United States: Energy Department's LPO Turns On Funding Taps With New Inflation Reduction Act Guidance

Highlights

• The U.S. Department of Energy (DOE) Loan Programs Office (LPO) released updated program guidance for the Title XVII Clean Energy Financing Program.
• The new guidance updated program eligibility, application requirements and evaluation criteria and incorporated new funding authority established by the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA).
• This Holland & Knight alert provides a summary of the new financing program eligibility requirements.

The U.S. Department of Energy (DOE) Loan Programs Office (LPO) released updated program guidance for the Title XVII Clean Energy Financing Program. The new guidance, released on May 19, 2023, updated program eligibility, application requirements and evaluation criteria; consolidated existing solicitations into one easy-to-ready document; and incorporated new funding authority established by the Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA).

Funding from the IRA is starting to flow with three Title XVII deals announced since the Biden Administration took office. More deals are expected to be announced this year as the program begins accepting applications for additional programs and funding opportunities provided by the IRA. These programs include financing opportunities for redevelopment of aging energy infrastructure through the $250 billion Energy Infrastructure Reinvestment Program.

The new guidance additionally incorporates a key Biden Administration priority to ensure that projects funded have a net positive impact on the surrounding local communities. The new guidance now requires applicants to submit a community benefits plan. This requirement has been in place for DOE IIJA grant opportunities since last year but is a new requirement for LPO.

This Holland & Knight alert further discusses the new financing program eligibility requirements.

New Financing Category Expands Eligibility

Under Title XVII, LPO can provide loan guarantees for projects in the U.S. that support clean energy deployment and energy infrastructure reinvestments. As part of its recent update, LPO organized Title XVII financing into distinct project categories. This includes an additional category for financing under the existing Section 1703 program for projects supported by a State Energy Financing Institution (SEFI) – which waives the innovation requirement for 1703 – and a new category authorized by the IRA to finance reinvestment in energy infrastructure under the IRA-created Section 1706.

Combined, the eligible categories under Sections 1703 and 1706 cover projects across a range of sectors, from heavy industry and chemicals to clean hydrogen, carbon management, critical minerals, electricity transmission, renewable energy, advanced nuclear, energy storage and clean energy manufacturing. The application process will be similar to the previous application process – a Part I application to assess project eligibility, and a Part II process to provide an assessment of whether the project has a reasonable prospect of repayment.

Energy Infrastructure Reinvestment Program

Through the new Energy Infrastructure Reinvestment (EIR) category of the Title XVII program, LPO can finance projects that retool, repower, repurpose or replace energy infrastructure that has ceased operations or enable operating energy infrastructure to avoid, reduce, utilize or sequester air pollutants or emissions of greenhouse gas (GHG) emissions. The IRA provided $5 billion through Sept. 30, 2026, to be leveraged for up to $250 billion in commitment authority for loan guarantees (including refinancing) of eligible projects.

EIR projects support reinvestment in communities throughout the U.S. where existing energy infrastructure has been challenged by market forces, resource depletion, age, technology advancements or the broader energy transition. This infrastructure might include power plants, fossil fuel extraction sites, transmission systems, fossil fuel pipelines, refineries or other energy facilities that have ceased to operate or that continue to operate but could benefit from GHG or pollution-reducing improvements.

Applications for EIR financing must fall into one or more of the following types of projects:

1. projects that retool, repower, repurpose or replace energy infrastructure that has ceased operations; provided that if the project involves electricity generation through the use of fossil fuels, it is required to have controls or technologies to avoid, reduce, utilize or sequester air pollutants and anthropogenic GHG emissions, or
2. projects that enable operating energy infrastructure to avoid, reduce, utilize or sequester air pollutants or anthropogenic GHG emissions

Crucially, unlike the project categories authorized by Section 1703, eligible EIR projects are not required to deploy innovative technology. However, EIR projects qualifying under the "energy infrastructure that has ceased operations" clause must meet the following criteria:

• Proximity Requirement. The new or updated Title XVII-financed infrastructure should be at or near the site of the legacy energy infrastructure. Applications that are replacing energy infrastructure must show a clear relationship between new services and benefits provided by the Title XVII-financed infrastructure and the services and benefits lost when the legacy infrastructure that ceased operations, such as grid capacity, reliability, and workforce retention and opportunities.
• GHG and Pollution Controls Requirement. Any project that will invest in energy infrastructure that has ceased operations and generate electricity through the use of fossil fuels is required to have controls or technologies to avoid, reduce, utilize or sequester air pollutions and anthropogenic GHG emissions.

Additionally, EIR projects that involve electric utilities as the applicant must meet a Customer and/or Community Benefit Requirement. Electric utilities that apply for an EIR loan guarantee must provide assurance to DOE that financial benefits received from the guarantee will be passed on to the customers of, or associated communities served by, that utility.

Energy infrastructure projects eligible for financing under EIR have often served as economic backbones for local communities for decades and can continue to do so with targeted investment and economic development support. Redeveloping energy infrastructure typically comes with valuable benefits to new industry, including reuse of existing infrastructure assets, ready access to roads, rails and other forms of transportation, existing grid connections and water access, as well as additional use permits. In addition, these areas are often home to a workforce that is well-suited to building and operating complex energy infrastructure.

Building a Community Benefits Plan

As part of the updated program guidance, all Title XVII applicants are now required to submit a Community Benefits Plan discussing how the applicant is engaging or will engage with stakeholders affected by the proposed project as part of their Part II application. To support DOE's goal of building a clean and equitable energy economy, LPO projects are expected to 1) support meaningful community and labor engagement, 2) invest in America's workforce, 3) advance diversity, equity, inclusion and accessibility, and 4) contribute to the Biden Administration's goal that 40 percent of the overall benefits of clean energy investment flow to disadvantaged communities (the Justice40 Initiative).

LPO will consider the quality of an applicant's Community Benefits Plan among the factors that indicates the prospect of loan repayment. For example, project planning and community support, as well as a strategy for recruiting and training a skilled workforce, demonstrate a higher likelihood of project completion.

DOE anticipates that elements of the Community Benefits Plan will be incorporated into the resulting loan agreements. The Community Benefits Plan may evolve throughout the project, and applicants will be expected to report on their fulfillment of goals and activities included in the Community Benefits Plan during the project implementation phase as part of LPO's project monitoring.

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