In 2023, American clean energy technologies are poised for lift-off. As the DOE Loan Programs Office (LPO) launches into a busy new year, we are taking stock on what got us to this point.
New Legislation
The passage of the Inflation Reduction Act (IRA), together with the earlier Bipartisan Infrastructure Law (BIL) and the CHIPS and Science Act (CHIPS), altered the scope and scale of the new American industrial strategy.
The IRA expanded the authority in our existing programs, 1703, ATVM, and Tribal Energy Finance, by $100B. IRA also created the Energy Infrastructure Reinvestment (EIR) Financing Program (1706) which can support up to $250B in loan authority.
The CO2 Infrastructure Finance and Innovation Act (CIFIA)—authorized by the BIL, appropriates $2.1B to support approximately $25B in flexible, low-interest loans.
This new legislation will create jobs and wealth, address environmental justice and equity priorities and strengthen our energy security and supply chains.
Deploying Loans
LPO is fully back in business. After closing out calendar 2021 with a conditional commitment to Monolith, LPO significantly ramped up in 2022 achieving 4 new conditional commitments for over $4B in loans. These new conditional commitments are supporting over 7,500 construction jobs and 5,300 permanent jobs. In 2022, we closed our first loans in both our Title 17 (Advanced Clean Energy Storage) and ATVM programs (Syrah Vidalia Facility and Ultium Cells) since 2014. We are racing to empower the private sector in the clean energy transition.
We created a more streamlined process during the conditional commitment phase. It enables potential borrowers to lean into engaging with our office while they work to meet certain conditions precedent specified in the loan documents before receiving LPO financing at close. Princeton’s Net Zero America estimates the United States will need $300 billion deployed annually through 2050 to achieve our climate goals.
This incremental investment will ultimately stand at $10 trillion total. With encouragement, private-sector investment will make up the vast majority of the funding. We need to be laser-focused on moving public dollars to unlock and catalyze private capital.
Private Sector Led, Government Enabled
Over the last year, LPO has been active across DOE and the private sector. What will it take for 20+ technologies to cross the bridge to bankability (as depicted below)? How can we decarbonize the economy with $100B of private capital investment in every critical sector?
Pathways
We’ve teamed up with the Office of Clean Energy Demonstrations, Office of Technology Transitions, and Office of Policy to launch the Demonstration and Deployment Pathways. T
his initiative works to identify what it will take to cross that bridge according to industry and investors. We started with Clean Hydrogen, Long Duration Energy Storage, Carbon Management, and Advanced Nuclear. We kicked off productive discussions during the Business Forums at the Global Clean Energy Action Forum in September.
Leading the Charge
The DOE’s Office of the Undersecretary for Infrastructure (S3) has a critical role to play in our clean energy future with the passing of the IRA. S3 will lead the charge in supporting investors and growth companies. The IRA expanded LPO’s existing authority, plus several new authorities, positioning us to make progress on every priority clean energy technology on our list, as well as making permanent direct pay for tribal borrowers.
The IRA also authorized or amended tax credits to improve business model viability. Many of these tax credits offer bonus credits to projects in low-income communities. Through prevailing wages and registered apprentices, we can help create good-paying, high-quality jobs and shared economic growth.With these combined tools and authorities, we can fund every eligible project in our pipeline.
Over the past 18 months, we strengthened our existing programs and sent a clear signal that we are open for business. For me personally, after decades of work in this space, I have never been more optimistic about America’s potential to do big things.
Project Pipeline Updates
As of the end of 2022, we are processing 125 applications asking for cumulatively $119.0B of loans and are averaging 1.4 new applications per week. To highlight this new generation of projects, LPO re-launched its popular poster series, featuring hydrogen, critical materials, and advanced fossil. We also launched the VPPieces blog series to educate consumers and other stakeholders about the role virtual power plants (VPPs) can play in the clean energy transition.
We expanded our Outreach and Business Development (OBD) division with more than 25 senior executives who are walking applicants through our process to make it less daunting. While our applicants are some of the best innovators in the world, they may not be proficient at filling out government loan paperwork! Here are some of OBD’s notable accomplishments in 2022:
- Actively reached out to almost 2,000 companies and stakeholders.
- Mentored companies leading to submissions of ~$5B of new applications each month.
- Updated our application process to be far simpler for applicants while retaining the critical information we need. We have worked to build private-sector momentum in critical deployment sectors in the areas of small modular reactors, microreactors, electric vehicle infrastructure, transportation fuels using the low carbon fuels standard programs, transmission, critical minerals, offshore wind vessels, offshore wind supply chain, offshore wind HVDC interconnection, and distributed energy resources that can be used for VPPs.
Project Portfolio Updates
- LPO continues to improve program oversight, manage project risk, and achieve its mission of investing in the deployment of innovative technologies where commercial debt markets cannot or are unwilling to intervene. Despite the amount of risk that is actively managed by LPO, the portfolio is investment grade with around 3.3% losses, as indicated in LPO’s FY 2021 Annual Portfolio Status Report.
- During FY 2022, Ford repaid its loan in full, and the Blue Mountain loan was the 7th loan in LPO history to fully prepay its loan in advance of the maturity date. The LPO monitoring team proactively and efficiently managed a multiyear work-out process on the KEPCO Solar of Alamosa loan, resulting in the sale of the Project to a developer who will re-power the facility and continue to provide clean energy in Colorado. DOE recovered approximately 78% of the original loan amount.
- LPO remains committed to working with Congress to ensure transparency about its project portfolio, its due diligence and risk management processes, and oversight of its programs. Prior to making any loan, LPO conducts rigorous due diligence that is comparable to best practices in the private sector. LPO relies upon professional staff and sophisticated third-party legal, technical, market, and financial advisors. The process is in line with best diligence and underwriting practices in the private lending markets to ensure that deals support DOE's determination of reasonable prospect of repayment.
- As announced this summer, LPO's programs are all covered programs under the Justice40 Initiative. LPO is engaging potential borrowers on community benefits, encouraging applicants to commit to expanding quality jobs and advancing energy justice. We focus on quality jobs with fair wages and benefits for workers, a diverse and inclusive skilled workforce, providing a safe workplace, and partnerships with labor and the local community. We combine a strong environmental, social, and corporate governance strategy with transparent reporting to reduce project risk.
We’re looking forward to a new year, with new deals and new partnerships with American entrepreneurs.
Happy New Year!
Original source can be found here.
