Sponsors of innovative technology projects often have difficulty obtaining private debt financing due to the absence of a deployment track record. The Department of Energy’s Loan Program Office (LPO) may provide a way to fill this gap; currently, it is accepting applications for debt financing and loan guarantees, including up to $8 billion for Advanced Fossil Energy Projects, $4 billion for Renewable Energy and Efficient Energy Projects, and $12.5 billion for Advanced Nuclear Energy Projects.
What is the Advantage of the LPO Program?
The LPO has funded projects ranging from the famous to the infamous, including Tesla and Solyndra. Aside from the favorable loan terms discussed below, there is an added benefit to successful applicants; the imprimatur of the U.S. government by virtue of DOE’s decision to fund or guarantee a project. Moreover, the government has a vested interest in the success of accepted projects, both to avoid a default scenario and for public relations purposes. In addition to Tesla, LPO has enjoyed the success of helping to commercialize PV panels. Currently, the LPO is pursuing that winning formula with innovative bio-fuel technologies.
What Type of Loan Terms are Available?
LPO provides both direct loans and loan guarantees for the commercial-scale deployment of innovative energy projects. Loan guarantees can support debt from a commercial lender or the Department of Treasury. DOE guarantees up to 80% of the total project cost, but most approved projects have at least 35% equity. The interest rate for loans is based on U.S. Treasury rates, plus a credit-based spread that typically ranges from 0.5% to 1.5%. Long-term financing is available based on the useful life of the asset – up to 30 years.
What Types of Projects Will DOE Approve?
The types of approved LPO projects are instructive for developers considering submitting applications for loans or guarantees to DOE. Approximately thirty different projects have had loans or guarantees granted to them. The following three projects are examples of applicants who have received LPO awards:
In September 2011, NextEra was issued partial guarantees of $1.46 million in loans to finance the Desert Sunlight Project, a 550 MW PV solar generating plant. It is one of the largest PV plants in the world. The project features First Solar’s thin-film cadmium-telluride solar modules. The loan would be supported by a 25-year Power Purchase Agreement (PPA), under which the project will sell 300 MW of power to Pacific Gas & Electric Company, and a 20-year PPA, under which the project will sell 250 MW of power to Southern California Edison.
The LPO issued Abengoa Bioenergy Biomass of Kansas (Abengoa) a $132 million loan guarantee in 2011 to support construction of a biorefinery. The plant – the nation’s third commercial-scale cellulosic ethanol biorefinery – became operational in 2011. Abengoa’s biorefinery is designed to produce up to 25 million gallons per year of fuel from non-edible corn stalks, stems and leaves that are harvested within a 50-mile radius of the plant.
In July 2010, the LPO issued a $117 million loan guarantee to First Wind to facilitate the construction of its 30 MW Kahuku Wind Power project located in Hawaii. Completed in 2011, this project incorporates wind power into the State’s island-based, relatively small power grid.
Statius of Open Solicitations
LPO has opened additional rounds of funding for Renewable Energy and Efficient Energy Projects and Fossil Energy Projects, and designated the following due dates throughout 2015 to allow sponsors to ready their submissions:
Round 5- May 13, 2015
Round 6- July 15, 2015
Round 7- September 16, 2015
Round 8- November 18, 2015
Round 9- December 30, 2015
Navigating the Application Process
Proposed projects must meet the eligibility criteria in the LPO’s solicitations, and applications must be submitted in the proper form. DOE encourages interested sponsors to discuss their proposed projects with LPO program staff before submitting applications.
Navigating the application process and structuring projects in order to qualify under the LPO program may be complex and time consuming. Members of our Energy Finance Practice are available to guide you if you have questions or require assistance.
Special thanks to Morgan Gerard who assisted in the preparation of this post.