January 01, 2016
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The US Department of Energy (DOE) has expanded the availability of DOE loan guarantees for distributed energy projects utilizing innovative technologies. On August 24, 2015, DOE invited innovative distributed energy projects to apply for the more than $10 billion currently available under existing solicitations1 and added up to $1 billion in additional guarantee authority for such projects.2
Section 1703 of the Energy Policy Act provides loan guarantees to support financing of new or significantly improved technology that is not a commercial technology, meaning it is not in general use in the United States, or installed or operating in three or more commercial projects in the United States for five years or more.
The DOE guidance came in the form of supplements to the existing Section 1703 solicitations DE SOL 007154 (renewable energy and energy efficiency) and DE SOL 0006303 (advanced fossil energy), which expire on November 30, 2016. The guidance clarified how distributed energy projects can qualify for loan guarantees under these two solicitations.
Defining “Distributed Energy Projects”
The supplements, issued on August 24, 2015, define qualifying projects (Distributed Energy Projects) as projects comprised of facilities utilizing a single technology, or a defined suite of technologies (a Distributed Technology), at multiple sites, deployed pursuant to a master business plan. DOE stated in the supplements that “Distributed Energy Projects utilizing innovative technology are not being deployed at scale due in part to capital constraints associated with the structuring of Distributed Energy Projects and the innovative technologies that such projects use.” The guidance is meant to help overcome that hurdle to encourage deployment of Distributed Energy Projects.3
Eligible Financial Structures
The DOE supplements outline three different eligible structures for a single financing arrangement for multiple installations:
I. The borrower develops, constructs, operates and owns revenue generating assets consisting of multiple installations of Distributed Technology at multiple sites. The sites where the installations are located are either owned by a single creditworthy party or secured in a highly standardized manner that protects against the potentially unrated credit of the site owners. The borrower sells energy under a single energy offtake arrangement with a creditworthy power purchaser for at least the term of the loan.
II. The borrower earns revenue from standardized contracts, such as equipment leases or power purchase agreements, with multiple host site owners that meet pre defined credit criteria pursuant to a master business plan. The master business plan may provide for installations of Distributed Technology using two or more installers. The borrower may not merely re lend DOE guaranteed loan proceeds to project hosts for “unreasonable profit.”
III. The borrower operates a mobile technology and earns revenues from the temporary set up and operation of such technology at multiple customer sites.
In each case, the borrower would be expected to use highly standardized contract forms for site hosts, other project contracts and services. DOE would be a senior lender with full recourse to adequate security and would control loan disbursements. The program will not support portfolios of multiple unrelated projects. Instead, the projects must be part of a clear master business plan.4
Distributed Energy Projects that meet the solicitation qualifications are eligible under the existing Section 1703 solicitations DE SOL 007154 (renewable energy and energy efficiency) and DE SOL 0006303 (advanced fossil energy), each of which expire on November 30, 2016. The renewable energy and energy efficiency solicitation identifies five target innovative technology areas: (1) Advanced Grid Integration and Storage, (2) Drop in Biofuels, (3) Waste to Energy, (4) Enhancement of Existing Facilities and (5) Efficiency Improvements.5 The advanced fossil energy solicitation targets innovative technologies in four areas: (1) Advanced Resource Development, (2) Carbon Capture, (3) Low Carbon Power Systems and (4) Efficiency Improvements.6 The supplements to the solicitations provide examples of Distributed Technologies that could be eligible, including:
Grid Infrastructure and Storage
1 The applicable existing solicitations are for Renewable Energy and Energy Efficiency Projects and Fossil Energy Projects using new technologies under Title XVII.
2 US Department of Energy press release, Fact Sheet: President Obama Announces New Actions to Bring Renewable Energy and Energy Efficiency to Households across the Country.
3 US Department of Energy Third Supplement to Loan Guarantee Solicitation Announcement Federal Loan Guarantees for Renewable Energy and Energy Efficiency Projects DE SOL 0007154.
5 US Department of Energy Fact Sheet, Renewable Energy and Efficient Energy Projects Loan Guarantee Solicitation.
6 US Department of Energy Loan Guarantee Solicitation Announcement Advanced Fossil Energy Projects.