On July 29, the Department of Energy (DOE) issued two solicitations for roughly $30 billion in loan guarantees: one for innovative technologies and a second, smaller solicitation for transmission projects. The solicitations are generally similar to those issued by DOE in 2008 under the Title XVII loan guarantee program, but there are some important differences designed to enable both DOE and the applicants to understand more quickly the likelihood a guarantee will be granted. Reportedly, in the Fall, DOE will offer a further loan guarantee opportunity to projects employing established renewable energy technologies that have bank financing in hand.
Innovative Technologies Solicitation
The innovative technologies solicitation draws on $2.5 billion in American Recovery and Reinvestment Act (Recovery Act) funds (of which $500 million is dedicated to biofuels) and $8.5 billion in non-Recovery Act loan guarantee authority. The $2.5 billion in Recovery Act funds will be used to back the credit default risk of projects that qualify under Recovery Act (see the credit subsidy cost discussion below) and, therefore, will translate into loan guarantee authority many times greater than the $2.5 billion appropriation. In total, this solicitation may provide over $20 billion in loan guarantees, although the precise amount will depend on how the credit risk of the Recovery Act loan guarantees are scored.
Financing Limitations. By statute, guaranteed debt may not exceed 80% of project costs. Applicants are expected to make a “significant” equity contribution, although a precise amount is not provided.
Eligible Projects. As before, to be eligible, projects must employ new or significantly improved technologies, as compared to commercial technologies in service in the United States, and they must avoid, reduce, or sequester emissions of greenhouse gases or other air pollutants. There are also two new requirements for eligibility that may reflect DOE’s view about the greatest sources of risk in the applications it has reviewed to date: projects must have an identified project site and, while the technology must be innovative, it must have been successfully demonstrated at both pilot and demonstration scale and be supported by at least six months of operational and performance data, including at least 1,000 hours of operational data.
Having met these criteria, a project is eligible if it fits in one the following nine categories: (1) Alternative Fuel Vehicles; (2) Biomass; (3) Efficient Electricity Transmission, Distribution and Storage; (4) Energy Efficient Building Technologies and Applications; (5) Geothermal; (6) Hydrogen and Fuel Cell Technologies; (7) Energy Efficiency Projects; (8) Solar; and (9) Wind and Hydropower. For each of these categories, both manufacturing and stand-alone projects may qualify.
Timing. The application is broken into two parts, with the second part coming roughly two and a half months after the first – after DOE has given the applicant a preliminary assessment of the strength of the project, thus affording the applicant the opportunity to withdraw from the process before incurring the burden and expense of a full submission. The first part of the application requires summary-level detail and only a partial payment of the application fee. The second part is more involved. The preliminary credit assessment, which is a long lead time task that many applicants found particularly costly and burdensome under DOE’s prior loan guarantee solicitations, need only be submitted with Part II. DOE will select projects for due diligence only after receipt of a completed Part II application.
The competition is broken into seven rounds, as listed below. The solicitation notes that applicants in earlier rounds will receive a “first mover’s advantage” in terms of priority of review.
For table please click here
Credit Subsidy Cost. As noted above, this solicitation draws on both Recovery Act and non- Recovery Act funds. The non-Recovery Act version of the loan guarantee program must remain budget-neutral, meaning that non-Recovery Act loan guarantee recipients must pay an upfront “credit subsidy cost” that offsets the net present expected value of their default risk. Projects that qualify under Recovery Act (referred to as Section 1705-eligble projects), however, need not pay their credit subsidy cost. Projects qualify under Recovery Act if they (1) are for renewable energy, transmission, or leading edge biofuels, and (2) will commence construction before September 30, 2011.
Fees. All applicants must pay an application fee between $75,000 and $125,000, depending on the size of the project (25% is due with the Part I application). Successful applicants must pay a Facility Fee (between 50 and 100 basis points of the guaranteed amount by closing) and a Maintenance Fee (between $50,000 and $100,000 per year).
The transmission solicitation differs from the innovative technologies solicitation in a few ways. First, the solicitation is not for innovative technologies. Second, the solicitation is backed only by Recovery Act funds ($750 million), so successful applicants must commence construction by September 30, 2011.
Financing Limitations. As above, debt guarantees are limited to 80% of project costs and developers must make a “significant” equity contribution.
Eligible Projects. To be eligible, projects must meet at least one of the following criteria:
- The project involves new or upgraded lines of at least 100 miles of 500 kilovolts (kV) or higher or 150 miles of 345 kV;
- The project has at least 30 miles of transmission cable under water;
- The project has a high voltage direct current (DC) component;
- The project is a major interregional connector;
- The project is designated as a National Interest Electric Transmission Corridor by DOE;
- The project is associated with offshore generation, such as open ocean wave energy, ocean thermal, or offshore wind;
- The project mitigates a substantial reliability risk for a major population center; or
- A set of improvements to an integrated system within a State or region that together aggregate to meet the criteria in #1 above.
Timing: As with the innovative technologies solicitation, the application is broken into two parts. However, unlike the innovative technologies solicitation, there is only one possible deadline for Part I of the application: September 14, 2009. Part II of the application may be submitted October 26, 2009, December 10, 2009, or January 25, 2010.
Fees: All applicants must pay an application fee of $800,000 ($200,000 is due with the Part I application). Successful applicants must pay a Facility Fee of 50 basis points of the guaranteed amount by closing, and a Maintenance Fee (expected to be between $200,000 and $400,000 per year).