Eligibility
The Loan Programs Office considers project applications that have been submitted in compliance with an open solicitation. To decide if a project is eligible for a Title XVII loan guarantee, please review the program’s guiding documents, including Title XVII of the 2005 Energy Policy Act and the Final Rule. Further eligibility requirements can be found in each solicitation, as well as any additional guidance or supplements that are posted on the Loan Programs Office website.
As a general rule, the Loan Programs Office would like applicants to provide a minimum of 1,000 to 2,000 hours of operating data, preferably from a demonstration scale project employing the same technology proposed in the application. The demonstrated yield and throughput results must be supportive of the project’s pro forma assumptions for the proposed commercial facility allowing the Loan Programs Office to gain reasonable assurance of loan repayment and technological efficacy. It is in the applicant’s best interest to make a compelling case that their project is ready for full scale commercialization.
Generally, a project is restricted to one location within the United States. However, DOE may, in its discretion, consider an application for a project using a particular technology that is situated in two or more locations. For example, if the activities in two separate locations are integral components of a unitary plan and important to the viability of the project, DOE may support the project. An applicant proposing more than one location for a project must justify its approach in a reasonable manner.
Yes. However (subject to limited exceptions) DOE will not be able to issue loan guarantees to projects that will benefit directly or indirectly from certain other forms of federal support, such as grants or other loan guarantees from federal agencies or entities (including DOE), federal agencies or entities as a customer or off-taker of the project’s products or services, or other federal contracts, including acquisitions, leases and other arrangements, that support the project. Applicants are strongly encouraged to consult with Loan Programs Office representatives for further guidance.
Loan Programs Office personnel may have discussions and meetings with potential applicants and their representatives and advisors, but there are restrictions on the content of the discussions. Loan Programs Office personnel can provide guidance that is publicly available to all other potential applicants and their representatives and advisors. However, except as noted below, personnel cannot discuss specific projects prior to the submission of an application. Any discussion of a potential application must be limited to logistical guidance and publicly available application requirements. The Environmental Compliance Division of the Loan Programs Office can discuss specific projects only with respect to National Environmental Policy Act issues.
There is no minimum amount for a loan guarantee. However, please note prospective applicants are encouraged to closely review the eligibility requirements and schedule of fees for Title XVII Innovative Clean Energy project solicitations. To review these requirements and submit an application online, please visit www.energy.gov/lpo/apply.
Title XVII of the Energy Policy Act of 2005 allows DOE to guarantee up to 80% of the eligible project costs of a project. Applicants should not expect that DOE will guarantee 80% of the eligible project costs of a project. The amount of senior debt that a particular project can support, after conducting due diligence, will be the key determinant of overall senior debt leverage. Furthermore, DOE’s intent is to leverage its support by maximizing the amount of co-lending by private sector senior lenders.
Each solicitation requires that each project “avoids, reduces, or sequesters anthropogenic emission of greenhouse gases” in order to be eligible, consistent with the requirement of Title XVII. To determine whether or not each a project meets this requirement, LPO intends to conduct a Life Cycle Assessment (LCA) of each project’s GHG impact. LCA is a proven and industry-accepted practice of quantifying the full environmental impact of a product or process, and assessing that environmental impact relative to a baseline.
LPO will use a “cradle-to-grave” approach in conducting each LCA, referring to the assessment of emissions pertaining to the extraction of raw materials from the earth, raw material transport, the facility or project, product transportation and distribution, and product end use. LPO has consulted extensively with LCA experts from the National Energy Technology Laboratory’s (NETL) Energy Analysis Division and referred to International Organization for Standardization (ISO) 14040 (“Life cycle assessment – Principles and framework”) and ISO 14044 (“Life cycle assessment – Requirements and guidelines”) standards in developing an approach to assessing the GHG impact of proposed projects. This approach intends to conform to industry accepted standards and methodologies for conducting LCA analyses. The procedures and guidelines set forth in these standards are widely used in industry and the federal government to conduct similar analyses and inform decision-making.
The emission limitation requirements in Section 1703(d) of Title XVII apply only to gasification projects involving coal, biomass, or petroleum coke, or any combination of coal, biomass, and petroleum coke.
