The National Environmental Policy Act (NEPA) requires Federal agencies to consider the environmental impacts of their actions in their decision-making process.
For the U.S. Department of Energy’s Loan Programs Office (LPO), when an applicant proposes a project for a potential loan or loan guarantee, the proposed project establishes the scope of the environmental review pursuant to NEPA and the associated regulatory agency consultations that are required of Federal agencies (e.g., reviews and consultations pursuant to the Endangered Species Act and the National Historic Preservation Act).
Specifically, the scope of the environmental review is based on the activities associated with construction, including initial site development activities, startup, and commissioning, as well as activities associated with the operation and in some cases decommissioning. Therefore, a key step in LPO’s environmental review process is to establish the environmental baseline conditions before any construction activities have been initiated.
Determining the Baseline Conditions for the NEPA Review
The condition of the project site prior to any construction or site development activities is used by LPO to establish the baseline conditions for the NEPA review (i.e., the affected environment), as well as to perform any regulatory agency consultations (e.g., Section 7 consultations under the Endangered Species Act and Section 106 consultations under the National Historic Preservation Act), which are required by Federal agencies. Projects that have initiated construction or site development activities (or have ongoing construction activities) at a project site may limit or preclude LPO from completing its review pursuant to NEPA and/or prevent LPO from completing its required regulatory agency consultations (see “Contacting LPO Before Working on the Project Site” for additional information). If considering LPO financing, LPO recommends potential applicants contact the office before initiating construction or site development activities.
Initiating the NEPA Review Process
The NEPA review process typically begins when an Applicant has been invited into the due diligence phase of loan or loan guarantee underwriting. "Due diligence'' is a broad term that may include anything from a robust examination of the technology and the specific target market, to an analysis of the financial model and plan for the project. LPO engages in due diligence throughout the review process, beginning before conditional commitment all the way through financial close. In some cases, LPO has started the NEPA review earlier for projects that are expected to have a longer process. That determination is made on a case-by-case basis.
Contacting LPO Before Working on the Project Site
Once the due diligence phase has begun, applicants with projects that are considering site development activities or commencement of construction during the LPO environmental review process are encouraged to consult with LPO concerning such activities. LPO will review the proposed activities in accordance with 40 CFR 1506.1 (Limitations on actions during the NEPA process) and notify the applicant that although privately financed construction-related activities may proceed at the site during the NEPA review process, the Project Sponsor and Borrower are proceeding at their own risk. If any such activities undertaken have an adverse environmental impact or limit the choice of reasonable alternatives to the proposed action under consideration for a loan or loan guarantee, any portion of the facility associated with such actions may be excluded from the project, resulting in any associated costs being excluded from eligible project costs. This could also result in LPO’s inability to issue a loan or loan guarantee.
Leveraging LPO’s Long-Term Partnership
Potential applicants are encouraged to engage directly with LPO for no-fee, no-commitment consultations to discuss their proposed project, understand the NEPA process, and learn about LPO's processes before formally applying.
To facilitate a productive consultation, all potential applicants are encouraged to include information summarizing their project’s goals, technology, financing needs, and timing. During the consultation, LPO will help determine whether their project may be eligible for financing.
Once an application has been formally submitted, LPO continues working with borrowers as committed partners in the long-term success of their projects, engaging early in a project’s development and providing valuable financial, technical, legal, and environmental compliance expertise for the lifetime of their loan or loan guarantee.
* This blog is a part of the Getting to Know LPO series, which provides more information about the role of the Loan Programs Office at the U.S. Department of Energy.