DOE Loan Programs Office: 2023 Updates, Overview and Key Insights

Following the first two years of the Biden Administration, and fresh off of the successful passage of the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA), the U.S. Department of Energy Loan Programs Office (LPO) is flush with new funds. The LPO has been authorized to lend nearly $412 billion in remaining clean energy financing for four programs, including two newly created programs. As noted in previous alerts and on Holland & Knight podcasts featuring LPO's Executive Director Jigar Shah, the Biden Administration has reinvigorated the LPO. (See Holland & Knight's previous alerts, "Innovation Is In Again: DOE Loan Programs Office Back at the Helm," Sept. 15, 2021, and "DOE Loan Programs Update: New Leadership and Potential Legislative Expansions," March 30, 2021.)

LPO Funding as of January 2023

The LPO has issued nearly $36.26 billion in loans and loan guarantees. However, the first two years of the current administration resulted in only four deals at the close of 2022 and one additional announced deal at the beginning of January 2023. An annual status report issued by LPO in January 2023 states that nearly 15 percent of the 125 applicants in their competitive process are in due diligence. Some of the delay can be attributed to the fact that many of the most oversubscribed offerings of the LPO needed recapitalization from the IRA in order to meet the demand of applicants.

Now provided with significant funding, LPO is well positioned to meet the clean energy financing needs of innovative and greenhouse gas (GHG) emission-reducing clean energy technologies. The LPO's renewed mission is to act as Congress originally intended – by filling gaps in private sector investments and creating a bridge to financeability for the clean tech market. Leveraging the LPO to the greatest extent possible will prove pivotal to achieve the Biden Administration's clean tech objectives, as the commercial deployment of innovative energy technologies and advanced manufacturing is necessary for the U.S. to achieve net-zero carbon emissions by 2050.

With implementation of legislative improvements to the LPO well underway, the office faces new realities – from politics to transactional complexity. First and foremost, House Majority leadership has made clear that oversight and investigations of climate spending will be a top priority. As LPO's work begins in earnest, Congress will be watching how the massive lending authority is ultimately allocated. Second, the complexity of the program requirements, in combination with first-of-its kind transactions, makes it challenging for companies to reach the finish line.

LPO Program Summaries

The chart below outlines the top-level spending authority of the LPO programs and is followed by additional summaries of the programs.

* New Program
** New Lending Authority Provided

New Program: Energy Infrastructure Reinvestment Financing

The IRA will create a new program under LPO entitled, "Energy Infrastructure Reinvestment Financing," and provide $5 billion through Sept. 30, 2026, to be leveraged for up to $250 billion in commitment authority for loan guarantees (including refinancing) of eligible projects. The program envisions bringing clean energy projects and emissions controls online to leverage outdated fossil fuel infrastructure. Eligible projects are defined by IRA as projects that 1) retool, repower, repurpose or replace energy infrastructure that has ceased operations or 2) enable operating energy infrastructure to avoid, reduce, utilize or sequester air pollutants or anthropogenic emissions of GHG.

For this program, energy infrastructure is defined as a facility, and associated equipment, used for 1) the generation or transmission of electric energy; or 2) the production, processing and delivery of fossil fuels, fuels derived from petroleum, or petrochemical feedstocks. Energy infrastructure projects that provide environmental damage remediation will qualify and fossil fuel projects financed will be required to have emission control technologies.

LPO has begun accepting applications for the EIR Program. Applicants will be required to include 1) detailed project plans, 2) community engagement plans and 3) if the applicant is an electric utility, the financial benefit of the program must be passed on to the customer or associated community. Additional guidance on EIR application submission can be found on the LPO website.

New Program: Carbon Dioxide Transportation Infrastructure

The IRA also provided $2.1 billion in credit subsidy cost appropriations to help support the financing of carbon dioxide transport projects. The IIJA authorized $25 billion in funding available to carbon dioxide transport projects (e.g., pipelines, rail, shipping and other transport methods) for projects identified in the Carbon Dioxide Transportation Infrastructure Finance and Innovation Act (CIFIA). LPO will administer IRA and IIJA funds for carbon dioxide transport projects in partnership with DOE's Office of Fossil Energy and Carbon Management (FECM).

DOE CIFIA funding may be used to 1) guarantee a U.S. Department of the Treasury-backed loan, 2) guarantee a loan from a non-federal lender or 3) provide grants for additional transport capacity. LPO and FECM issued joint guidance dated Oct. 5, 2022, on the CIFIA program covering eligibility, terms and conditions, and the application process.

Title XVII Innovative Clean Energy Loan Guarantee Program

Authorized by the Energy Policy Act of 2005, the Title XVII Innovative Clean Energy Loan Guarantee Program enables the 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.

