Loans Available

The "bridge to bankability" is the phrase DOE's Loan Programs Office personnel cites to explain what it offers to entrepreneurs looking to bring innovations to commercial viability. After all, low-cost debt financing of technologies that may not otherwise reach commercial scale is often the key to success.

But there is more, especially for the energy and utilities sector, as explained here by DOE's Leslie Rich, as the Inflation Reduction Act created a new program called the Energy Infrastructure Reinvestment Program. That aims to help finance the clean energy transition.

There are many ins and outs of federal loans programs available in the innovation and utilities areas, and to suss out the complexities, Public Utilities Fortnightly's Steve Mitnick sat down with Rich for clarity. Listen in.

PUF's Steve Mitnick: What is the role of the Loans Programs Office, and what are you trying to accomplish this and next year?

Leslie Rich: The role of the Loans Programs Office is to provide low-cost debt financing to technologies that may not otherwise reach commercial scale. We call it the bridge to bankability.

You take a technology that's proven, but not yet at commercial scale. They might be able to access the private equity market and do equity raises but can't go to the commercial debt market yet.

For those kinds of projects, the Loan Programs Office can step in, be a lender at a lower cost than the commercial debt markets, and help these technologies get to commercial scale. That's one kind of program.

That's not necessarily the most relevant one for many of the public utilities however, because while some public utilities are doing innovative technology deployment, many are doing non-innovative technology deployment.

That's where the Inflation Reduction Act created a new program called the Energy Infrastructure Reinvestment Program, which is a powerful program. It does not require innovative technologies but is there to help finance the energy transition at a lower cost to customers. That is the goal.

PUF: How big an impact can it have in getting companies to move ahead because you can do that, and even the commissions too?

Leslie Rich: The program can scale up to two hundred fifty billion dollars of lending authority. That's a big impact. It can loan up to thirty years, depending on the life of the asset, and can provide financing at a rate as low as U.S. Treasuries plus three eighths of a point. Very low-cost financing of long-term debt.

Those benefits have to flow through to regulated customers. Now, if it's an unregulated project, let's say for example, a merchant coal plant has retired and is being replaced with solar and storage. That low-cost financing benefit can accrue to the developer and be the difference between the project economics working or not.

PUF: Give an example of the kind of projects that your office can make happen, push over the line, because of this low-cost, long-term debt financing.

Leslie Rich: Utilities have access to the capital markets. They can raise debt and raise equity, and we're not trying to push out the commercial banks by any means.

However, because we can offer debt at very low-cost terms, it is attractive to utilities because we know that utilities' capital plans are not constrained by the need for system improvements, they are constrained by customer bills. To the extent that our financing can help lower the customer bill impact, then the utilities can do more of their planned capital improvements.

A utility could come to us and say, "We have an approved IRP in our state to shut these resources and replace them with a combination of wind, solar storage, transmission, and/or demand-side programs. Can the Loan Programs Office help finance all of that?" Those are the applications we are now considering and it's exciting.

PUF: What's the process?

Leslie Rich: The application process consists of several components. There's a part one application, which is basically where a company writes up its proposal, "This is what we plan to do, and this is why this project meets the eligibility criteria."

We can generally review that quickly, within sixty to ninety days, and let the applicant know if the project they have in mind could be eligible.

Then we go into the part two application, we say, "We think your project's eligible. Now we'd like to see technical and financial details." 

At that point, it is time to review the project in detail. We need to know whether there is an EPC contract, and whether you have the materials to build your solar panels, your batteries, et cetera.

Do you have permits? Do you have regulatory approval? Do you have a FEED study, an independent engineer's report? Do you have an offtake agreement if that's relevant for an unregulated project?

Then we look at the economics and ability of the applicant to get the job done. That process can take six to nine months. Next, the application enters into due diligence, where outside experts are brought in to review the legal, financial, and technical details.

Finally, it goes to an interagency review and ultimately loan approval. So, soup to nuts, we're aiming for nine to twelve months for applications to be approved.

For this Energy Infrastructure Reinvestment program, because it does not require innovative technology, we don't have to spend the time asking, "Does your solar panel work? Does your lithium-ion battery work?" It's proven.

For the innovative technologies, like offshore wind or green hydrogen or long-duration energy storage or small modular nuclear reactors, et cetera, it might take a bit longer because we need to make sure that the specs prove out from a technical perspective.

PUF: What makes a project eligible or not?

Leslie Rich: There are certain criteria that need to be met. One is greenhouse gas reduction. Another is a community benefit. Is the community supportive of the project that's being done? 

A third is for the Energy Infrastructure Reinvestment Program, you have to take either operating energy infrastructure and reduce its greenhouse gas intensity or take retired energy infrastructure and replace it with a cleaner resource. That's where we spend a lot of time thinking about this nexus between retired energy infrastructure and replacement.

How that can play out is, take the example I gave on an IRP, where a utility might say, "Over the next ten years, I plan to retire legacy fossil units and replace them with a variety of resources."

