June 2, 2014
On April 16, 2014, the U.S. Department of Energy’s Loan Programs Office (DOE) announced a draft Renewable Energy and Energy Efficiency Projects Solicitation under Section 1703 of Title XVII of the Energy Policy Act of 2005. This draft solicitation would make as much as $4 billion in loan guarantees available to support innovative, precommercial renewable-energy and energy-efficiency projects located in the United States that avoid, reduce or sequester greenhouse gases.
Importantly, DOE expects to “look favorably on” an eligible project that will have a “catalytic” effect on the ability of other market participants to replicate or improve upon the particularly innovative feature of that project. DOE has articulated certain project types that have been predetermined to meet DOE’s goal of having a catalytic effect on future commercial deployment, including:
Advanced Grid Integration and Storage focusing on renewable energy generation, distributed generation incorporating storage technologies, smart grid systems, microgrid projects, storage projects allowing greater integration of renewables, and other advanced system designs. Such projects should mitigate issues related to variability, dispatchability, congestion and control by incorporating demand response or local storage technologies, and they should demonstrate greater grid compatibility of renewable resource generation.
Drop-in Biofuels focusing on new – and modifications to existing – biorefineries and ethanol facilities that produce gasoline, diesel fuel or jet fuel as well as new biocrude refining processes. These projects take advantage of existing infrastructure by providing nearly identical bio-based substitutes for crude oil, gasoline, diesel fuel and jet fuel, or produce intermediate fuel feedstocks that can be delivered to and integrated into existing oil petroleum refineries.
Waste-to-Energy Projects focusing on commercial-scale utilization of waste materials by converting landfill/ranch methane to heat and power, municipal solid waste to electricity, crop waste to energy and bioproducts, and forestry waste to energy; potentially including cofiring.
Enhancement of Existing Facilities including incorporating power production into currently nonpowered dams, integrating variable-speed pump-turbines into existing hydro facilities, and retrofitting existing wind turbines. Projects that significantly extend the lifetime of an energy-generating asset also will qualify.
Efficiency Improvements focusing on projects that incorporate new or improved technologies to increase efficiency and substantially reduce greenhouse gases. Qualifying projects could include, but are not limited to, projects that improve or reduce energy usage in residential, institutional and commercial facilities, buildings, and/or processes; ones that recover, store or dispatch energy from curtailed or underutilized renewable-energy sources; as well as projects that dispatch, control or stabilize intermittent power to large transmission lines, smart grids and microgrids; and projects that recover, store or dispatch waste energy from thermal, mechanical, electrical, chemical or hydro processes. Other energy efficiency projects might include ones focusing on efficiency improvements to a real estate portfolio or large group of buildings (e.g., hospitals, school districts, technology campuses, industrial parks, data centers); plus, projects that focused on reduce curtailments or utilize curtailed energy to enable greater utilization or increase capacity factors, distributed generation or microgrids (e.g., kW- to low MW-scale power generation that provides electricity to distributed loads such as hospitals, airports, and hotels).
This latest solicitation will be subject to all of the existing requirements under Section 1703 of the loan guarantee program, including the requirement that the applicable project could not be financed without the DOE loan guarantee. In other words, project developers should not expect to tap into this program simply to lower their cost of capital.
Funds available under the Section 1703 Loan Guarantee Program, unlike loans issued under the Section 1705 program (created by the American Reinvestment and Recovery Act of 2009 and now expired), also require an applicant to pay DOE’s credit subsidy fee for the project. DOE’s rules governing the 1703 Guarantee Program govern the draft solicitation.
DOE will award loan guarantees through a competitive process that compares one application against another. The application process discussed in the draft solicitation generally involves the following steps:
Based on the draft solicitation, an applicant should consider a number of issues when considering whether to participate, including:
The DOE website provides FAQs and a presentation that may be helpful to an applicant.
1. This figure is extrapolated from appropriations and certain assumptions on the credit subsidy costs for DOE-guaranteed projects. If the credit subsidy rate drops based on a more risk-averse DOE, the amount of loan guarantee financing could increase materially.
2. See McGuireWoods LLP’s Expansion of the Department of Energy's Loan Guarantee Program.
3. This “credit subsidy fee” is the required fee that the Treasury must collect. It is equal to the present value of estimated payments the government would make in the event of a default under the guaranteed loan (involves a default risk analysis on a project-by-project basis).
4. DOE issued final rules governing the Section 1705 Loan Guarantee Program in October 2007, which were subsequently substantively amended in 2009 with technical changes also made in 2012.