- Sep 30, 2021 10:01 pm GMT
Earlier this year, Jigar Shah, a clean energy finance pioneer, was tapped to reinvigorate the US Department of Energy’s (DOE) Loan Program Office (LPO). The LPO got an undeserved reputation 10 years ago due to a couple solar company loan defaults that caught the ire of opponents. The office stayed under the radar until President Biden took office and tasked Jigar with leading the charge. Guidehouse conducted some Q&A with LPO staff on emerging topic areas, which is summarized below.
- The LPO was set up for unbankable assets, but the industry has changed. What is the next frontier of unbankable assets?
- In 2010-2011, LPO financed some of the first utility-scale photovoltaic (PV) solar and large wind projects, demonstrating their bankability to the commercial lending sector. Now these are multi-billion dollar industries. LPO also helped to finance Tesla’s first large-scale manufacturing facility and Nissan’s EV manufacturing facility in Tennessee which helped to kick start EV manufacturing in the United States.
- We think that LPO can replicate those kinds of successes in a variety of other sectors. We’re seeing a great deal of interest in clean hydrogen, carbon capture, utilization, and sequestration, biofuels and particularly sustainable aviation fuels, long-duration storage, transmission, waste conversion, and small modular and micro nuclear reactors. In the transportation space, we’re seeing interest in deployment of EV charging infrastructure and fleets under the Title 17 Innovative Energy Loan Guarantee Program and manufacturing of EVs and EV charging infrastructure under the Advanced Technology Vehicles Manufacturing Loan Program.
- What are the structural challenges that need to be addressed by the LPO?
- Innovators need to take a look at the path to commercialization differently than they have been. There are four key milestones after an innovative energy technology has been successfully demonstrated. It begins with a first-of-a-kind commercial deployment that addresses the applied engineering challenges and technology scale up risks. Next, subsequent deployments address the challenges of replicability and begin to demonstrate a history of commercial operation. As the technology is proven to work at commercial scale, it must then address the challenges of moving down the cost curve. Finally, the technology must overcome the challenge of educating commercial lenders that may be hesitant to enter into new technology areas. LPO can help build a bridge to bankability for these technologies by providing debt capital during these stages.
- What will you do differently than what has been done before?
- We continue to make it easier for projects to apply for and engage with LPO. For example, we have created a new Outreach and Business Development Division staffed with professionals from across a wide variety of energy and transportation sectors. Their role is to serve as a main point of contact for applicants from the first pre-application consultation throughout the entire engagement with LPO to make it easier and more transparent to move through the process.
- We have also knocked down barriers to applying to the Title 17 program, including deferring application fees to loan closing, and focusing the Part I application review on technical eligibility and pushing the financial review to later in the process when more of the project’s pieces are in place.
- Given Jigar’s private sector background, how can the LPO partner with private investors/banks?
- A key role that LPO can play is educating private investors and banks. By undertaking projects that others won’t take on because of a technology risk factor, LPO can help energy innovators develop their business models and cross the bridge to bankability. LPO can do that in a number of different ways whether through guaranteeing commercial loans, co-lending, or creating replicable deal structures.
- How will you account for climate/carbon emissions impacts from applicants?
- We think LPO can play a significant role in helping the Biden Administration advance its goals of a net zero carbon economy by 2050.
- Under the Title 17 program, we perform an independent greenhouse gas life cycle analysis to determine whether or not the project is an improvement over a “business-as-usual” case.
- For the ATVM program, vehicles manufactured must either have a 25 percent improvement in fuel economy from Model Year 2005 models or be ultra-efficient, which is a 75 mile per gallon equivalent. Component manufacturing projects must manufacture components that can contribute to those fuel economy improvements.
- How can you help the transition from coal to a clean energy economy?
- LPO’s role is to help accelerate the commercial deployment of clean energy and demonstrate the bankability of those technologies to the private sector so that they can come in with the significant capital needed to truly move us forward.
- More specifically for coal communities, LPO can help bridge that transition and help those communities utilize their existing coal assets, such as access to transmission. Projects that retrofit coal assets or integrate renewable energy could potentially be eligible for Title 17 if they meet all the necessary criteria.
- How do you see the role of utilities vs private sector?
- We’re really in an all-hands-on-deck moment. We cannot achieve the Biden Administration’s decarbonization goals without contributions from the federal government, private sector, and utilities combined. The Administration’s proposed investments in clean energy have caught the attention of the private sector, which is beginning to step up its efforts and contribute, as evidenced by the commitment from Breakthrough Energy Ventures and other private investors.
- Many consider hydrogen a critical fuel to help us achieve 100% clean energy goals, as well as infrastructure development (not just EV infrastructure, but transmission infrastructure). What might be specific areas of focus for the LPO?
- Hydrogen projects could be eligible to receive LPO support for the deployment of utility-scale power generation, distributed energy resources, advanced technology transportation, technologies or processes for reducing GHG emissions from industrial applications, and other innovative technology areas.
- Through the Title 17 Innovative Energy Loan Guarantee Program (Title 17), LPO can provide access to debt capital to support the domestic deployment of hydrogen projects from fossil fuel and/or renewable sources, so long as the projects meets all eligibility and programmatic requirements. Specifically, green hydrogen production and infrastructure project developers may be eligible to seek financing through the open Renewable Energy Projects and Efficient Energy Projects (REEE) solicitation. Further, distributed energy projects that include fuel distribution facilities, including associated hardware and software for hydrogen fuel-cell vehicles may be eligible under either the REEE Project solicitation or the Advanced Fossil Energy Projects solicitation. Hydrogen produced from fossil fuels is also potentially eligible under the Advanced Fossil Energy Projects solicitation.
- Moreover, hybrid technology solutions including the addition of hydrogen at existing fossil generation and nuclear power plants may be eligible for Title 17 support. For example, by applying available or excess power to produce hydrogen, the plants can sustainably and predictably operate at optimum efficiencies and the hydrogen can be stored long-term on-site for power generation and/or incorporation into transportation.
- Additionally, through the Advanced Technology Vehicles Manufacturing Loan Program (ATVM), LPO can potentially support the manufacture of hydrogen fuel-cell electric passenger vehicles and components, including manufacturing the associated hardware for hydrogen fuel-cell fueling stations through direct loans.
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