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Solyndra times five: What’s up with the $2.65 billion in federal loans to Abengoa?

By   /   December 4, 2015  /   News  /   No Comments

Photo from Abengoa Solar website

WHAT NOW?: Renewable energy company Abengoa has received a combined $2.65 billion in loan guarantees under the Obama administration. But with the company is teetering on the verge of bankruptcy, it’s unclear if taxpayers will get stuck paying off the loans.

Ratepayers won’t get stuck with the tab if international renewable energy giant Abengoa goes bankrupt, say officials for the biggest power company in Arizona.

Whether U.S. taxpayers will avoid the bill is less clear.

Based in Spain, Abengoa SA is teetering on the verge of insolvency after applying for creditor protection last week. The renewable giant got — from the U.S. Department of Energy — loan guarantees of $1.45 billion to build the Solana solar plant in Arizona and $1.2 billion to construct the Mojave Solar Project in California.

Abengoa’s potential bankruptcy has panicked investors, caused its stock price to plummet and raised questions about the status of the two loans, which amount to $2.65 billion.

“Potentially, we’re looking at a huge hit,” said William Yeatman, senior fellow specializing in environmental policy and energy markets at Competitive Enterprise Institute and critic of the government’s loan program promoting green businesses. “The total amount of these loans is something like five times bigger than what Solyndra got.”

Solyndra, a California-based company that made solar photovoltaic (PV) systems, received $535 million in a loan guarantee from the Department of Energy in 2010. The next year Solyndra filed for Chapter 11, with taxpayers getting almost none of the money back. 

Arizona Public Service Co., the largest electric utility in the Grand Canyon State, has a 30-year agreement to buy power at the Solana solar plant.

But a spokeswoman for APS told Watchdog.org that, regardless of what happens to Abengoa, APS ratepayers won’t be left holding the bag.

“This (Abegona’s financial situation) has no impact on ratepayers,” Jenna Shaver said. “We have no investment in the plant itself.”

Officials at Pacific Gas and Electric Company in California were more guarded in their remarks.

In an email exchange with Watchdog.org, Denny Boyles, external Communications representative at PG&E, said the company has a 25-year power purchase agreement to pay for power supplied by the Mojave Solar Project, but he didn’t say whether ratepayers could face any financial exposure in case of an Abengoa bankruptcy.

What about the loans Abengoa received from the federal government?

The Department of Energy told Watchdog.org the agency — to protect information that may be business-sensitive — doesn’t disclose details on specific projects. But it said the Mojave and Solana projects are in good standing and the loans are getting repaid.

Should Abengoa default, it’s been reported that DOE can restrict cash distributions from the Solana and Mojave solar projects. The agency did not confirm that in its email to Watchdog.org

The Arizona Republic reported earlier this year the Solana plant’s $1.45 billion loan is paid back through the sale of electricity, and taxpayers are responsible for those payments if they aren’t covered by electricity sales.

Watchdog.org emailed Abengoa to check on the status of the Solana and Mojave loans and to determine whether the company’s financial problems have caused Abengoa to miss any payments, but we haven’t gotten a response.

An Abengoa default “would be a conspicuous failure,” Yeatman said. “Potentially, we’re looking at billions of dollars in taxpayer losses.”

Abenoga has been a favorite of the Obama administration and the DOE Loan Programs Office, aimed at boosting renewable energy companies.

President Obama, in a video address in July 2010, cited the DOE loan guarantee to Abengoa to build the Solana plant, saying, “After years of watching companies build things and create jobs overseas, it’s good news that we’ve attracted a company to our shores to build a plant and create jobs right here in America.”

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In addition to the Mojave and Solana projects, DOE gave Abengoa a $132.4 million in 2011 for the construction of a biofuels plant in Hugoton, Kansas. Earlier this year, a top executive at the plant told Watchdog.org the loan has been completely repaid.

RELATED: Green energy company fights for life after getting billions from feds

As reported by Watchdog.org in September, Abengoa has been in financial intensive care for the past year, its stock price plummeting.

But, on Nov. 25, investors’ concern turned into near hysteria when Abengoa SA filed for preliminary creditor protection, a step that could lead to the largest bankruptcy case in Spain’s history.

Abengoa SA stock cratered on the news, losing more than 50 percent in one day and Abengoa’s bonds — due in March — plunging to a record low of 12 cents on the euro.

Under Spanish law, companies have up to four months to reach agreement with creditors to avoid bankruptcy.

Negotiations figure to be complicated because of the company’s complex structure.

Since the DOE loan guarantees were originally issued, Abengoa SA created a holding company called Abengoa Yield to buy and operate its power plants.

Although Abengoa Yield is considered a separate company, Abengoa SA holds 47 percent of the stock in Abengoa Yield.

DOE has updated its website in recent days to show Abengoa Yield is now the sole owner of the Mojave plant and co-owner of the Solana plant with a company called Liberty Interactive Corporation.

In 2013, Liberty Interactive invested $300 million in the Solana solar project. A phone call and an email to Liberty Interactive from Watchdog.org weren’t returned.

In the past week, Abengoa Yield has gone out of its way to distance itself from its parent company, but the entire Abengoa brand is clearly damaged.

Abengoa Yield’s stock has been down 53.5 percent since April, and on Wednesday analysts at BofA Merrill downgraded the company’s rating to “Underperform.”

The CEO of Abengoa SA stepped down last week, but he’s still the managing director of Abengoa Yield, which may get spun off or sold in pieces by private equity investors.

“The whole house of cards collapsed,” Antoine Bourgault, London-based head of credit research at ISM Capital LLP, a merchant bank, told Bloomberg Business. “It will be very, very challenging to put the pieces back together in only four months.”

“Investors stayed in because they thought that Abengoa was too big too fail,” said George Kaknis, investment analyst at LNG Capital in London.

On Thursday, Spanish media outlet reported the Federal Financing Bank, supervised by the U.S. Treasury Department, had €2.20 billion ($2.34 billion) in financial exposure to Abengoa, as of Sept. 30.

Watchdog.org sent an email to Treasury seeking more information about the FFB’s dealings with Abengoa but did not receive an immediate response.

Abengoa’s financial troubles in general and the FFB investment in particular prompted Rep. Mike Pompeo, R-Kansas, to send a letter to Treasury Secretary Jack Lew and Energy Secretary Ernest Moniz, calling on them to explain what their departments are doing to make sure taxpayers don’t get stuck with the bill.


Rob formerly served as staff reporter for Watchdog.org.