EPACT2005 Loan Guarantee Program |
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Title XVII of EPACT2005 authorized DOE to issue loan guarantees for projects involving new or improved technologies to avoid, reduce, or sequester GHGs. The law specified that the amount of the guarantee would be up to 80 percent of a project’s cost. EPACT2005 also specified that DOE must receive funds equal to the “subsidy cost” either through the Federal appropriations process or from the firm receiving the guarantee [24]. As discussed in AEO2007, this program, by lowering borrowing costs, can have a major impact on the economics of capital-intensive technologies [25]. In August 2006, DOE announced its first solicitation for $2 billion in loan guarantees. Even though the entire subsidy costs would be paid by successful applicants, DOE believed that authorization from Congress in an appropriations bill was required, and because there was no such authorization at the time, the requests were considered “pre-applications.” Consequently, the effects of the solicitation were not included in AEO2007. In February 2007, DOE did receive authorization to issue a total of $4 billion in guarantees. To codify DOE’s view that authorization is needed, the omnibus appropriations bill for FY 2008 passed by Congress in December 2007 (H.R. 2764) and its accompanying conference report required DOE to submit a loan guarantee implementation plan to both the House and Senate Appropriations Committees for approval 45 days before DOE issues any future solicitations. The conference report also directed DOE “to make no authority in excess of” $38.5 billion for FY 2008 and FY 2009 [26] and allocated the $38.5 billion cap as follows: $18.5 billion for nuclear plants; $6 billion for carbon capture technologies; $2 billion for advanced coal gasification units; $2 billion for “advanced nuclear facilities for the ‘front end’ of the nuclear fuel cycle”; and $10 billion for technologies related to renewables, energy conservation, distributed energy, and electricity generation, transmission, and distribution. The guidelines that accompanied the August 2006 solicitation—which stated that DOE would only guarantee up to 80 percent of a project’s debt—were criticized by some in the investment community and the nuclear industry for failing to take maximum advantage of the loan guarantee provision in EPACT- 2005, which allows DOE to guarantee up to 80 percent of a project’s cost [27]. The final rule that formalized the guidelines, issued in October 2007, allows for up to 100 percent of the project debt to be guaranteed. This approach was codified in EISA2007.
Because future solicitations have not yet been issued and remain subject to approval of a loan guarantee implementation plan by the Appropriations Committees, only the effects of the August 2006 solicitation are included in AEO2008. Table 3 summarizes the number of applications and the requested amounts that could be guaranteed for various technologies in the solicitation. In total, DOE received 143 applications for $27 billion in loan guarantees for projects costing $51 billion [28]. In October 2007, DOE released information about the 16 projects and sponsors that will be invited to submit full applications. Because the final approval process will take some time, AEO2008 assumes that the dollar amount of the approved guarantees will be roughly proportional to the requested guarantees. Accordingly, AEO2008 includes an additional 1.2 gigawatts of capacity at advanced coal-fired power plants and 250 megawatts at solar power plants that are built as a result of the loan program. (The other projects in the October 2007 announcement were for technologies that are outside the scope of AEO2008.) Contact: Paul Holtberg |
