DOE’s Shah set to promote new $250 billion energy reinvestment loan program
|Bagged graphite from Syrah Resources’ Balama project in Mozambic. In July, the US Department of Energy finalized a $102.1 million loan to the mining company for its graphite plant in Vidalia, Louisiana.
Source: Syrah Resources Ltd.
The US Department of Energy, newly endowed with $250 billion to lend to projects to repurpose or convert existing energy infrastructure, is now looking to bring the program to the communities that need it most.
“I would say the biggest challenge we have, honestly, is that for a lot of these communities, they haven’t thought about how to build a project,” Jigar Shah, director of the DOE’s office of loan programs, told S&P Global Commodity Insights. “That’s the hardest part is starting that process.”
The Inflation Reduction Act, or IRA, signed by US President Joe Biden in August, authorized $369 billion in climate and energy spending, with its headlining set of tax credits. But the law also authorized almost as much in the new DOE lending authority — about 350 billion dollars — as it did in overall spending.
The DOE’s Lending Programs Office, created by the Energy Policy Act of 2005, has provided approximately $36 billion in debt financing to commercial energy and advanced vehicle manufacturing projects. However, while previous loans prioritized innovation, the latest congressional authorization focuses on reuse.
The IRA allocated $11.7 billion to the loan office, for credit grants and administrative costs, and added about $100 billion in loan authorization to existing DOE loan programs. But the act also created a new energy infrastructure reinvestment program, authorizing the DOE to lend up to $250 billion to projects using existing energy assets.
“Some of the projects that would fit into that definition are really simple – things like converting a coal-fired power plant to a nuclear power plant, or a renewable energy and battery storage facility, or a natural gas facility,” he said. said Shah.
Other projects may invest in midstream infrastructure, reallocating gas pipelines to new energy ventures like hydrogen or carbon capture and storage. These technologies, which are about to benefit from the IRA, require pipelines to transport ammonia and carbon dioxide respectively.
“We’ve had a few people contact us and say, ‘We want to convert this pipeline to a CO2 pipeline or an ammonia pipeline,'” said Shah, who joined the Biden administration from Generate Capital PBC. , which invests in energy infrastructure.
As the United States moves away from coal-fired electricity, retired coal-fired power plant sites retain the value of their grid connection and former workforce. Vistra Corp., backed by Illinois’ Coal to Solar initiative, has committed in 2021 to build six solar and storage facilities and three stand-alone energy storage facilities in the state.
Fortescue Future Industries Pty. ltd. Also considering reinvestment in a former coal mine in Centralia, Washington, where the Australian developer plans to build a green hydrogen production facility.
The broader energy infrastructure reinvestment program does not specify whether the conversion of former mining sites would be eligible for a loan. Ino more than plans to turn gas stations into electric vehicle charging facilities, such “extreme cases” will be considered over the coming months as the DOE prepares guidance for the program, Shah said.
The DOE bets on ambition
Shah described the Office of Lending Programs as a way for the DOE to step in when “commercial banks are too timid.” In the past, this has included nascent technologies deemed too risky by commercial lenders.
Many of those bets paid off, like a $465 million loan in 2010 to what was then Tesla Motors, Now Tesla Inc.’s loan office quickly lost momentum, however, after it was lambasted by Republican lawmakers for Solyndra’s collapse. The solar company filed for bankruptcy after receiving $535 million in federal loans.
The Biden administration has since made reviving the program a priority. In June, the DOE secured a $504.4 million loan guarantee for a green hydrogen storage project in Utah. The announcement was followed in July by another DOE loan guarantee of $102.1 million to a graphite mining company to process battery ore.
Unlike previous loan programs, the Energy Infrastructure Reinvestment Program does not require projects to be innovative. But projects may have other attributes that prevent them from getting mainstream funding.
“There are a lot of solar developers trying to buy coal-fired power plants and convert them to solar-plus-battery storage,” Shah said. The problem, he said, is getting ESG-minded financiers to fund the first deal. “A lot of these financiers don’t want to own a coal plant, even if it’s just for a week.”
However, financing is not the only obstacle to the deployment of energy infrastructure. The DOE, in a study released Sept. 13, found that hundreds of coal-fired power plant sites in the United States could be converted to nuclear, potentially increasing nuclear fleet capacity to more than 350 GW.
“For some of these coal plants, the best use case for them is to be converted to nuclear plants,” Shah said. “But as you can imagine, getting a civil service commission to accept a nuclear plant is not an easy process.”
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