With Democrats taking over the White House and the Senate, many eyes are on climate change and the role that the federal government can take to combat it. A variety of proposals have been floated about the best way for Congress to enact legislation to help in the fight against climate change, but certain actions can be taken immediately. One such action is to deploy $40 billion in loan capacity that was previously allocated to the Department of Energy as part of the 2009 stimulus package. This money is already available to the Department of Energy’s Loan Program Office (the LPO”) to spend at any time as a loan or a loan guarantee for qualified projects.
Any new loans would follow $30 billion of loans and loan guarantees previously provided by the LPO under these same programs (most notably under the Obama administration and one large loan associated with a nuclear reactor project under the Trump administration). Under the Biden administration, there is strong optimism that the unallocated funds may be more readily available for qualifying projects. The LPO, recognizing some of the challenges with government credit support programs, has taken steps to better engage interested parties, including providing no-commitment preconsultations to walk potential applicants through the process to ensure that the LPO and the project will each be prepared when the LPO application process begins in earnest. Additionally, in light of the innovative projects that exist in 2021, the LPO is examining the opportunities for offshore wind and the offshore wind value chain as well as looking at vehicle solutions that might qualify under the LPO’s programs.
The $40 billion in loan capacity, including $4.5 billion for renewables alone, is available for applicants seeking financing for innovative fossil energy projects, nuclear energy projects or renewable energy and energy efficiency projects; for fuel-efficient, advanced technology vehicle manufacturers; or for Tribal energy development projects.
To qualify for the renewable energy or energy efficiency loans or loan guarantees, under Title XVII of the Energy Policy Act of 2005, a project must meet all of the following requirements:
- Employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.
- Avoid, reduce or sequester anthropogenic emissions of greenhouse gases.
- Be located in the United States (foreign ownership or sponsorship of the projects is permissible as long as the projects are located in one of the 50 states, the District of Columbia or a US territory).
- Provide a reasonable prospect of repayment.
Interested applicants should be aware that the timeline for LPO loan origination is typically longer than in the commercial financing market—roughly 90 days should be added to a typical project financing timeline for the LPO to diligence program eligibility and obtain internal approvals. However, for innovative projects that meet the other LPO eligibility requirements, the loans or loan guarantees available through the LPO may be a viable option. For instance, for offshore wind projects, long-duration energy storage, green hydrogen or carbon capture projects that have difficulty finding long-term financing from commercial lenders, the LPO loans may be an especially important source of funding in the coming years.