DOE Loan Program: Where We Are and What to Expect Post-Election

In the immediate aftermath of COVID-19, a Holland & Knight alert provided an overview of available federal funding options available to private sector energy companies, with a specific focus on those supporting innovative technologies. As we anticipate the Nov. 3 general election results, it is important to consider viable federal funding options for innovative energy financing programs available to determine how a potential Biden Administration would execute and deliver on the campaign's climate and manufacturing proposals. Alternatively, it's also important to consider how the Trump Administration will utilize the program for economic recovery and onshoring manufacturing applications previously lost abroad.

In a series of alerts, Holland & Knight will provide an overview of federal financing programs available for energy companies and other entities advancing to meet Net Zero or other decarbonization goals over the next five to 10 years and beyond to demonstrate the breadth of opportunities available across the government. Regardless of the electoral outcome, Holland & Knight will outline what to expect in the next administration as each opportunity in the space comes to fruition.

Perhaps the most well-known program in the clean energy and advanced transportation industries is the U.S. Department of Energy's (DOE) Loan Programs Office (LPO). The LPO currently manages a $30 billion portfolio of clean energy and auto projects, and issues loans and government-backed loan guarantees to innovative technology projects that cannot otherwise access commercial financing.

This financing program confronted fiscal uncertainty and political volatility at the Trump Administration's onset because of proposed funding cuts. However, government investment in clean energy has increased overall to a notable degree. These programs have gained momentum at the federal level. Coupled with increasing support and proposed improvements at the congressional level, this federal financing program will be in a position to serve as a viable option for emerging clean technology companies in the next administration, no matter the electoral outcome.

Title XVII Innovative Energy Loan Guarantee Program

Background

Authorized by the Energy Policy Act of 2005, the Title XVII Innovative Energy Loan Program enables DOE to issue loan guarantees for first-of-a-kind commercial-scale deployments of advanced fossil, advanced nuclear, renewable energy, energy efficiency and distributed energy projects in the United States. Technologies that could fall within the current solicitations include carbon capture, direct air capture, small modular nuclear reactors, uprates and upgrades for existing nuclear plants, energy storage, efficient end-use technologies and retrofits of existing renewable facilities.
Nearly $24 billion in loan authority is currently available for clean energy financing under Title XVII:

• $10.9 billion for Advanced Nuclear Energy ($2 billion specifically for Front-End Nuclear)
• $8.5 billion for Advanced Fossil Energy, and
• $4.5 billion for Renewable Energy and Efficient Energy

Under Title XVII authority, DOE can guarantee loans for up to 80 percent of total project costs for eligible proposals. Projects are evaluated based on four key eligibility criteria: 1) use of new or significantly improved technology; 2) reduction of greenhouse gas emission or air pollutants on a lifecycle basis; 3) located in the United States (projects can have foreign sponsors and ownership); and 4) demonstrate a "reasonable prospect of repayment." Lending rates are based on U.S. Department of the Treasury rates plus a credit-based interest spread.

Program Status

Approximately $24 billion in debt financing remains available within the Title XVII program today across the four solicitations or subprograms set forth above. The LPO is "open for business" and is currently involved in various outreach and engagement activities to meet with companies interested in applying for financing. The program is accepting new applications and is processing applications in a timely manner.

Current Bottlenecks

Although modifications to lower fee schedules have been made since the current round of solicitations were issued in 2013-2014, application fees and other underwriting costs still exist as an expense for Title XVII applicants. DOE's approach to lending is financially conservative despite the requirement for "Reasonable Prospect of Repayment" in lieu of standard commercial lending requirements and has not evolved as quickly as clean energy technologies and markets have matured. The program is open to exploring new financing structures, but potential applicants should not be surprised if they engage in these discussions with DOE staff before applying. The lack of new loans issued recently may be more closely linked to the uncertainty of the Title XVII program's existence introduced annually through the Trump Administration's budget requests. Despite these requests, Title XVII has been fully funded for more than a decade, and recently there has been congressional interest in reforming the program to increase loan activity. Accordingly, as set forth in more detail below, interested companies should not hesitate to approach and pursue the program, but should do so with an understanding of the program's statutory limitations in combination with the flexibility that derives from a regulatory construct intended to support innovation and the commercialization of innovative technologies.

