Under the new leadership of Director Jigar Shah, the US Department of Energy’s Office of Loan Programs (LPO) has announced that more than $ 40 billion is available in loans and loan guarantees to finance energy infrastructure projects. innovative. The LPO also announced new procedures, making it easier to apply for loan guarantees. Pursuing a loan or loan guarantee through the LPO offers unique financing opportunities and DOE support for developers of clean energy and technology projects, especially those looking for innovative technology. for which commercial loans are less readily available. Still, the highly politicized failure of some DOE-supported projects in the past, and lingering uncertainty about the applicable requirements, warrant further examination of the history of the program and how the administration is reshaping it.
The LPO provides loans, loan guarantees and flexible financing tailored to the specific needs of individual borrowers, for applicants who find it difficult to access borrowed capital from private lenders because their projects are considered too new or risky. . The LPO administers three separate financing programs: (1) the Tribal Energy Loan Guarantee Program, (2) the Innovative Energy Loan Guarantee Program, and (3) the Manufacturing Loan Program. advanced technology vehicles (ATVM). Different levels of funding are available in each of these programs.
Congress passed the Energy Policy Act of 2005 (42 USC § 16511 et seq.) Amid growing concerns about energy prices and energy independence. The law authorized the DOE to enter into loan guarantee agreements for projects meeting certain criteria, granting the LPO $ 70 billion to finance the commercial deployment of innovative energy projects and tribal energy development projects. Under the Tribal Energy Loan Guarantee (Title XXVI of the Act), approximately $ 2 billion in financing is still available. To benefit from a loan guarantee under Title XXVI, any energy development project pursued by an Indian tribe recognized by the federal government or by the Alaska Native Corporation is eligible, including drilling, mining or fossil fuel refining, energy transmission and storage infrastructure, transportation or fuel production. renewable energy. Energy projects on tribal lands are critical to meeting the Biden administration’s renewable energy goals. To qualify for funding under Title XVII of the Law (Innovative Energy Loan Guarantee Program), applicants must demonstrate that their projects (1) avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gas ; and (2) use new or significantly improved technologies. About $ 20 billion of loan guarantee authorization remains reserved under Title XVII for innovative advanced fossil energy projects, advanced nuclear energy projects and innovative renewable and energy efficient projects.
The ATVM loan program was established under the Energy Independence and Security Act of 2007 (42 USC § 16511 et seq.) To raise US fuel economy standards and encourage domestic production of fuel-efficient cars. fuel. It provides direct loans to automakers and fuel-efficient parts suppliers to build new factories in the United States or upgrade existing factories to produce vehicles or parts that improve fuel efficiency by at least 25% per compared to a comparable 2005 model, or vehicles that achieve fuel efficiency of 75 miles per gallon or equivalent. Initially granted $ 25 billion for lending, the ATVM loan program still has nearly $ 18 billion in funding available.
Since 2009, the LPO has funded $ 35 billion in loans and loan guarantees to 30 projects through these three programs. These projects include the first two nuclear reactors that began construction in 30 years, the first five large-scale photovoltaic systems in the United States and one of the largest wind farms in the world. High-profile success stories include a major player in the electric vehicle industry.
Some projects, however, have generated unfavorable headlines and reviews. Solyndra, the first beneficiary of a loan guarantee under the Title XVII innovative energy loan guarantee program, declared bankruptcy in 2011 after receiving $ 535 million under the program. The Inspector General’s office later discovered that Solyndra intentionally provided the DOE with inaccurate and misleading information, intentionally misrepresented known facts, and omitted relevant information during the loan guarantee application process. The notorious failure of the first loan guarantee caused significant political repercussions. After Solyndra, applications for the LPO slowed down, as administrations chose not to promote the program. As a result, the LPO still has over 60% of its original lending authority. And despite some unfavorable headlines, the LPO has managed to make money for taxpayers, bringing in over $ 3 billion in interest payments to date.
Efforts to relaunch the program
Although the LPO has become less active after high-profile controversies like Solyndra and was not a priority of previous administrations, the Biden administration, under the leadership of Director Shah, has taken steps to reinvigorate the lending program. Director Shah said his goal is for the LPO to play an important role in achieving the goal of administering a net zero carbon economy by 2050. To support this effort, the LPO recently created a new Outreach and Business Development division, hiring 10 new employees to guide applicants through the loan process. The LPO has also reduced barriers for start-ups by deferring application fees to loan closing and deferring financial reviews until later in the application process. The LPO reached out to private investors and banks to educate these institutions on how and why to invest in new and innovative clean technologies. In April, the LPO released resource guides on how the LPO can work with applicants to provide billions of dollars in loan guarantees to fund different types of projects.
DOE’s efforts to revive the program appear to have been productive. In a recent interview, Director Shah said that the LPO is currently reviewing more than 100 active claims, totaling $ 69 billion, and that the LPO expects to continue receiving claims totaling around $ 7 billion per month. New loans are expected to be announced this fall. The LPO encourages applications from “traditional” technologies, such as heating, ventilation and air conditioning (HVAC); solar on the roof; and household appliances to innovate and receive funding. There are also opportunities for coal communities to finance their energy transitions through LPO programs. The LPO has also encouraged applications for projects investing in areas of qualified opportunity, in order to stimulate economic development and job creation in communities in economic difficulty.
Recent regulatory and legislative developments
Despite the LPO’s efforts to revamp the program, some lenders may remain hesitant given the uncertainty over whether, and to what extent, a review of the National Environmental Policy Act will be necessary with respect to loans and guarantees. of the DOE, and the potential for legislative measures that could affect these loans and loan guarantees.
The Trump administration passed new regulations implementing NEPA in 2020. The regulations explicitly removed from the definition of “major federal action” such “loans, loan guarantees, or other financial assistance.” when the agency “does not exercise sufficient control and accountability for the effects of such assistance. Of five lawsuits that challenged the 2020 NEPA rules, one has been dismissed and the remaining cases are suspended pending prosecution. review of the 2020 rule by the Environmental Quality Board. Although the exclusion was briefly mentioned in one of the complaints, none of the lawsuits related to the exclusion of loans and guarantees from ready for “major federal action.” It is not clear whether this exception will continue after the CEQ review. In October, the CEQ proposed changes to the 2020 NEPA regulations, seeking to reinstate some of the language used in original NEPA regulations of 1978, but the definition of “major federal action” was not included, leaving uncertainty as to whether and to what extent NEPA review is required for government decisions. the LPO.
The Senate Infrastructure Investment and Jobs Act has two components relevant to the loan guarantee program. First, the bill describes a “reasonable prospect of repayment” criterion for being eligible for a loan guarantee, and second, the bill expands the list of eligible projects to include projects that increase the national supply of minerals. essential for energy infrastructure. If the Senate bill becomes law, it would increase the clarity of the loan application process and broaden the types of projects that could receive funding at an early stage. On the other hand, the requirement of a reasonable prospect of repayment could make it more difficult to obtain financing for truly innovative (and therefore untested) technologies.
The LPO has encouraged applications for innovation funding in sectors as diverse as transitions from the coal mining community to HVAC systems to offshore wind development promoted by the Biden administration. Given the recent enthusiasm of the LPO for financing innovative projects, especially for new technologies facing obstacles in obtaining borrowed capital from private lenders, there are more and more opportunities for project developers to ” get funding at the start of their projects. Still, developers will need to carefully consider how to navigate DOE’s complex lending and loan guarantee process, especially in the changing landscape described above.