Department Of Energy Announces Loan Guarantees For Commercial Technology Renewable Energy Generation Projects

Monday, November 2, 2009 - 00:00

The Department of Energy issued a funding announcement on October 7, 2009, designed to provide a total of up to $750 million in loan guarantee funding under the American Recovery and Reinvestment Act of 2009,1 to support from $4 billion to $8 billion in loans for conventional commercial technology renewable energy generation projects.

To implement the distribution of funding under this loan guarantee program, the Department of Energy ("DOE") announced the creation of its new Financial Institution Partnership Program ("FIPP"). FIPP is a streamlined set of standards designed to expedite DOE's loan guarantee underwriting process and leverage private sector expertise and capital for the efficient and prudent funding of eligible projects.

Under FIPP, proposed borrowers and project sponsors do not apply directly to DOE, but instead work with financial institutions that satisfy the qualifications of an eligible lender. Those financial institutions (referred to in the solicitation as "Lender-Applicants") may then apply directly to DOE to access a loan guarantee. The FIPP solicitation invites application submissions for loan guarantees in support of debt financing for renewable energy systems located in the U.S. that generate electricity or thermal energy using conventional commercial technologies specified below. As in prior loan guarantee programs, qualifying projects in this program may finance up to 80 percent of eligible project costs with debt. However, contrary to those prior programs, under which DOE offered guarantees for up to 100 percent of project debt, under this solicitation the guarantee will be no more than 80 percent of the maximum aggregate principal and interest during a loan term.

Guarantees awarded under this solicitation will require risk sharing between DOE and the participating financial institutions. The latter will be required to share in a significant amount of the risk on a pari passu basis with DOE.

Applications under the Commercial Technology Renewable Energy Generation Projects solicitation are divided into two parts: Part I and a more detailed Part II.

Part I applications may be filed at any time prior to filing a Part II submission and will be reviewed on a continuous basis. Part II application due dates are as follows: November 23, 2009, January 7, 2010, February 22, 2010, April 8, 2010, May 24, 2010, July 8, 2010, August 23, 2010, October 7, 2010, November 22, 2010, January 6, 2011.

Applications received during earlier rounds of Part II review will receive priority of review.

Eligible Commercial Technology Renewable Energy Generation Projects

This loan guarantee solicitation implements authority granted to DOE in Title XVII of the Energy Policy Act of 2005 ("EPACT05") and Section 1705 of that Act, which was added by the American Recovery and Reinvestment Act of 2009 (the "Stimulus Package Act"). Guarantees are subject to DOE's existing loan guarantee regulations, published at 10 C.F.R. Part 609.

The solicitation seeks loan guarantee applications for conventional renewable energy generation projects2 authorized under Section 1705(a)(1), including the following:


Wind


Closed- and open-loop biomass


Geothermal


Landfill gas


Trash-to-energy


Solar


Hydropower, including incremental hydropower

Additionally, a project must meet three threshold criteria: (1) the proposed facility must constitute a "commercial technology;" (2) the project must commence construction on or before September 30, 2011; and (3) the project debt must obtain a credit rating from a nationally recognized rating agency of a credit rating equivalent of BB or higher.

Under this solicitation, a "commercial technology" is a technology in general use in any commercial marketplace, within or outside the U.S., at the time the application is accepted by DOE. A technology is in "general use" if it has been installed and is being used in three or more commercial projects in the same, or a substantially similar, general application as in the proposed project, and has been in operation in each such commercial project for a period of at least two years. Those projects can be located in any commercial marketplace within or outside the U.S. The two-year period of operation is measured, for each project, starting on the in-service date of the project or facility employing that particular technology.

Financial Institution Partnership Program

The FIPP, which implements part of Section 1705 for this solicitation, is a set of additional standards and procedures, primarily focused on qualifying financial institutions, designed to assist DOE in implementing the Section 1705 program as quickly and prudently as possible. In general, the FIPP is intended to expedite the loan guarantee process and expand senior credit capacity for the efficient and prudent financing of eligible projects under this solicitation. Under FIPP, proposed borrowers and project sponsors work with Lender-Applicants that satisfy the qualifications of an eligible lender, and the Lender-Applicants then apply directly to DOE for a loan guarantee.