Congressional Legislation of Importance

Many policy items are contingent on the outcomes of the 2020 elections, in which control of the White House and Senate are at stake. In a lame-duck session, it is anticipated that congressional priorities will be limited to must-pass measures, including fiscal year 2021 appropriations bills and the annual defense authorization bill. A supplemental coronavirus economic stimulus package is potentially viable but the scope and content is strongly contingent upon the outcome of the 2020 election. Historically, must-pass provisions serve as a vehicle for noncontroversial policy riders. However, overloading must-pass legislation with additional items would dramatically alter its level of support. Both parties on Capitol Hill have begun to look toward January and February 2021 as the next likely window for significant legislative action.

On Sept. 24, 2020, the U.S. House of Representatives passed the Clean Economy Jobs and Innovation Act (H.R. 4447) in a 220-185 vote. The measure merges several bills that aim to bolster green infrastructure and energy efficiency in buildings, and invest in clean energy technologies, energy storage and workforce training. The bill also includes the first significant reforms to the Title XVII loan guarantee program since it was initially authorized in 2005.

The truncated 2020 congressional session resulting from the COVID-19 pandemic significantly cut lawmakers' time to negotiate any broad energy package. The Senate's bipartisan American Energy Innovation Act (S. 2657), sponsored by Senators Lisa Murkowski (R-Alaska) and Joe Manchin (D-W.Va.), was voted favorably out of committee and would provide a vehicle to conference with for the House. However, it is most likely that congressional action on such an energy will be handed over to the 117th Congress.

Holland & Knight Insights

There is growing support in both congressional chambers to enact small but significant reforms to the Title XVII program to increase loan activity. Although many more provisions were included in H.R. 2 than H.R. 4447, the most significant changes would modify the current fee structures and authorize future appropriations to cover some bigger expenses such as credit subsidy costs. Legislative action to address some of the programmatic risk aversion still needs to be addressed and will likely be done during the next Congress or through a new administration.

The program has a strong foundation and bipartisan support to advance transactions, but before proceeding through the program, companies should have a well-developed strategy and plan for such. Otherwise, the project can risk delays and frustration in navigating the program given how the interpretation of the underlying authorities have changed throughout the years.

Advanced Technology Vehicles Manufacturing (ATVM) Direct Loan Program

Background

DOE supports the commercial development of advanced technology vehicles and associated components through its ATVM direct loan program, which like Title XVII, is administered by LPO. ATVM was established under Section 136 of the Energy Independence and Security Act of 2007. Under ATVM, automobile manufacturers and advanced vehicle automobile component or material manufacturers are eligible to obtain direct loans from DOE for projects that re-equip, expand or establish manufacturing facilities in the U.S. that produce "ultra-efficient vehicles," light-duty passenger vehicles, light-duty trucks or associated components that meet certain fuel economy standards.

Program Status

LPO has $17.7 billion in remaining loan authority under the ATVM loan program. The program has financed $8 billion in projects to Tesla, Ford Motor Co. and Nissan North America for projects that have supported the production of more than 4 million advanced technology vehicles and created more than 35,000 jobs across eight states. The ATVM program is currently accepting new applications and is processing them in a timely manner. Career staff is currently involved in various outreach and engagement activities to meet with companies interested in applying for financing.

Current Bottlenecks

Since the height of program activity in 2009-2010, U.S. auto markets have strengthened considerably. While this is positive for the U.S. economy, it has also resulted in less of a need by the automotive original equipment manufacturers (OEMs) for government-issued debt. As a result, the ATVM program has only issued conditional commitments and advanced companies into due diligence over the past decade. Lack of activity out of the program coupled with DOE's financially conservative approach to lending presents challenges to today's automotive component suppliers that are actively working to support the auto OEMs transition to alternative vehicles – specifically electric and hydrogen fuel cell vehicle technologies. The lack of new loans issued recently may also be linked to the uncertainty of the ATVM program's existence introduced annually through the Trump Administration's budget requests that have since passed and is not expected to be an issue moving forward because of the congressional support described below. Despite these requests, ATVM has been fully funded for more than a decade. Recently, congressional interest in major reforms to the program includes expanding eligibility to medium- and heavy-duty vehicles.

