Alternative Financing Options for Innovative Energy Projects

Holland & Knight LLP

Highlights

  • With the stock and credit markets in turmoil and increasing economic uncertainty from the fallout of the global coronavirus (COVID-19) pandemic, the Trump Administration and Congress are trying to develop a number of legislative packages to stimulate the economy with federal funding programs.
  • A stimulus package with energy-related provisions will not come to fruition for weeks to come; accordingly, it's more important than ever to look at pre-existing alternative options to private sector energy project financing.
  • Several programs exist within the government where companies can turn, including the U.S. International Development Finance Corporation (DFC), Department of Energy (DOE), U.S. Department of Agriculture (USDA) and expanded U.S. Small Business Administration Section 7(a) authority, to support and amplify any private financing strategy for energy-related projects.

With the stock and credit markets in turmoil and increasing economic uncertainty from the fallout of the global coronavirus (COVID-19) pandemic, the Trump Administration and Congress are trying to develop a number of legislative packages to stimulate the economy with federal funding programs. Accordingly, it's more important than ever to look at alternative options to private sector energy project financing. Similar to what occurred during the Great Recession, there is likely to be increased appetite for government programs designed to support energy projects of all types and sizes.

Although negotiations are still underway as of March 25, 2020, the forthcoming COVID-19 stimulus bills, and the supplemental government financing programs over the next two to 12 months, are likely to provide additional funding increases, authority and programmatic flexibility for the programs set forth below. There are several programs within the government where companies can turn, including preexisting U.S. Department of Energy (DOE) and U.S. Department of Agriculture (USDA) programs, the newly established U.S. International Development Finance Corporation (DFC) and recently expanded U.S. Small Business Administration Section 7(a) authority, to support and amplify any private financing strategy for energy-related projects.

This Holland & Knight alert provides additional details on a variety of financing programs currently available to companies looking to fund energy projects.

U.S. Department of Energy (DOE) Loan Programs

Title XVII Innovative Energy Technology Loan Guarantee Program

DOE supports the commercial development of innovative clean energy technologies through its Loan Programs Office (LPO). Authorized by the Energy Policy Act of 2005, the Title XVII Loan Program enables the DOE to issue loans ranging from several million to more than $1 billion for advanced fossil, advanced nuclear, renewable energy and energy efficiency projects that employ "new or significantly improved technology." And in 2018, LPO announced an open solicitation for energy projects on tribal lands. These solicitations remain open and are actively seeking qualified applicants as a result of continued congressional support and new programmatic direction.

Under Title XVII program authority, the DOE can guarantee loans for up to 80 percent of total project costs for eligible proposals. As of this writing, LPO maintains $25.9 billion in loan guarantee authority across the solicitations mentioned above. And while LPO has closed only one loan since 2011 – for the Vogtle nuclear power station in Georgia – the program remains popular with companies seeking low-interest financing. More notably, LPO is under increasing pressure from Congress to move more applications through diligence and to loan close.

Advanced Technology Vehicles Manufacturing (ATVM) Program

Under the ATVM Program, automobile manufacturers or advanced vehicle automobile component or material manufacturers are eligible to obtain direct loans from the DOE for projects that re-equip, expand or establish manufacturing facilities in the U.S. to produce "ultra-efficient vehicles," passenger automobiles, light duty trucks or associated components that meet the DOE's emission and fuel economy standards for "advanced technology vehicles."

To date, the DOE has funded five loans under the ATVM program totaling $8.4 billion, approximately one-third of its $25 billion loan authority. The ATVM program is not subject to an expiration date, and despite previous congressional efforts to rescind ATVM's funding, the program and its remaining $16.6 billion in loan authority remain available for qualified projects. In the most recent DOE funding bill, Congress directed LPO to "expeditiously evaluate and adjudicate all loan applications received" by the ATVM program, another sign that Congress wants to see a resumption of federal loan guarantees.

U.S. Department of Agriculture (USDA) Loan Guarantee Programs

Consistent with USDA's objective to enhance rural prosperity, under the Section 9003 Program the USDA is authorized to guarantee loans of up to $250 million for the development and construction of commercial-scale biorefineries utilizing new and emerging technologies that produce advanced biofuels, renewable chemicals or bio-based products. The program remains open on an ongoing basis, accepting applications on April 1 and October 1 of each year until appropriations have been expended.

For non-biofuel technologies, USDA's Rural Energy for America Program (REAP) provides loan guarantees for the development of renewable energy or energy efficiency projects in rural areas, defined as outside of towns and cities with populations greater than 50,000. And the Business and Industry Guaranteed Loan Program (B&I), while not specific to energy projects, can be used to support demonstration-scale projects for innovative energy technologies alongside other commercial efforts. Both REAP and B&I offer a maximum of $25 million for loan guarantees.

U.S. International Development Finance Corporation (DFC)

DFC is a new agency where certain functions from the Overseas Private Investment Corporation (OPIC) and U.S. Agency for International Development's (USAID) Development Credit Authority were consolidated under one roof. Calling itself "America's development bank," the DFC invests across multiple sectors — including energy — in emerging economies. DFC offers direct loans and guarantees for up to $1 billion, with set-asides for small- and medium-sized businesses; and its political risk insurance products — with coverage of up to $1 billion against losses because of currency inconvertibility, government interference and political violence — could unfortunately be an increasingly attractive offering. In sum, with a higher investment cap and expanded authorities relative to OPIC, DFC represents an exciting opportunity for U.S. businesses looking to invest in developing countries.

Expanded Small Business Administration (SBA) Loan Guarantees

The proposed language from the Senate's Committee on Small Business and Entrepreneurship, which is expected to pass today, would guarantee loans made under Section 7(a) of the Small Business Act for the remainder of the calendar year, up to $10 million per company. The money could be used for working capital; payroll support, including medical and family leave; employee salaries; or mortgages or other debt obligations. While this authority is designed to improve companies' ability to weather the storm and maintain operations during an economic downturn, as opposed to expand a company's capabilities as with the DOE and USDA loan guarantee programs, it is nonetheless an important and potentially invaluable program for small innovative energy businesses that meet the 500 employee limitations.

Conclusion

It is understandable that many companies are focused on making payroll in these challenging times. But after addressing immediate needs, it's important for those companies who will have the luxury of being able to look out six to 12 months, to immediately review the existing and expanded programs discussed will prove to be attractive and popular options to secure non-dilutive funding — much as they were following the market crash of 2008. It is recommended that companies consider these programs sooner rather than later, considering the influx of applicants likely to do the current economic conditions.

For more information or assistance with applying for any of the loans mentioned, contact the authors.

DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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