Energy Policy Act Signals Inclusive, Innovation-Focused Future for DOE

President Donald Trump signed into law on Dec. 27 H.R. 133, an end-of-year legislative package that paired the long-awaited Energy Act of 2020, reauthorizing a number of U.S. Department of Energy (DOE) programs, with a massive $2.3 trillion spending bill containing appropriations for Fiscal Year (FY) 2021, COVID-19 relief funds, and extensions of a number of expiring tax incentives important to the energy sector.

The Energy Act of 2020 represents the culmination of more than five years' work on a bipartisan energy reauthorization bill led by Senate Energy and Natural Resources Chair Lisa Murkowski (R-Alaska) and Ranking Member Joe Manchin (D-W. Va.). Iterations of this new law have received Committee and floor consideration in both the House and Senate since 2016, but have failed to cross the finish line for myriad political reasons and shortage of legislative floor time.

However, with Sen. Murkowski set to term out of her chairmanship of the authorizing Committee for the DOE at the end of the 116th Congress, the end-of-year legislative package was seen as the last opportunity to get the bill over the finish line in its current form, albeit slimmed down from more aspirational, sweeping House proposals in prior years. The final bill as passed in December focuses on simple reauthorizations that reflect updated priorities and technologies across the DOE. The prospects for the few new programs authorized by the bill are somewhat uncertain, as many lack firm statutory direction and specific levels for authorized funding. Rather, this bipartisan bill, like the COVID-relief package with which it was paired, in many ways signals a "down payment" or a notable first step in a transition toward a future for the DOE focused on innovation, emissions reductions, renewables, advanced carbon capture and domestic manufacturing.

Upon full review of the Act, it becomes clear that clean transportation was set aside during negotiations between the committees of jurisdiction. The DOE's sustainable transportation research and development (R&D) programs (vehicles, hydrogen and fuel cells, and bioenergy) were reauthorized through 2023, but large sections of H.R. 4447, the Clean Economy Jobs and Innovation Act, that touched on clean transportation deployment, manufacturing and infrastructure did not make it into the Act. Further policy considerations to support the growing clean transportation sector are needed, and may be an early focal point for the 117th Congress through a much-anticipated infrastructure package.

Diving into highlights for specific DOE programs, there are a number of notable energy policy reforms that run throughout the Energy Act of 2020, which are detailed below, including but not limited to:

• a new requirement for DOE to integrate water and energy considerations into its R&D and demonstration programs, and establishment of an interagency committee led by the Secretaries of Energy and the Interior to coordinate and collaborate on energy-water nexus activities
• a rather undefined Section 9005 that creates a proper Office of Technology Transitions (OTT) for the newly created Chief Commercialization Officer, which authorizes DOE to conduct milestone-based demonstration projects, among other things
• improvements to the Title 17 Loan Program, most specifically with regard to timing for payment of the fees that are sometimes prohibitive for applicants
• two separate titles focused on carbon emissions: Title IV – Carbon Management and Title V – Carbon Removal
• the development of a national plan for smart manufacturing technology development and deployment to improve U.S. manufacturing productivity and efficiency

Renewable Energy

Advanced Research Projects Agency – Energy (ARPA-E)

With its continuous bipartisan popularity in Congress, the Advanced Research Projects Agency – Energy (ARPA-E) office was reauthorized through 2025 with recommended funding levels as high as $761 million. After annual attempts throughout the Trump Administration to eliminate the program, Congress instead amended the America COMPETES Act to further expand ARPA-E's mission to support projects addressing nuclear waste cleanup and management, and improvements to energy infrastructure.

R&D Programs

Title III of the Energy Act of 2020 generously reauthorizes through 2025 DOE's technology-specific R&D programs on marine energy, geothermal, wind and solar with a focus on domestic manufacturing and production. While earlier versions of the bill would have authorized gradual funding increases for these programs, the final package included higher funding that remain level for most programs. Descriptions of these sections are below:

• Marine energy: Section 3001 reauthorizes existing DOE hydropower and tidal energy research, development and commercialization programs at an annual level of $186 million. Authorized grant funding is funneled through National Marine Energy Centers (NMECs) authorized to award up to $10 million annually per center to focus on testing and demonstration.
• Geothermal: Section 3002 reauthorizes existing DOE geothermal R&D activities, including three new Frontier Observatory for Research in Geothermal Energy (FORGE) sites demonstration projects, at $170 million annually. It also modifies the definition of renewable energy for programs authorized through the Energy Policy Act of 2005 to recognize power produced by geothermal resources as renewable energy rather than energy efficiency.
• Wind energy: Section 3003 reauthorizes existing wind energy R&D programs at DOE at $125 million annually. The provisions include direction for DOE to establish new testing facilities, including hybrid system research on incorporating diverse generation sources, offshore research facilities to test monitoring technologies, and an offshore structure testing facility to conduct testing and other R&D activities for large and full-scale offshore components. It includes additional research on advanced manufacturing, grid integration and recycling to support the wind industry, and establishes a wind technician training grant program.
• Solar energy: Section 3004 reauthorizes the DOE's solar R&D programs with an emphasis on recycling, heating and cooling, and grid integration to the tune of $300 million annually. It also establishes an advanced solar manufacturing initiative focused on domestic component manufacturing.