Congressional Legislation of Importance

Holland & Knight Insights

The ATVM program has previously demonstrated its value in creating and saving U.S.-based manufacturing jobs. It will be a pivotal piece in future COVID-19 economic recovery and stimulus legislation, regardless of the election outcome. Refreshing the program by expanding eligibility to medium- and heavy-duty vehicles, and components for ultra-efficient vehicles, could result in new lending activity. More attention will likely be placed on ATVM and pathways for further program expansion through a national climate bank or other legislative and executive action under a Biden Administration. Alternatively, a Trump Administration will continue to promote the program to address U.S. battery supply chain improvements and onshoring facilities previously abroad.

Tribal Energy Loan Guarantee Program

Background

Through its newest solicitation, DOE supports economic development for federally recognized Indian tribes and Alaska Native Corporations (ANCs) through its Tribal Energy Loan Guarantee Program (TELGP). The program has up to $2 billion in U.S. government-backed loan guarantees available for commercial-scale traditional and clean energy development projects. Under this solicitation, DOE can guarantee up to 90 percent of the unpaid principal and interest due on any loan made to a federally recognized tribe or tribal energy development organization. The program requires the tribal borrower to invest equity in the project and all project debt provided by nonfederal lenders.

Program Status

DOE is currently accepting new applications in response to the TELGP solicitation and is processing them in a timely manner. No loan guarantees have been issued under this program to date, and LPO is eager to work with new applicants and issue its first financing. Career staff is currently involved in various outreach and engagement activities to meet with tribes, tribal energy development organizations and potential financial institutions interested in tribal lending.

Current Bottlenecks

Although $2 billion in loan authority remains available within the program, application fees and other costs for TELGP are larger than other federal government loan programs for tribes that are run out of the U.S. Department of the Interior (DOI) and the U.S. Department of Agriculture (USDA). In addition, before the COVID-19 pandemic, LPO staff were traveling regularly to Indian country to meet with tribes and developers interested in building new energy projects. That type of outreach has not been possible over the last six to seven months, but DOE is still engaging with tribal associations and other groups to discuss the opportunities available through TELGP.

Congressional Legislation of Importance

There are no legislative improvements of any importance included in the vehicles covered herein, as this program is relatively new and not at a point where such are moving forward. However, it is important to note that similar legislative efforts may be required in the future. Interested parties with questions may contact the authors to discuss.

Holland & Knight Insights

According to Centers for Disease Control and Prevention (CDC) Director Robert R. Redfield, M.D., "American Indian and Alaska Native people have suffered a disproportionate burden of COVID-19 illness during the pandemic."¹ As a result, health and safety needs are being prioritized in Indian country, and therefore energy development has been slower. Because DOE has not issued any loan guarantees under the TELGP, staff are eager to work with potential applicants, but they are still figuring out how best to administer the program. Those interested in applying should have a well-developed strategy and plan for engaging with DOE. Early conversations are encouraged so that expectations by all parties can be managed early in the process.

Conclusion

Despite its rocky political past, the DOE Loan Program still provides the most significant funding opportunity for energy and clean technology commercialization or deployment. Given the current economic environment and both parties desire to onshore manufacturing, it is expected that this program will become increasingly attractive post-2020 election, no matter what the outcome. And, while there have not been nearly as many financings as the program and companies would like because of the political climate in combination with other market factors, it has been critical to enabling a number of innovative companies to receive commercial financing at favorable terms over the past eight years. Accordingly, evaluating and, potentially, pursuing the program remains a worthwhile endeavor for eligible companies but should be done in an educated and strategic manner that incorporates the 2021 political landscape, no matter what that may be.

For more information and questions on these DOE LPO programs, contact the authors.

Notes

¹ CDC data show disproportionate COVID-19 impact in American Indian/Alaska Native populations, Centers for Disease Control and Prevention (CDC) Press Release, Aug. 19, 2020

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.