showered with money lately. It's received about $30 billion in funding (on top of its approximately $24 billion annual budget) from the stimulus bill passed in February. And it's responsible for issuing $125 billion in loans and loan guarantees. The person in charge of the agency's finances is chief financial officer Steve Isakowitz. He's responsible for, among other things, the formulation of the DOE's budget and the management of the mammoth loan-guarantee programs.

Technology Review interviewed Isakowitz at a recent conference on innovation held at the United Nations. He discussed the challenge of issuing loan guarantees designed to promote economic recovery while avoiding the mistakes made decades ago when President Jimmy Carter's administration managed its own loan program. In a follow-up interview, Isakowitz described some specific changes that the DOE is making and also provided an update on the newly established Advanced Research Projects Agency for Energy (ARPA-E), a $400 million agency created to push high-risk, potentially breakthrough energy technology to market.

All told, the DOE has been ordered to allocate $100 billion for commercializing clean-energy technologies, with half of that going to established technology that isn't being funded because of the recession, and the other half going to commercial-ready technology that hasn't yet been tested on the market. This program is actually an expansion of a $4 billion loan-guarantee program first established in 2005, but no loans were actually given out until this year. The DOE announced the first award this March: $535 million to the solar company Solyndra. Another $25 billion loan program was funded last year for helping automakers and suppliers produce cars that use less gas. The first awards under that program were announced this week, with $8 billion distributed among three companies: Tesla Motors, Nissan North America, and Ford Motor Company.

Similar loan programs in the late 1970s and early 1980s were a debacle. "The price of oil was skyrocketing, and the conventional wisdom was that it would continue to increase, therefore making things like synthetic fuels look economically attractive," Isakowitz says. "That was a going-in assumption, and it turned out to be flawed, as the price of oil dramatically dropped. Most of the loans went into default as a result."

The most famous example, he says, is the Synfuels Corporation, a quasi-public organization created in 1980 to commercialize processes for converting coal and shale oil into synthetic fuel. It was part of an attempt to reduce foreign-oil consumption. At the time, oil cost $40 a barrel (in 1990 dollars) and was expected to reach $80 to $100 a barrel in short order--expensive enough to make synfuels competitive (synfuels cost $80 to $90 a barrel to produce). But oil prices dropped, and the venture failed....