Loan Programs Office

6 Answers to Better Understand Distributed Energy Projects Loan Guarantees

June 27, 2016

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Distributed Energy Projects are currently driving innovation and transforming U.S. energy markets. Demonstrating the market viability of technologies such as rooftop solar, energy storage, smart grid technologies, methane capture for oil and gas wells, and decentralized efficient electrical generation, transmission, and distribution technologies would create economic opportunity, strengthen energy security, and reduce greenhouse gas emissions.

In August 2015, the Department’s Loan Programs Office (LPO) released supplements to its existing approximately $4.5 billion Renewable Energy and Efficient Energy (REEE) Projects and $8.5 billion Advanced Fossil Energy Projects solicitations to provide guidance on the kinds of Distributed Energy Projects and project structures it can support under the Title XVII loan guarantee program. To address the interest we have received, we wanted to give answers to six questions about loan guarantees for Distributed Energy Projects. Applicants should review the final solicitation and all supplements before submitting an application.

1. How do Distributed Energy Projects fit in with LPO’s other Title XVII Innovative Clean Energy Projects loan guarantee solicitations?

In August 2015, LPO released supplements to its existing approximately $4.5 billion Renewable Energy and Efficient Energy (REEE) Projects and $8.5 billion Advanced Fossil Energy Projects solicitations to provide guidance on the kinds of Distributed Energy Projects and project structures it can support under the Title XVII loan guarantee program. This was not a new solicitation, nor did it provide loan guarantee authority that is dedicated exclusively for Distributed Energy Projects.

An applicant with a Distributed Energy Project would apply to either the Advanced Fossil Energy Projects or REEE Projects solicitation in the same manner as any project that is an eligible project in connection with Title XVII, such as a centralized energy project. Read more about Title XVII open solicitations.

2.If I am considering a single application for a loan guarantee in connection with financing a Distributed Energy Project, what should I know about the technologies that can be supported or how the various sites should be connected?

To be eligible for a Title XVII loan guarantee, a project (whether distributed, centralized, or other) must meet all of the following requirements:

  • Be an “Eligible Project” as defined in an open solicitation in the technology area described therein.
  • Employ new or significantly improved technologies as compared to commercial technologies in services in the United States at the time the guarantee is issued.
  • Avoid, reduce, or sequester anthropogenic emissions of greenhouse gases.
  • Be located in the United States (foreign ownership or sponsorship of the projects is permissible as long as the projects is located in one of the fifty states, the District of Columbia, or a U.S. territory).
  • Provide a reasonable prospect of repayment.

As defined in the supplements of August 2015, Distributed Energy Projects are comprised of installations of facilities:

  • Utilizing a single technology, or a defined suite of technologies;
  • At multiple sites;
  • Deployed pursuant to a master business plan.

Loans would not support multiple, unrelated projects.

Learn more about Title XVII eligibility.

3. I am considering an application to LPO for my Distributed Energy Project.  The project will be developed in several phases, each of which can operate independently of the others.  I would like the guaranteed loan to be large enough to support all phases of the project, but I would like to pay the credit subsidy cost associated with the loan guarantee in installments, concurrent with the availability of the portion of the guaranteed loan applicable to each phase.  Is it possible to pay the credit subsidy cost in such a manner?

Title XVII requires that credit subsidy cost, a reserve established by the U.S. government to cover the risk of estimated shortfalls in loan repayments be paid at the time of issuance of a loan guarantee, which occurs at closing of a guaranteed loan.

Potential borrowers may wish to secure a guaranteed loan large enough to support all phases of the project, but pay the credit subsidy cost associated with the loan guarantee in installments, concurrent with the availability of the portion of the guaranteed loan applicable to each phase. 

For a qualified project that will be developed in phases, and upon receiving a request from an applicant to pay the credit subsidy cost for each phase at the time the guaranteed loan is made available for a phase, DOE would likely issue a separate conditional commitment applicable to each phase of the project (in effect, each phase would be financed with a separate guaranteed loan). In such an instance, at the closing of the guaranteed loan associated with a phase of the project, only the associated credit subsidy cost would be payable. 

For more information, please visit Title XVII Frequently Asked Questions.

4. How will requesting to pay the credit subsidy cost for each phase of a Distributed Energy Project at the time the guaranteed loan is made available for a phase affect the overall credit subsidy cost?

In such an instance, at the closing of the guaranteed loan associated with a phase of the project, only the associated credit subsidy cost would be payable. Credit subsidy cost is primarily influenced by two key variables calculated at the time of closing for each guaranteed loan: Probability of default; and the “recovery” after default. Therefore, the credit subsidy cost could increase or decrease for each phase of a Distributed Energy Project depending on those variables at closing.

5. If a Distributed Energy Project utilizes a suite of technologies, must each technology meet the definition of new or significantly improved as required by Title XVII?

To be eligible for a Title XVII loan guarantee, an applicant must demonstrate that its project employs new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued. Projects using a defined suite of technologies must either employ a new or significantly improved technology or demonstrate how the project’s use of the suite of technologies is new or significantly improved.

6. If a Distributed Energy Project is to be deployed in phases, must the locations for each phase be identified to receive a guaranteed loan?

For LPO to underwrite a guaranteed loan and develop a term sheet, the location and other necessary underwriting details must be fully identified for at least one phase of the project. LPO and the borrower would agree to conditions precedent concerning the types of locations and other project details when closing each guaranteed loan for future phases.  Any changes to the initial phase in subsequent phases of the project, including location, would be subject to LPO review. More standardized and replicable phases of a Distributed Energy Project would likely improve LPO’s ability to more quickly review each phase.