Production on Federal Lands

New requirements are introduced for national goals to be set for wind, solar and geothermal energy production on federal lands no later than Sept. 1, 2022, with a call for permitting at least 25 gigawatts (GW) of electricity from wind, solar, and geothermal projects by 2025. The U.S. Department of the Interior (DOI) also is required to establish a program to improve interagency cooperation for solar, wind and geothermal permits on federal lands.

Energy Storage

Section 3201 of the Act establishes a new $100 million research, development and demonstration program focused on energy storage technologies. The program prioritizes a wide array of technologies, including actual storage at a range of scales up to large-scale commercial discharge for 100 hours or more, building-grid integration, transportation energy storage targeted at electric vehicle (EV) charging stations, and more.

The package includes a new $75 million pilot project grant program to begin no later than FY 2024 to carry out three demonstration projects, as well as a smaller $30 million program to be administered jointly with the U.S. Department of Defense (DOD) focused on long-duration technologies. Consistent with the focus on sustainability in other sections of the legislation, the bill includes an emphasis on circularity and includes a specific materials recycling R&D program. Section 3202 establishes a $15 million microgrant program for rural electric cooperatives and utilities focused on storage technology deployment.

Carbon Capture

Carbon capture and direct air capture technologies – priorities for Republicans including Senate Environment and Public Works Committee Chairman John Barrasso (R- Wyo.), who will take over the Senate Energy and Natural Resources Committee in the 117th Congress – received a significant boost in this bill. Many provisions were drawn from S. 383, the USE IT Act, championed by Sen. Barrasso, which unanimously passed the Senate Environment and Public Works Committee in 2019. Many of these technologies have bipartisan support in the Senate.

Title IV of the bill focuses on carbon management technologies with an emphasis on carbon capture. Section 4002 authorizes through 2025 a new commercial-scale carbon capture technology demonstration program focused on efficiency, effectiveness, costs and environmental performance of carbon capture technologies for power, industrial and other commercial applications. The program includes four charges:

1. A general research and development program authorized at $230 million and gradually decreases to $150 million through 2025.
2. A large-scale pilot project program authorized at $225 million for FY 2021 and 2022, $200 million for FY 2023 and 2024, and $150 million for FY 2025.
3. Demonstration projects – with two focused on capture at natural gas facilities, two from coal facilities and two for emissions at other industrial facilities – authorized at $500 million through FY 2024 and $600 million in FY 2025.
4. A front-end engineering and design program authorized at $50 million annually.

Title V focuses on carbon removal and establishes a research, development and demonstration (RD&D) program to examine methods, technologies and strategies for large-scale removal of carbon dioxide (CO2) from the atmosphere. Additionally, a direct air capture (DAC) prize competition is required, as well as a Carbon Dioxide Removal Task Force to advise the Secretary of Energy.

Critical Minerals

A critical minerals R&D program managed by DOE's Office of Fossil Energy was authorized at funding levels between $23 million and $25 million annually through 2025 to develop advanced separation technologies for the extraction and recovery of rare earth elements and other critical materials from coal and coal byproducts.

Nuclear

The Act includes reauthorization for DOE's nuclear R&D activities, including advanced fuel, R&D for advanced reactors, used fuel technologies, and integration of nuclear energy systems for both existing plants and advanced nuclear concepts. It also includes authorization for an advanced reactor demonstration program and funding for the versatile test reactor.

Financing and Tech Transfer

Title 17 Loan Guarantee Program

Included in the bill are several reforms to the DOE's Title 17 Loan Guarantee program. Although some of the changes may seem small, they can be significant for those that have been exploring the somewhat elusive program.

The Act allows for future appropriations to be used to cover application fees, credit subsidy and other costs to applicants. It also adjusts the fee schedule so the upfront costs of program participation are less burdensome for project developers. The reforms also broaden eligibility categories under Title 17, and formalize some of the ongoing internal functions of the program. Notably, reforms to the Advanced Technology Vehicles Manufacturing (ATVM) Loan Program were not included in the Energy Act. The program has not issued a new loan in more than a decade, and many attempts have been made to revitalize ATVM by expanding eligibility to include manufacturing of medium- and heavy-duty vehicles. Given President-Elect Joe Biden's campaign commitments to transportation electrification and Energy Secretary nominee Jennifer Granholm's experience with the auto industry as the former governor of Michigan, we may see attempts from within the executive branch to kick ATVM back into gear.