What I always ask a utility is, "Why are you spending this capital? Are you spending it because other resources are retiring? If so, is there a relationship between what you're building and what you're retiring? If so, then that's likely to be eligible." 

Some examples for the utility sector could be for the gas utilities' gas pipeline replacement programs. Because that's taking operating energy infrastructure and reducing methane leaks. Those are multiyear programs, multibillion-dollar programs that get regulatory approval, and we can finance that at a much lower cost.

Also, electric transmission reconductoring. Transmission is one of the biggest bottlenecks to getting renewables deployed. Can we take our existing transmission backbone and make it more efficient, get greater throughput on our existing rights-of-way by doing reconductoring and voltage upgrades on our existing transmission system?

Those are examples of operating energy infrastructure becoming more efficient. Then, you have the replacement scenario where, as I said, you could be replacing it with wind, solar storage, transmission, or virtual power plants.

An interesting business model is taking retired or soon-to-be-retired merchant fossil units and using the point of interconnection and putting on solar or storage, for example. Think of what a benefit that is for the community.

You're taking a blighted coal plant that's been sitting since 1950. We can fund remediation of the site plus repurposing. That's powerful.

PUF: It seems that eligibility criteria are focused on substitution or transformation, as opposed to something brand new. If something's brand new, it wouldn't be eligible?

Leslie Rich: Here's an interesting twist on that. Let's take SMRs. There are some places where utilities are saying, "I want to retire a coal plant and put in an SMR." 

The SMR would clearly be eligible under the Innovative Clean Energy program, but it could also be eligible under the Energy Infrastructure Reinvestment Program because you're building that SMR to replace your retiring fossil unit. In some instances, at the exact same location.

Think of what you have at that location. You have transmission, water, rail, a workforce that you can repurpose, and a community that would welcome redevelopment. There's an example where innovative technology could also be eligible for the Energy Infrastructure Reinvestment Program.

PUF: Are there challenges? Maybe some utilities think, "We're good. We know how to finance."

Leslie Rich: That's the initial knee-jerk reaction from everybody. Other than Georgia Power with the Vogtle nuclear plant, most utilities haven't previously worked with the Loan Programs Office, so there's a bit of skepticism.

Utilities will say "I have access to the capital markets, why do I need you?" The idea is to the point I made, which is that customer bills are the constraining factor, not ideas of where to deploy capital.

If that's the fact, and we can help you lower your interest costs by one hundred basis points, two hundred basis points, depending on your cost of capital over a multibillion-dollar, multiyear capital program, then that accrues to the benefit of customers.

PUF: How are you getting the word out? If you see a utility exec walking down the street, you grab him or her and say, "Hey, let me talk to you"?

Leslie Rich: I do, and they will attest to that. I have spoken to most utilities at least once. In many cases, I've spoken to them a dozen times and I present at the EEI meetings.

Last year, I presented to the CFO Committee, for example, and on the main stage. I present at NARUC. I present at NASUCA. We do teach-ins for state commissions. We've done quite a few.

Today, one of my colleagues is at one of the state commissions. She's spending the day going from commissioner to commissioner. We want to educate the commissions, the intervenors, and utilities.

My colleagues and I present at many industry conferences to a variety of industry groups. We speak about the loan programs as well as technological innovations that may be most relevant and of interest, including green hydrogen, advanced geothermal, long-duration energy storage, advanced nuclear, offshore wind, alternative fuels, et cetera. Our director, Jigar Shah, has a high profile in terms of communication and outreach.

PUF: Where will you be a year or two years from now? Will there be a number of these transactions, and companies and communities benefiting from the program?

Leslie Rich: Absolutely. The good news is we already have quite a few applications in that are under review. Some of the utilities are working through the application process.

There are many utilities I'm speaking to every day that are asking questions with their operations people, finance team, treasury team, federal affairs team. "What about this? What about that?"

There's a tremendous amount of interest. Not every utility is going to participate in the program, and that's okay, but lots are, and I'm heartened by that.

The conditional commitment needs to be received by September 2026, and the full loan proceeds need to be dispersed by 2031. My key message is to get your applications in the door now. Let's go.

PUF: What's your last word?

Leslie Rich: Utilities tend to talk to their peers. It's a cautious bunch. But I know now that there is enough application activity underway that they're already talking to each other. I could tell that at the last NARUC event, during the cocktail reception, when I saw one utility after another.

They said, "Oh, I saw you were talking to so-and-so." And I said, "Look, I'm talking to everybody." Everybody is welcome. These are not grants.

Grants are competitive. There's a limited amount of money. Loans from the DOE are not competitive. It's first come, first serve, and we have plenty of room.

My key message is, if you think this program could be right for you, or if you're just curious, please engage with me and we'll discuss project eligibility requirements. If it's not right for you, that's okay too, but at least get the information you need to make the best possible decision for your customers, regulators, and therefore your investors.