Offshore Wind and Title XVII Innovative Energy Loan Guarantee Program | Vinson & Elkins LLP
To promote offshore wind projects in the United States, the Biden administration recently extended the Title XVII Innovative Energy Loan Guarantee Program (the “Title XVII Program”) to developers, suppliers and other financial partners of wind and offshore transport and has defined certain eligibility criteria for these federal loan guarantees.1
Overview of the Title XVII loan guarantee program
Title XVII is administered by the Department of Energy’s Loan Programs Office (“DOE”), which also administers the Advanced Vehicle Manufacturing Direct Loan Program and the Loan Guarantee Program for tribal energy. With $ 3 billion in loan guarantees now reserved for offshore wind projects, the Title XVII program will provide financial support for the development of offshore wind projects.2 The Title XVII program offers flexibility in the debt products available, offering senior debt secured through direct loans or loan guarantees, and the DOE can act as the sole lender or co-lender with d ‘other financial institutions.
To be eligible for funding, projects must (1) use innovative and commercially scalable technologies; (2) avoid, reduce or sequester greenhouse gas emissions, (3) be located in the United States, and (4) have a reasonable prospect of reimbursement.3 Borrowers interested in obtaining a Title XVII loan or guarantee begin with a free consultation, followed by a formal application process: submission of applications, due diligence and negotiation of terms and conditions, with a fee charged only to the financial closure of the loan guarantee.4
The Biden administration’s announcement represents its first attempt to reinvigorate the Title XVII agenda and take advantage of the Title XVII changes included in the Energy Act of 2020 (the “Act”), which was enacted during the United States. last days of the Trump administration.5 Since the implementation of Title XVII program in 2005, one project has benefited from a loan guarantee: the Vogtle nuclear power project. The inability of the Title XVII program to issue more collateral has been largely attributed to the high costs that borrowers have to bear. These costs include an application fee of up to $ 400,000 and a subsidiary cost of credit fee, which is the net present value of the estimated long-term amount that a loan guarantee will cost the federal government. Credit subsidy charges are used to protect the government against estimated shortfalls in loan repayments.
The Act attempted to address the issue of costs by allowing the DOE to defer payment of fees, including administration fees, until an obligation was financially closed. The Act also authorized a credit of $ 25 million for administrative expenses not covered by fees collected from borrowers. It remains to be seen whether Congress will appropriate the funds, but it wouldn’t be surprising if a credit were included in the Biden administration’s next infrastructure bill.
A second issue facing the Title XVII program is the requirement that borrowers use new or significantly improved technology. The DOE has determined that to be considered new or significantly improved, a technology must have been deployed in no more than three commercial applications in the United States at the time the warranty is issued. The Act attempts to broaden the scope of eligible projects by clarifying that projects may use elements of commercial technologies in combination with new or significantly improved technologies. It remains to be seen whether Congress and the Biden administration will attempt to ease the eligibility requirements further.6
Eligible offshore wind projects
The DOE Loan Programs Office has released an offshore wind ‘fact sheet’ as part of the Biden administration’s plan to support the offshore wind industry,7 recognition by the DOE that offshore wind technologies are ready for commercial deployment and have an important role to play in the American energy transition. As part of the fact sheet, the DOE invited borrowers to begin the application process. Borrowers in the offshore wind supply chain can seek financing for projects, including industry-wide infrastructure projects to support offshore wind development in the United States, such as foundation fabrication facilities. of turbines, improvements to quayside and depot yards and other port infrastructure, blade and turbine manufacturing facilities, and construction of wind turbine installation vessels and service operating vessels. To be eligible, projects must deploy innovative technology, as described above.
1 Press Release, The White House, FACT SHEET: Biden Administration Relaunches Offshore Wind Energy Projects to Create Jobs (March 29, 2021).
2 Spotlight on RESP technology: offshore wind energy, Renewable Energy and Efficient Energy: Loan Guarantee, Department of Energy Loan Programs Office (March 26, 2021).
3 Further requirements of the Energy Policy Act and its amendments can be found in Title XVII Eligibility of the project, Office of Energy Lending Programs, https://www.energy.gov/lpo/title-xvii/title-xvii-project-eligible (last visit on March 29, 2021).
4 Supra note 2.
5 Energy Act of 2020, Pub. L. n ° 116-260, div. Z, 134 Stat. 2418 (2020).
6 The American Recovery and Reinvestment Act of 2009 created a temporary loan guarantee authority to support the rapid deployment of renewable energy, power transmission and advanced biofuels projects. The Temporary Loan Guarantee Authority has addressed the two main issues of the Title XVII program and can provide a roadmap to the Biden administration. Eligible projects were not required to use new or significantly improved technology, and $ 2.5 billion was allocated to credit subsidy costs. When the temporary loan guarantee authority expired on September 30, 2011, 28 projects had received loan guarantee commitments.
7 Supra note 2.