Highlights
- The authorities that exist within the U.S. Department of Energy's (DOE) Loan Programs Office (LPO) can be used by the Biden Administration to spearhead the commercial deployment of the innovative energy technologies and advanced manufacturing necessary for the United States to achieve net-zero carbon emissions by 2050.
- The LPO arguably possesses the most authority available to the Biden Administration to achieve climate-related initiatives without action from Congress, but to successfully utilize the authority and deploy loans, strong leadership from the administration's new LPO executive director, Jigar Shah, is critical.
- The DOE loan programs represent the best and often the only way for innovative technologies, as well as emerging and existing American manufacturers, to cross the barrier from development to deployment of new and improved technologies, but additional guidance from Congress may prove necessary.
As set forth in previous Holland & Knight alerts, the authorities that exist within the U.S. Department of Energy's (DOE) Loan Programs Office (LPO) can be used by the Biden Administration to spearhead the commercial deployment of the innovative energy technologies and advanced manufacturing necessary for the United States to achieve net-zero carbon emissions by 2050. This authority is more important to note than ever before because the LPO arguably possesses the most authority available to the Biden Administration to achieve climate-related initiatives without action from Congress. However, it's also important to note that to successfully utilize the authority and deploy loans, strong leadership is critical and additional guidance from Congress may be prove pivotal.
New DOE and LPO Leadership
In Secretary of Energy Jennifer Granholm's confirmation hearing and subsequent comments to the press and the DOE, it became evident that utilizing LPO to the greatest extent possible would be pivotal to achieving the administration's objectives. Out of the gate, the Biden team bolstered Granholm's enthusiasm for LPO through the appointment of Jigar Shah, a successful clean energy entrepreneur, as its new executive director. Although this is his first endeavor into public service, Shah's expertise in financing clean energy and decarbonization technology makes him suited to lead a program that is positioned to commit the remaining $40 billion in loan authority to projects that will help achieve Biden's clean energy goals.
The most recent example of LPO returning to the spotlight was its inclusion in the Biden Administration's recently announced joint initiative between the Commerce, Energy, Interior and Transportation departments to support the burgeoning U.S. offshore wind industry. During a White House roundtable meeting, the administration announced a national goal to deploy 30 gigawatts (GW) of offshore wind by 2030. In an effort to help reach this goal, LPO issued a fact sheet highlighting how the $3 billion in renewable energy authority available in the Title XVII loan guarantee program can be leveraged to build a commercial U.S. offshore wind industry, including financing supporting infrastructure such as:
- foundation manufacturing facilities
- dockside staging and laydown yards
- blade manufacturing facilities for offshore wind turbines
- construction of specialized vessels that will operate exclusively on U.S. projects
The current eligibility criteria for Title XVII differs from what was available during the American Recovery and Reinvestment Act of 2009, which removed the "innovative technology" requirement for the program and added additional loan authority for renewable energy projects.
Proposed Congressional Action
The DOE loan programs represent the best and often the only way for innovative technologies, as well as emerging and existing American manufacturers, to cross the barrier from development to deployment of new and improved technologies in the U.S. – and ultimately for export. The supportive private and public sector dynamics and long-term fixed price contracts that existed from 2009 to 2011 that allowed the DOE to build a strong portfolio of mostly solar, wind and automotive transactions do not exist today for emerging industries such as carbon capture, hydrogen, batteries for electric vehicles (EVs) and stationary storage, manufacturing of cleaner products, and critical materials and rare earths. Accordingly, many companies, industry experts, and congressional staff members who engage with the LPO regarding projects are of the opinion that congressional action may be necessary to fully unlock the program and enable next-generation technologies.
Through the introduction of the CLEAN Future Act, the House Energy and Commerce Committee has decided to build on the recent reforms to the Title XVII Innovative Clean Energy Loan Guarantee Program (Title XVII) that were included in the Energy Act of 2020 and address the Advanced Technology Vehicles Manufacturing Direct Loan Program (ATVM), which has not been revised since 2010.
First, the Energy and Commerce Committee has defined the DOE loan programs' crucial eligibility criterion: "reasonable prospect of repayment." A definition of this term was not included in the original authorizing statute for either the Title XVII or ATVM programs, but it is one of the main criteria DOE is required to evaluate to determine whether or not a project is eligible to receive a loan or loan guarantee. Due to the previous lack of definition of "reasonable prospect of repayment," the interpretation of the term often has ranged from interpretations solely based upon market signals to more conservative and risk-averse. During the past decade, as clean energy markets have evolved and matured, new financing structures, contracting terms and regulatory regimes have been tried and tested. By defining "reasonable prospect of repayment," the DOE will have more precise guidance for evaluating projects' financial viability.
Second, the CLEAN Future Act addresses a long sought after expansion of ATVM program eligibility to include manufacturers of certain medium- and heavy-duty vehicles, as well as component suppliers of such vehicles. Today, the ATVM program is available only to manufacturers of light-duty passenger vehicles, as well as component suppliers that can contractually demonstrate that a majority of their product is being used in eligible light-duty passenger vehicles. In 2018, transportation was the largest source of U.S. greenhouse gas emissions, and of that, 41 percent came from vehicles that were not light-duty vehicles.1 By expanding ATVM eligibility, it would not only allow manufacturers of more efficient or zero-emission vehicles to be eligible but would also greatly reduce the burden on EV battery and battery component manufacturers to prove they are also eligible for ATVM financing.
Holland & Knight Insights
As Congress and the Biden Administration continue to evaluate and elevate existing solutions and funding to address the country's urgent economic and climate needs, instituting strong DOE and LPO leadership, and further defining and modifying terms of the existing authorities within DOE's loan program are a logical and impactful next step. Building on the major accomplishments of the Energy Act of 2020, the implementation of additional Title XVII and ATVM improvements should continue to unlock nearly $40 billion of existing funds to help address today's energy, climate and economic challenges.
As DOE once again turns to LPO as tool for broad deployment of clean energy technologies, companies will want to keep a pulse on how quickly the billions of dollars in loan authority are committed to new projects and the types of technologies receiving those funds. For specific questions regarding your organization, contact the authors.
Footnote
1 U.S. Environmental Protection Agency (EPA), Fast Facts on Transportation Greenhouse Gas Emissions.
Originally Published by Holland & Knight, March 2021
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