Legislative Updates: IRA and IIJA

• $40 Billion in New Commitment Authority. The IRA provides $40 billion in additional commitment authority for eligible projects under Title XVII through Sept. 30, 2026. This new commitment authority will be applied across existing eligible projects and IIJA expansion of eligibility for Title XVII for projects that increase the domestic supply of critical minerals through production, processing, manufacturing, recycling or fabrication of mineral alternatives.
• Credit Subsidy Cost Funding. The IRA will provide $3.6 billion in credit subsidy cost through Sept. 30, 2026. The impact of this provision means that the credit subsidy cost due at close (or sometimes included in the interest rate) may now be covered by this funding. Three percent of the credit subsidy cost is reserved for administrative costs to help ease the current administrative backlog in the application pipeline.
• Clarifying Provisions on Double Dipping. Additional provisions in this section clarify what constitutes a double benefit from the government except in the case of tax, federal land agreements, federal insurance or projects using transmission facilities from a federal Power Marketing Administration (PMA) or the Tennessee Valley Authority (TVA).
• Defining a Reasonable Prospect of Repayment. The IRA updates follow the reforms featured in the IIJA. The first reform is a clarification of the reasonable prospect of repayment criteria for Title XVII. Currently, the enacting statute for Title XVII only states that a project must have a reasonable prospect of repayment for a loan guaranteed by the LPO without defining the phrase. What constitutes a reasonable prospect of repayment is now clarified, giving applicants to the program an understanding of the showing that must be made to the program in order to qualify for a guarantee.
• Critical Minerals. The second IIJA reform is an expansion of eligibility for Title XVII to include projects that increase the domestic supply of critical minerals through production, processing, manufacturing, recycling or fabrication of mineral alternatives. However, while now eligible, Congress will still need to provide new appropriations for these newly eligible projects.
• Waiver of Innovation Requirement. On Dec. 8, 2022, LPO announced it would waive the Title XVII innovation requirement for projects funded by state energy financing institutions (SEFIs). The IRA defined SEFIs as a green bank or "a quasi-independent entity or an entity within a State agency or financing authority established by a State" to provide financing for GHG emission-reducing projects. An applicant to DOE's Title XVII that has received SEFI funding will need to only show that the project financed reduces GHG emissions and will not be required to show the technology deployed by the project is innovative.

ATVM Direct Loan Program

The 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 the 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 the 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.

Legislative Updates: IRA and IIJA

• Additional Credit Subsidy Cost. The IRA will provide $3 billion in additional credit subsidy cost to ensure applicant loan costs remain low.
• Removal of Outstanding Loan Cap. The IRA will provide an additional $25 million in administrative costs to ensure proper staffing of the applicant pipeline. It also removes $25 billion cap in outstanding loans for the program, expanding the amounts available for lending under the program.
• Statutory Standard for Reasonable Prospect of Repayment. The IIJA also altered the ATVM program to clarify what constitutes a reasonable prospect of repayment to a definition similar to the standard applied for Title XVII. The ATVM program does not currently have the same reasonable prospect of repayment mandate as Title XVII, but the evaluation of reasonable prospect of repayment on an ATVM loan has long been standard practice for the program. It is now a statutory standard.
• Possible New Eligible Vehicles. Enactment of the IIJA expanded the ATVM program's scope by expanding eligibility to include medium- and heavy-duty vehicles, trains, aircraft, marine transportation and hyperloop technology. However, Congress will need to appropriate funds for newly eligible vehicles. As the Biden Administration seeks to electrify 50 percent of the vehicle market by 2030, it will be imperative to fund these newly eligible classes of vehicles.

Tribal Energy Loan Guarantee Program

The IRA increased the available commitment authority of the Tribal Energy Loan Guarantee Program (TELGP) from $2 billion to $20 billion and increased the percentage of an allowable guarantee from 90 percent to 100 percent. The IRA also provided an additional $75 million to administer the TELGP. For tribal-specific information about the IRA, see Holland & Knight's previous alert, "Tribal Provisions in the Inflation Reduction Act Address Energy, Climate Change," Dec. 13, 2022.

Holland & Knight Insights

The LPO will continue to work diligently to responsibly fund projects out of the more than $412 billion in available funding throughout the last two years of the Biden Administration. As outlined above, the LPO is rapidly expanding its financial offerings while moving its project pipeline from application to project diligence and, eventually, project close.

While the LPO remains much more complex than government grant programs, companies interested in the LPO should not hesitate to conduct a comprehensive evaluation to determine if a proposed project is eligible and likely to proceed through the pipeline to funding. The LPO continues to encourage prospective applicants to apply, and numerous companies have done so already. This has made the competitive application and negotiation process even more competitive, despite the unprecedented amount of funding provided to DOE.

Holland & Knight currently represents more than 25 percent of the DOE LPO project pipeline and recent awardees. As a result, the firm will continue to monitor developments and keep clients apprised of legal, regulatory and policy changes for the LPO. If you have any questions, please contact the authors or another member of Holland & Knight's Clean Technology Team.

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.