Offshore Wind and Title XVII Innovative Energy Loan Guarantee Program
To promote U.S. offshore wind projects, the Biden administration recently extended the Title XVII Innovative Energy Loan Guarantee Program (the “Title XVII Program”) to offshore wind and offshore transmission developers, suppliers, and other financing partners and has set certain criteria on eligibility for these federal loan guarantees.1
Overview of the Title XVII Loan Guarantee Program
The Title XVII Program is run by the Loan Programs Office of the Department of Energy (“DOE”), which also administers the Advanced Technology Vehicle Manufacturing direct loan program and the Tribal Energy Loan Guarantee Program. With $3 billion in loan guarantees now earmarked for offshore wind projects, the Title XVII Program will provide financial support to the development of offshore wind projects.2 The Title XVII Program has some flexibility in the debt products available, offering senior, secured debt through direct loans or loan guarantees, and the DOE can act as sole lender or co-lender with other financial institutions.
To be eligible for financing, projects must (1) use innovative and commercially scalable technologies; (2) avoid, reduce or sequester greenhouse gas emissions, (3) be located in the U.S., and (4) have a reasonable prospect of repayment.3 Borrowers interested in obtaining a loan or guarantee under the Title XVII Program start with a free consultation, followed by a formal application process: application submissions, due diligence, and term sheet negotiation, with fees charged only at the financial close of the loan guarantee.4
The announcement by the Biden administration represents its first attempt to reinvigorate the Title XVII Program and to take advantage of amendments to Title XVII included in the Energy Act of 2020 (the “Act”), which was signed into law during the waning days of the Trump administration.5 Since the establishment of the Title XVII Program in 2005, one project has received a loan guarantee: the Vogtle nuclear power project. The failure of the Title XVII Program to issue more guarantees has been attributed largely to the high costs that borrowers must bear. Such costs have included including an application fee of up to $400,000 and a fee for the credit subsidiary cost, which is equal to the net present value of the estimated long-term amount that a loan guarantee will cost the federal government. The credit subsidy cost fee is used to protect the government against estimated shortfalls in loan repayments.
The Act attempted to address the cost issue by permitting DOE to defer the payment of fees, including the application fee, until the financial close of an obligation. The Act also authorized an appropriation of $25 million for administrative expenses that are not covered by fees collected from borrowers. It remains to be seen whether Congress will appropriate the funds, but it would not be surprising for an appropriation to be included in the Biden administration’s upcoming infrastructure bill.
A second problem faced by the Title XVII Program is the requirement that borrowers utilize a new or significantly improved technology. DOE has determined that, in order to be considered new or significantly improved, a technology must have been deployed in no more than three commercial applications in the United States at the time the guarantee is issued. The Act attempts to broaden the scope of eligible projects by clarifying that projects may employ elements of commercial technologies in combination with new or significantly improved technologies. It remains to be seen whether Congress and the Biden administration will attempt to further loosen the eligibility requirements.6
Eligible Offshore Wind Projects
The DOE’s Loan Programs Office has released an offshore wind “fact sheet” as part of the Biden administration’s plan to support the offshore wind industry,7 a recognition by the DOE that offshore wind technologies are ready for commercial deployment and have a significant role to play in U.S. energy transition. As part of the fact sheet, the DOE has invited borrowers to begin the application process. Borrowers across the offshore wind supply chain can seek financing for projects, including sector-wide infrastructure projects to support U.S. offshore wind development, such as turbine foundation manufacturing facilities, dockside staging and laydown yard improvements and other port infrastructure, blade and turbine manufacturing facilities, and construction of wind turbine installation vessels and service operation vessels. In order to be eligible, projects must deploy innovative technology, as described above.
1 Press Release, The White House, FACT SHEET: Biden Administration Jumpstarts Offshore Wind Energy Projects to Create Jobs (Mar. 29, 2021).
2 REEE Technology Spotlight: Offshore Wind Energy, Renewable Energy and Efficient Energy: Loan Guarantees, Dep’t of Energy Loan Programs Office (Mar. 26, 2021).
3 Other requirements under the Energy Policy Act and its amendments are found in Title XVII Project Eligibility, Dep’t of Energy Loan Programs Office, https://www.energy.gov/lpo/title-xvii/title-xvii-project-eligibility (last visited Mar. 29, 2021).
4 Supra note 2.
5 Energy Act of 2020, Pub. L. No. 116-260, div. Z, 134 Stat. 2418 (2020).
6 The American Recovery and Reinvestment Act of 2009 created temporary loan guarantee authority intended to support rapid deployment of renewable energy, electricity transmission, and leading edge biofuel projects. The temporary loan guarantee authority addressed the two main problems with the Title XVII Program and may provide a roadmap for the Biden administration. Eligible projects were not required to employ new or significantly improved technology, and $2.5 billion was appropriated for credit subsidy costs. By the time the temporary loan guarantee authority expired on September 30, 2011, 28 projects had received loan guarantee commitments.
7 Supra note 2.
For more information on this Innovative Energy Loan Guarantee Program, please contact the following members of V&E’s Offshore Wind Task Force:
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.