The U.S. Department of Energy (DOE) recently announced that it will make $1 billion available for distributed energy project loan guarantees. DOE issued supplements to the existing loan guarantee solicitations for Advanced Fossil Energy (AFE) Projects and for Renewable Energy and Energy Efficiency (REEE) Projects to provide guidance on the types of innovative projects that may qualify for the guarantees.

To be eligible, a project must deploy installations of facilities at multiple sites pursuant to a master business plan. DOE offers three illustrations of structures that could qualify. In all cases, a creditworthy project developer/sponsor forms a project company and, together with other creditworthy entities, invests greater than 20 percent of the total project costs. DOE provides a loan guarantee for a senior debt facility in an amount less than 80 percent of the total project costs.

In the first illustration, the output of the distributed energy facilities is aggregated on a utility scale, and sold pursuant to power purchase agreement(s). In the second illustration, the output is consumed by the owners (which must meet pre-defined credit criteria) of the sites on which the distributed facilities are located, whether through leases, power purchase agreements, or other revenue contracts. In the third illustration, the developer operates a mobile technology, deriving revenue from the temporary set up and operation of such technology at multiple customer sites under “highly standardized” installation plans to reduce construction risk. In each case, DOE would expect highly standardized contracts, as well.

The statute establishing the DOE loan guarantee program requires that projects be “innovative.”  The AFE and REEE supplements reflect a range of technologies that would be deemed innovative. Generally, the supplements do not set a particularly high bar for innovation.

Under the AFE supplement, illustrations of eligible projects include:

  • Distributed cogeneration and/or combined heat and power including steam turbines, natural gas fuel cells, microturbines or reciprocating engines with the hot exhaust used for heating or cooling;
  • Cogeneration including low carbon fuels, coal bed methane, syngas, and associated petroleum gas;
  • Distributed carbon capture and use; and
  • Distributed methane recovery and use such as small-scale LNG or landfill gas collection.

 Under the REEE supplement, illustrations of eligible projects include:

  • Distributed grid infrastructure and storage technologies enabling efficient utility operations and increased renewable generation capacity;
  • Distributed storage technologies to manage consumer energy use and be available for grid operators for system reliability and stability services;
  • Smart grid technologies and software;
  • Advanced distribution management systems;
  • Distribution automation;
  • Active demand management systems;
  • Smart inverters;
  • Zero-energy or low-carbon building technologies, including with distributed energy;
  • High-efficiency distributed generation and transmission systems that provide any combination of power, heat, or islanding capabilities;
  • Smart grid systems incorporating any combination of demand response, energy efficiency, sensing, and storage;
  • Energy generation incorporating storage;
  • Landfill methane to power gas turbines or fuel cells; and
  • Decentralized power or thermal energy generation projects that incorporate new or significantly improved technology at a scale smaller than traditional utility-scale projects, located at the point of consumption (including generation/storage combinations); solar (including solar gardens, rooftop or integrated solar); wind; geothermal; low-head hydro; distributed cogeneration and/or combined heat and power including biofuels, biogas, landfill gas, and sewage gas; distributed thermal heating and/or cooling installations including solar thermal and ground-sourced geothermal; and waste energy recovery (from thermal, mechanical, electrical, chemical or hydro-processes). 

DOE also clarified that states and state-affiliated financial entities, including state green banks, may submit applications for loan guarantees. The loan guarantee authority for distributed energy will be available following a 45-day congressional notification period.

Ballard Spahr’s Energy and Project Finance Group assists clients in developing strategies to thrive in the fast-changing regulatory, technological and financing environment of the energy industry. As part of these efforts, our attorneys regularly interact with the DOE, FERC, and other federal agencies on behalf of clients.

If you have questions about this alert, please contact Howard H. Shafferman.

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