WASHINGTON — State and local governments and development finance agencies that can currently issue bonds to finance clean energy could soon be able to make federally guaranteed loans to finance the projects.

The program, created by the American Recovery and Reinvestment Act, would make $6 billion of credit enhancement available for renewable energy generation and transmission projects.

The Department of Energy is poised to start evaluating development finance agencies and other state government agencies for eligibility as designated lenders in the ARRA program, which expires Sept. 30, 2011. The program is aimed at rapidly deploying funds to support commercial applications for projects that include renewable energy systems, electric power transmission, and biofuels.

The DOE has been working with Steven Klein, president of First Infrastructure LLC, to assess the size and scope of the potential pipeline of eligible projects, along with the capabilities of state and local development organizations to serve as delegated lenders. The firm found a mixed level of interest among states, Klein said at a conference hosted by The Bond Buyer in Chicago this week.

While it is unclear how much bond issuance the program will lead to, Klein estimates that $6 billion of loan guarantees would leverage $50 billion to $100 billion of total project funding.

“We know that the DOE loan guarantee [provision] could guarantee up to 80% of the cost of the project,” he said. The remaining 20% or more would have to be financed through other means, which could include various types of bonds, Klein said.

The DOE’s request for information, expected to be released soon, will help the agency determine the types of resources that state governments and utilities have at their disposal and, in turn, how much bond issuance could possibly be used.

Meanwhile, Congress is considering comprehensive climate change legislation that would expand the federal guarantee program. The guarantee provisions are noncontroversial and are likely to be approved if the bills themselves survive, Klein said.

The bills, introduced by Sen. Jeff Bingaman, D-N.M., in July, and Reps. Henry Waxman, D-Calif., and Edward Markey, D-Mass., in May, would create a new administration that could provide credit support to taxable debt obligations sold by state, local, and private sector entities to finance clean-energy projects. The credit enhancement could take the form of direct loans, letters of credit, loan guarantees, insurance, or purchases of debt instruments. It would not extend to tax-exempt debt, though some law firms have drafted language to make that a possibility.

The Waxman-Markey bill was narrowly approved by the House in June by a vote of 219 to 212, and has stalled in the Senate due, at least partly due to fighting over its cap-and-trade provisions.

Sens. Barbara Boxer, D-Calif., who chairs the Environment and Public Works Committee, and John Kerry, D-Mass., last month introduced a hulking 821-page climate change bill that would provide “increased financing for loan guarantees and regulatory risk insurance” for certain energy projects, according to a summary provided by the senators.

Taxable bonds issued by public power utilities for renewable energy purposes include Build America Bonds as well as clean renewable energy bonds. CREBs make up a small part of the muni bond market, whereas BABs have become popular since they were created by the recovery act earlier this year.

Public power utilities have responded favorably to the federal credit enhancement provisions, saying it could help them sell taxable debt at more favorable prices. It also would provide a kind of federal replacement for the bond insurance that used to help public power utilities sell bonds with higher credit ratings.

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