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DOE Announces Loan Guarantee Funding Opportunity - NEW
By V&E lawyers John Decker, Jo Ann Biggs, Megan Davis, and Christopher Terhune
August 5, 2009
Transmission FOA
Innovation FOA
Future Loan Guarantee FOAs
The United States Department of Energy (DOE) issued two Funding Opportunity Announcements (FOAs) on July 29, 2009, inviting the submission of applications for federal loan guarantees. One FOA is for electric power transmission infrastructure investment projects (Transmission FOA), and the other is for projects that employ innovative energy efficiency, renewable energy, and advanced transmission and distribution technologies (Innovation FOA). The FOAs represent the first uses of the $5.965 billion appropriated for DOE loan guarantees in the American Reinvestment and Recovery Act of 2009 (ARRA).
Transmission FOA
The Transmission FOA is issued pursuant to Section 1705 of the Energy Policy Act of 2005 (EP Act). Section 1705 was added to the existing loan guarantee provisions of the EP Act by ARRA. Projects eligible for loan guarantees under the Transmission FOA must meet one of the following criteria:
The Transmission FOA states that projects that support the generation of power from renewable energy sources will receive special consideration.
A project must also satisfy certain requirements of ARRA, including requirements that the project be reasonably likely to commence construction before September 30, 2011, and be expected to create or retain jobs in the United States. Significantly, projects seeking loan guarantees under the Transmission FOA must use “commercial technology†(i.e., technology that has been in use in three or more commercial projects in the United States for a period of at least five years in each project) and must not be capable of being financed from private sources on standard commercial terms.
DOE may guarantee loans for up to 80 percent of the project’s costs. For those projects receiving financing from the Federal Financing Bank rather than a private lender, DOE may guarantee 100 percent of project debt. DOE has allocated up to $750 million of its $5.965 billion appropriation to the Transmission FOA to pay the credit subsidy cost determined for each loan guarantee. DOE may continue to issue guarantees until the allocated funds are exhausted. The Transmission FOA does not estimate the total amount of guarantees that will be issued.
Applications for the loan guarantees will be divided into two parts. Part I submissions are due on September 14, 2009, and Part II submissions are due in three rounds on October 26, 2009, December 10, 2009, and January 25, 2010. Part I and Part II submissions will be reviewed on a continuous basis as soon as they are received, with applicants making Part II submissions in earlier rounds enjoying a first mover’s advantage.
Innovation FOA
The Innovation FOA is issued pursuant to Section 1703 of the EP Act, which is the DOE loan guarantee program that pre-dates ARRA. In order to qualify for a loan guarantee under Section 1703, a project must involve new or significantly improved technologies that avoid, reduce, or sequester air pollutants or greenhouse gas emissions. Projects that involve commercial technologies are not eligible. The Innovation FOA provides a non-exclusive list of the technology categories potentially constituting new or significantly improved technologies:
In contrast with loan guarantees under Section 1705, a recipient of a loan guarantee pursuant to Section 1703 must typically pay the credit subsidy cost determined for the guarantee. However, DOE has decided to allocate up to $2.5 billion of its Section 1705 appropriation to pay the credit subsidy costs for projects that meet the criteria for both Section 1703 and 1705. Projects employing leading edge biofuels technologies may receive up to a total of $500 million in credit subsidy costs. To qualify under Section 1705, a project must (i) commence construction on or before September 30, 2011, (ii) meet the additional requirements of ARRA, such as Davis Bacon wage rates, and (iii) fit into one of the identified categories of projects. The identified categories of projects are (a) renewable energy systems that generate electricity or thermal energy and facilities that manufacture related components, (b) electric power transmission systems projects, and (c) leading edge biofuel projects that use technologies performing at the pilot or demonstration scale.
As with the Transmission FOA, DOE may guarantee loans of up to 80 percent of the total cost of the project for the winning applications. For those projects receiving financing from the Federal Financing Bank rather than a private lender, DOE may guarantee 100 percent of project debt. The total amount of loan guarantees under the Innovation FOA is capped at $8.5 billion.
Applications are due in two parts, roughly two months apart, with seven rounds of deadlines available; the first pair of deadlines is September 14, 2009 and November 13, 2009. As with the Transmission FOA, DOE will review applications on a rolling basis, with early applicants having a first mover’s advantage.
Future Loan Guarantee FOAs
It appears that DOE intends to issue additional FOAs for loan guarantees under Section 1705. DOE has allocated a total of up to $3.25 billion of its $5.965 billion appropriation under Section 1705 to the Transmission FOA and the Innovation FOA, leaving $2.715 billion unallocated. The Transmission FOA states that DOE intends to issue an additional solicitation for electric power transmission systems projects. In addition, it is widely expected that DOE will issue an FOA for renewable energy projects employing commercial technology. However, the U.S. House of Representatives has passed legislation to shift $2.0 billion from the Section 1705 program to the Cars Allowance Rebate System (a.k.a., the “cash for clunkers†program). If the legislation becomes law, the size and scope of future FOAs (and perhaps the Transmission FOA and the Innovation FOA themselves) may need to be curtailed.
To receive a copy of either FOA, or further information on this topic, please contact V&E lawyers John S. Decker, Jo Ann Biggs, Megan Davis, or Christopher Terhune. Visit our website to learn more about Vinson & Elkins’ Energy, Energy Regulation, and Climate Change Regulation practices.