Office of Technology Transitions (OTT)

Section 9001 formally establishes the OTT to improve the commercial impact of DOE's research investments and to focus on commercializing technologies that advanced the agency's mission. This section also requires the appointment of a Chief Commercialization Officer to lead OTT and serve as the principal advisor on all matters related to technology transfer within the DOE. The Energy Act also authorized additional tech transfer programs, including:

• support for regional energy innovation and clean energy incubators
• small business vouchers
• assisting entrepreneurial fellowships
• a lab partnering service pilot program

In addition, the DOE's Technology Commercialization Fund was reauthorized alongside a requirement to streamline the agency's prize competitions, which have been used heavily by the Trump Administration.

Section 6003 Industrial Emissions Reduction Program

Consistent with the Act's themes, the legislative package incorporates new authorizations geared toward the manufacturing sector. To this end, perhaps the most uncertain initiative in the entire energy bill is a new, cross-cutting program focused on technology to reduce emissions from the industrial sector.

Ostensibly, the Section 6003 "Industrial emissions reduction technology development program" targets the elusive industrial sector, where finding available or developing technologies to deliver meaningful emissions reductions have stumped even the most eager advocates for deep decarbonization. Directing support for research, development and deployment, the language in Section 6003 enumerates several specific focuses, including materials production (metals, cement and chemicals), general manufacturing, the heavy-duty transportation sector and industrial-scale carbon capture. Yet, with only very broadly defined goals, little statutory structure and no authorized appropriation level, future programmatic success is uncertain.

Three key determinants set to play out over the next year will influence the program's prospects:

1. The incoming Biden Administration may choose to include an appropriations request – large or small – for the program in the President's Budget Request for FY 2022, which is typically delivered in February. The size of this budget request will suggest the scope of the incoming administration's intent for the program. Any request is likely to include an ask for funds to administer the program, including standing up the new Industrial Technology Innovation Advisory Committee that is charged with developing missions and goals for the Section 6003 program.
2. Selections for individuals to serve on this Federal Advisory Committee will determine the scope of the program's goals. The statute calls for a Committee of 16-20 individuals from relevant agencies, labor groups, national labs and academia, nonprofits, state governments, and both large and small industry to be stood up within 180 days of enactment. This body is then charged with reporting to Congress on the program's mission and progress every two years.
3. The FY 2022 congressional appropriations process will ultimately determine how much, if any, funding this program receives. In recent years, legislators have not been shy to appropriate without authorizations on top-level spending for programs with influential congressional champions. Should FY 2022 appropriations be designated for this program, grants or other funding mechanisms to support R&D efforts under this title could be in place by early 2022.

Grid Modernization

Among the sections most truncated in the final bill when compared to earlier iterations, the grid modernization provisions focus primarily on R&D. Noticeably absent from the bill was major investment desired by the energy sector to better facilitate generation, transmission and distribution in an energy landscape with increasing diversity in the energy mix alongside increasing vulnerability to cyber threats. This choice from the authorizers to limit the grid modernization initiatives leaves work to be done, and could signal an early focus for the Senate Energy and Natural Resources Committee in the 117th Congress under incoming Chair Barrasso's leadership.

This caveat noted, the bill does include several programs of note, outlined below:

• Section 8001 reauthorizes DOE's smart grid demonstration program.
• Section 8002 authorizes a new program focused on development and commercialization of smart grid technologies, including sensors, monitors, grid visualization and modeling.
• Sections 8003, 8004 and 8007 authorize new programs focused on renewable integration and the development of cost-effective integrated energy systems with a diverse energy mix, including a new grant program on electric grid modernization at the distribution level.
• Section 8011 authorizes a new program to promote microgrids with two specific objectives: rural electrification and critical infrastructure resiliency.
• Sections 8014 and 8015 direct DOE to conduct studies on electric access and reliability, as well as challenges associated with net metering, and report to Congress on findings.

Final Holland & Knight Insights

As the first piece of energy legislation in more than a decade, the Energy Act of 2020 is a critical step in public policy evolving to meet the needs of today's dynamic energy industry.

Congress has laid a strong foundation for the incoming Biden Administration's energy and climate agenda, but it is worth noting that this legislation has winners and losers, which will be likely to continue if industry leaders aren't continuing to engage with lawmakers overseeing the country's energy and infrastructure needs.

For more information about the Energy Act of 2020 or other topics addressed in this alert, please contact the authors.

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.