Federal infrastructure bill opens dozens of new options
U.S. energy companies have a unique opportunity to bring renewable power to the people, thanks to an infusion of capital from the federal government.
The $1 trillion infrastructure bill, passed by Congress and signed by President Joe Biden last November, includes an additional $62 billion for the Department of Energy (DOE) to invest in clean energy solutions.
“They’re looking to deploy renewables, at commercial scale, so that they can be reliable, affordable, and reach people in most populated areas of the country but also in the remote areas of our country,” said Kathleen Sifer, Grant Thornton managing director for Public Sector. Sifer was one of the panelists in a recent Grant Thornton webcast about federal loan programs now available for the energy industry.
Not only are clean energy generation technologies a priority, so are improvements to the electric transmission system in order to take the load from renewable energy projects, said Frances Nwachuku, Grant Thornton director for Public Sector. The transmission grid will have to be upgraded and efficient in order to deliver electricity from renewable energy sources – high voltage transmission lines are key for moving power from utility-scale solar, wind, and other renewable source Nwachuku said.
Several trends characterize the energy industry today, said Phil Kangas, Grant Thornton principal and Natural Resources and Mining Leader.
- Carbon-based electrical generation, such as coal, is on the decline and the U.S. Energy Information Administration (EIA) predicts that will continue. The reduction is being more than offset by a surge in development of renewable energy sources – solar, wind, biomass and “all shades of renewable-type energy,” Kangas said. At the same time, though, traditional energy companies are not disappearing; instead, they are diversifying. In February, the first Biden administration wind farm leases off the coast of New York and New Jersey raised “an unprecedented level of interest and dollars,” including some from firms backed by oil companies, Kangas said.
- Solar, wind, hydropower and biofuels will continue to grow through 2022 and 2023, and will receive support from the federal government. Renewables will jump from about 5% of the energy mix in 2012 to 17% in 2023, according to the EIA.
- In the automotive industry, a bigger transition to electric vehicles will be critical in order to reach net-zero carbon emissions by 2050. Rising gasoline prices, blamed in part on Russia’s attack on Ukraine, could help fuel that switch.
“All of these are pushing us in the direction of innovation,” Kangas said.
Tapping into new options
With the additional $62 billion, the Department of Energy has established a series of new programs – about 60, in all – and they focus on infrastructure, climate change and supply chains, Sifer said. The programs include:
- A grid infrastructure office to modernize the country’s electric grid
- State and community programs to encourage renewable fuels
- Office of manufacturing and energy supply chains to research lithium batteries and the minerals needed to produce them
- A joint office with the U.S. Department of Transportation on vehicle battery charging installations
Opportunities abound for loans or loan guarantees to help finance these projects. The funds come with attractive terms -- low interest rates and a lengthy payoff period. Through the Title 17 program, for example, the interest rate is comparable to interest on 10-year Treasury bills plus 2%, which currently amounts to 3.98% for a 10-year loan. Meanwhile, some of the programs allow the loans to be financed over as long as 35 years. They offer access to capital for research and development, and for demonstration projects, Sifer said.
The federal programs “really fill the financing gaps where private-sector financial institutions cannot or are not willing to,” said Nwachuku, formerly a director with the DOE’s loan programs office. “Their role is, therefore, to catalyze new markets by providing much-needed capital … They are almost as good as the loans you get from family and friends when you have a great idea, but they have some distinct characteristics. They are larger … and they don’t demand that you pay it back really soon.”
The mission of Title 17 is to accelerate commercial development of cutting-edge, clean energy technologies, and in addition to solar, wind, biomass and hydropower generation, those can include energy storage, carbon capture and advanced nuclear reactors, Nwachuku said. To qualify, the technology must be new and innovative, avoid or sequester greenhouse gas emissions, be located in the U.S. and the technology cannot have been used in more than three U.S. installations.
“These are, therefore, projects with a higher level of technology risk than would not ordinarily be supported by private lenders at commercial scale,” Nwachuku said.
The DOE also offers programs aimed at tribal energy, including electricity generation, transmission, energy storage, energy resource extraction, energy transportation and distributed energy.
Interest surges in large-scale projects
As of Dec. 31, 2021, there were about 77 applications for the federal loan programs, indicating a significant increase in activity over the previous year, Nwachuku said.
One transaction recently approved is a $1 billion loan guarantee to Monolith to expand its Hallam, Nebraska facility, which is the first commercial-scale project to use methane pyrolysis technology to convert natural gas into carbon black – used in products such as tires and traditionally petroleum-based – and clean hydrogen.
Another $8.4 million in grants have gone to projects in Texas, Oklahoma and Colorado seeking to produce geothermal energy and heat from abandoned oil and gas wells. Previous recipients of loan guarantee from the Loan Programs Office include Abengoa Bioenergy’s commercial-scale plant in Kansas that converts crop waste into clean fuel; Shepherds Flat, one of the world’s largest wind farms, in Oregon; and in Georgia, Plant Vogtle, the first nuclear power plant to be built in the U.S. in more than 30 years, Nwachuku said.
There are certain requirements that accompany the federal loans, such as environmental standards and Freedom of Information Act disclosures, as well as wage requirements for subcontractors to pay their employees. However, “the benefits of these programs outweigh any considerations that one might have,” Nwachuku said.
Some words of advice for companies seeking government financing: Do your homework first. Understand the requirements of the programs that interest you and determine which terms are negotiable and which ones are not, said Nwachuku. “It truly is a partnership working with the government, (and) one that works,” she said.
Sifer, a former banking industry executive, said building relationships is a key factor in any collaboration. “These programs are ready and willing to support organizations. Their mandate is to help advance in the various areas … our country to be more competitive,” she said.
The webcast is accessible at “Federal loan program opportunities for the energy and automotive industries.”