Review of Incentive Problems in the Clean Energy Deployment Administration (CEDA)

Government involvement in financing large scale energy projects has a checkered past.  Historical forays into loan guarantees for biofuels and syn-fuels have been expensive failures.  Large hydroelectric dams and federally-owned uranium enrichment facilities were built and operated as government-owned entities, though not without substantial subsidies.   Title XVII of the Energy Policy Act of 2005 initiated a new wave of multi-billion dollar federal loan guarantees to large scale, high risk, privately owned energy infrastructure.

While at present, little of this support has been deployed, both the House and Senate cap and trade bills contain language that will create a large scale, centralized energy finance function in the "Clean Energy Deployment Administration", or CEDA.  The scale of federal guarantees under CEDA are not finalized, but under many discussions would be a pool of capital many multiples of that deployed through other energy project finance vehicles such as venture capital and US Export Credit Agencies. 

CEDA language has continued to evolve, and this document reviews bill language just prior to what was included in the Waxman-Markey bill.  The summary discusses a number of structural problems are immediately evident in the bill language, from weak and possibly conflicted managerial oversight, to poor incentive alignment between individuals choosing which deals to guarantee and how the projects actually perform over time.  (May 2009).