DOE Invites Applications For Loan Guarantees To Support Clean Energy Projects And Seeks Comments On Revised Loan Guarantees Regulations

Author:Mr William Malley and Nidhi Thakar
Profession:Perkins Coie LLP

On July 29, 2009, the Department of Energy (DOE) issued two solicitations inviting applications to be filed for loan guarantees under Title XVII of the Energy Policy Act of 2005, as amended by the American Recovery and Reinvestment Act (ARRA). One solicitation makes available $8.5 billion in loan guarantees for innovative renewable energy, energy efficiency, and electricity transmission technologies. The other makes available an unspecified amount of loan guarantee funding for electricity transmission infrastructure projects that use "commercial technologies." Each solicitation requires a new, two-part application and creates a rolling application process that involves multiple rounds of review. The first deadline for submission of Part I applications is September 14, 2009.

On August 7, DOE published proposed regulations that are intended to provide greater flexibility in the determination of an appropriate collateral package to secure guaranteed loan obligations. Specifically, the proposed regulations would delete the requirement for DOE to be "in a first lien position on all assets of the project" and the requirement for DOE to hold "superior rights in and to the property acquired from the recipient of the payment" in the event of a default. The deadline for commenting on the proposed regulations is September 8, 2009.

This Update summarizes key points in the two solicitations, including the amount of funding available, the eligibility requirements, the application process, the application fees, and DOE's review process. This Update also briefly summarizes the proposed changes to the regulations.

The Title XVII Loan Guarantee Program Loan guarantees were originally authorized under Section 1703 of Title XVII of the Energy Policy Act of 2005 (EPAct), which provides loan guarantees for projects that facilitate accelerated commercialization of energy efficiency, renewable energy, and advanced transmission and distribution technologies. Projects eligible for loan guarantee funds under Section 1703 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.

DOE implemented the Loan Guarantee program by issuing regulations on October 23, 2007. These regulations, codified at 10 C.F.R. Part 609, contain detailed requirements concerning the application process, the required contents of applications, and the terms on which loan guarantees can be awarded.

Earlier this year, ARRA amended Title XVII to include Section 1705. Under Section 1705, federal funds can be used to pay the "credit subsidy cost" of a loan guarantee, thus reducing costs that would otherwise be borne by the applicant. Only three types of projects are eligible for loan guarantee funds under Section 1705: 1) renewable energy systems projects; 2) electric power transmission systems projects; and 3) leading-edge biofuels projects that employ new or significantly improved technology compared to other commercial technologies currently used in the United States. To receive a loan guarantee under Section 1705, a project must create and retain jobs in the United States and must commence construction before September 30, 2011.

In ARRA, Congress appropriated nearly $6 billion to pay the credit subsidy costs for Section 1705 loan guarantees. Recently, Congress reduced that appropriation by $2 billion to extend the "Cash for Clunkers" program. As a result, approximately $4 billion remains to pay the credit subsidy costs for Section 1705 projects.

The solicitations issued on July 29 are the first solicitations issued for the Loan Guarantee program since the enactment of ARRA. They address different types of projects:

Solicitation DE-FOA-140 invites applications for loan guarantees for renewable energy, energy efficiency, and electricity...

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