DOE Invites Applications For Loan Guarantees For Renewable Energy Projects That Use “Commercial Technology”

Author:Mr William Malley, Arthur T. Kolios and James R. Cowan
Profession:Perkins Coie LLP

On October 7, 2009, the Department of Energy (DOE) issued a solicitation inviting the submission of applications for loan guarantees for "commercial technology renewable energy" (CTRE) projects. This solicitation was issued under Section 1705 of Title XVII of the Energy Policy Act of 2005, as amended by the American Recovery and Reinvestment Act (ARRA).

This solicitation is significant because:

It is the first loan guarantee solicitation open to renewable energy generation projects that use "commercial technology"; and It is the first loan guarantee solicitation issued under DOE's new Financial Institutions Partnership Program (FIPP) and requires applications to be filed by private lenders, not by borrowers or project sponsors. The solicitation establishes a rolling application process with a two-part application and ten rounds of review. Applicants can submit a Part I application at any time. Part II applications can be filed as early as November 23, 2009 and as late as January 2011. To receive a loan guarantee, the project must commence construction by September 30, 2011.

This Update provides an overview of the Section 1705 loan guarantee program and describes important aspects of the CTRE solicitation, including key differences between this solicitation and previous solicitations, eligibility requirements, financial terms, the application process, the role of National Environmental Policy Act (NEPA) reviews, and application fees and expenses.

DOE will be hosting a webinar on this solicitation on Thursday, October 22, at 12:00 Eastern daylight time. To register, click here.

Loan Guarantees Under Section 1705 The DOE is authorized to issue loan guarantees for renewable energy projects and certain other projects under Title XVII of the Energy Policy Act of 2005, as amended (the Act). Loan guarantees can be issued under Section 1703 or Section 1705 of the Act.

Section 1703 was enacted as part of the Energy Policy Act of 2005. Section 1703 authorizes loan guarantees for renewable energy projects and certain other projects. To be eligible for a loan guarantee under Section 1703, a project must "avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gasses" and "employ new or significantly improved technologies" in comparison to commercial technologies currently used in the United States. Section 1703 does not specify a deadline by which projects must commence construction.

Section 1705 was added to Title XVII by ARRA in February 2009. Section 1705 authorizes loan guarantees for only three specific types of projects:

Renewable energy systems, including incremental hydropower, that generate electricity or thermal energy, and facilities that manufacture related components; Electric power transmission systems, including upgrading and reconductoring projects; and Leading edge biofuel projects using technologies at the pilot or demonstration scale that DOE determines are likely to become commercial technologies. These technologies will produce transportation fuels that substantially reduce life-cycle greenhouse gas emissions compared to other transportation fuels. Section 1705 differs from Section 1703 in several ways. Some of the differences are beneficial to the applicant, while others impose stricter requirements. Differences include:

Projects that receive loan guarantees under Section 1705 must employ "commercial technologies." By contrast, loan guarantees under Section 1703 are available only for projects that employ "new or significantly improved technologies." Projects that receive loan guarantees under Section 1705 must commence construction before September 30, 2011—less than two years from now. Thus the ability to implement a project takes on even greater importance under Section 1705. Projects that receive loan guarantees under Section 1705 must comply with the Davis-Bacon Act, which requires payment of the "prevailing wage" to all laborers and mechanics performing work on the project. Compliance with this requirement raises construction costs, which must be accounted for in the application for a loan guarantee. Projects that receive loan guarantees under Section 1705 are not required to pay the "credit subsidy cost" of a loan guarantee. The credit subsidy cost is the cost to the federal government of assuming the risk of default on a loan. For Section 1705 loan guarantees, the credit subsidy cost is paid with federal funds appropriated by Congress in ARRA. By contrast, the borrower must pay the credit subsidy cost at closing for loan guarantees issued under Section 1703....

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