A Lender-Applicant is a financial institution, or one of a group of financial institutions chosen to represent that group for this purpose, that takes the lead role in developing the overall financial structure of the proposed project in the usual manner of an underwriter of a senior credit facility. The Lender-Applicant must also demonstrate the proposed plan complies with the objectives and parameters for use of the guarantee under this solicitation. Lender-Applicants must meet certain qualifications intended to ensure that each such financial institution is demonstrably able to fulfill its expected role.

When a loan guarantee under this solicitation is issued at closing, the Lender-Applicant becomes a Holder of the loan guarantee obligation, owning a direct interest as a lender in the guaranteed obligation.

Competitive Review Process

Applications under this solicitation are divided into two parts: The Part I submission provides the DOE with a summary level description of the project and its creditworthiness, project eligibility, financing strategy and compliance of the proposed funding plan with the objectives and parameters of this solicitation, project schedule, and the Lender-Applicant's eligibility. The subsequent Part II submission consists of the complete, detailed application.

Part I applications may be filed at any time prior to filing a Part II submission. Ten rounds of review are scheduled for Part II submissions. Part I and Part II submissions will be systematically reviewed on a continuous basis as soon as they are received. This means Lender-Applicants making submissions in earlier rounds of Part II reviews will enjoy a first mover's advantage with regard to order of priority of review.

DOE's assessments of the Part I submissions are designed to provide Lender-Applicants information to assist in their decisions on whether to proceed with the cost and effort of completing a full Part II application. DOE's overall objective in reviewing the Part I submissions is to assess the project eligibility threshold criteria described above, and to notify Lender-Applicants about whether they qualify. DOE also aims to identify and accelerate the review of projects with substantial progress and readiness to proceed.

After receiving DOE's assessment on the Part I application, a Lender-Applicant can decide whether to proceed with Part II. If a Lender-Applicant decides to proceed, the Lender-Applicant must update the information provided in its Part I application and submit the updated Part I with the Part II application.

Part II applications may be submitted at any time following DOE's notification to the Lender-Applicant regarding its Part I submission. All Part II submissions filed with DOE during any submission round will be competitively evaluated against all other filings submitted during that round. Part II submissions will be evaluated based on the project's readiness for financing, financial strength, and the ability of the Lender-Applicant and the proposed Holders to execute successfully the financing plan and funding plan for the loan guarantee.

Additional details regarding this loan guarantee solicitation and the FIPP will be forthcoming in future guidance to be posted by the DOE to www.recovery. gov, www.energy.gov/recovery and www.lgprogram.energy. gov.

The loan guarantees for conventional commercial technology renewable energy generation projects can create critical opportunities for your company. For further information on the loan guarantee program and for assistance in applying for this funding, please contact any of the authors of this article.1 President Obama signed The American Recovery and Reinvestment Act of 2009 (herein, the "Stimulus Package Act") on Tuesday, February 17, 2009. For the text of the Stimulus Package Act, as approved by Congress, and the related Conference Report, see http://www.rules.house.gov/bills_details.aspx? NewsID=4149. The Stimulus Package Act provides over $34 billion in funding for improving national systems of energy production, distribution, and transmission.

2 Manufacturing, transmission, and leading edge biofuels projects will not be funded under this solicitation, although DOE anticipates issuing an additional FIPP loan guarantee solicitation in the future to support commercial renewable manufacturing projects eligible under Section 1705 of Title XVII.

Arthur W. Adelberg, Partner, has 30 years of experience representing infrastructure companies and other market participants in the energy and transportation industries in regulatory and litigation matters. Gregory J. Blasi, Partner, practices in the corporate and securities areas, primarily involving the energy industry . Michael A. Stosser, Of Counsel, is an energy attorney with 30 years of experience in many aspects of the energy industry, from traditional energy - natural gas, oil and power - to renewable and alternative energy and clean tech.

Please email the authors at awadelberg@daypitney.com, gblasi@daypitney.com or mstosser@daypitney.com

with questions about this article.