Dry fracking differs from conventional hydraulic fracturing (or “hydrofracking”) in that proposed “dry fracking” techniques use little or no water in their processes. Of particular interest under the Advance Fossil Energy Projects Solicitation would be dry fracking processes that use CO2 as a fracturing fluid because the process would sequester some of the CO2 permanently in the gas formation underground.
Project sponsors and applicants must consider all aspects of radar interference for tower-mounted wind turbine projects at an early stage of project planning and development. They should actively seek appropriate review, guidance, and permitting from appropriate authorities, including the Federal Aviation Authority (FAA) and all potentially relevant branches of the U.S. military or other U.S. agencies related to national security. Project sponsors and applicants must include a description of the status of FAA reviews in their applications for wind farm projects. If an issue regarding radar interference has been raised by the U.S. military or other U.S. agency related to national security in connection with a specific wind farm project prior to filing of a Part I submission, the Loan Programs Office will not process any aspect of the Part I submission (including NEPA related aspects) until the radar interference issue is resolved. If an issue regarding radar interference is raised by the U.S. military or other U.S. agency related to national security in connection with a wind farm project for which an applicant has already filed a Part I or Part II submission, the Loan Programs Office must suspend further processing of the application until the issue is resolved.
If the applicant answers “No” to the question in Attachment A, Part I, A, 5 (e) of a solicitation, other than routine traffic violations, the Applicant is required to list and explain the circumstances surrounding every misdemeanor or felony charge or conviction (other than routine traffic violations) or involvement in securities litigation for every Project participant. The response must not contain personally identifiable information. Individuals should be referred to as "Person 1", "Person 2", etc. If DOE has further questions after reading the response, DOE will contact the Applicant. Answering this question “No” is not an automatic disqualification from further consideration. DOE will review the list and explanation, and will follow-up with the Applicant as necessary.
Generally, yes, there are circumstances under which DOE may not be able to issue loan guarantees to projects that will benefit directly or indirectly from certain other forms of Federal support, such as grants or other loan guarantees from Federal agencies or entities (including DOE), Federal agencies or entities as a customer or off-taker of the project’s products or services, or other Federal contracts, including acquisitions, leases and other arrangements, that support the project. (This constraint is sometimes referred to as the “Federal support restriction.”) Applicants are strongly encouraged to consult with Loan Programs Office representatives for further guidance.
Yes, the Federal support restriction is prospective in its application, generally applying only to the use of other Federal support received from and after the issuance of a Title XVII loan guarantee. As a practical matter, use of other Federal support generally must be terminated no later than the date a borrower makes a certification to DOE in connection with DOE’s submission of the materials needed for the OMB Director’s approval of the loan guarantee transaction. A borrower certification generally will be required 30 – 60 days prior to the date of execution of a loan guarantee agreement between the borrower and DOE.
Due Diligence
As a matter of policy, the Loan Program’s Office strongly disapproves of fee arrangements with financial and/or other professional advisors to loan guarantee applicants that provide for payment of a contingent fee computed as a percentage of the amount of a loan guarantee issued by DOE (or of the underlying loan). Generally, the Loan Program’s Office will require restructuring of any such fee arrangement as a condition to the issuance of a loan guarantee. Fees that are computed on other terms, such as a fixed fee or a time and materials fee, but payable only at closing, are acceptable. Applicants are advised to structure, or, if necessary, restructure, their fee arrangements accordingly, and to clearly disclose in their financial model the basis of computation of all advisory fees to be paid in connection with the project.
As part of President Obama’s Climate Action Plan, this solicitation will provide loan guarantees to innovative, advanced fossil energy projects that reduce greenhouse gas emissions. Eligible projects could include modifications to existing fossil fuel-fired power plants.
As it has under previous solicitations, the Loan Programs Office (LPO) will require all projects that receive a loan guarantee to comply with existing laws and regulations—both at the time of loan issuance and during the term of the loan. During the public comment period, LPO received comments from stakeholders raising questions about how LPO will evaluate the eligibility of potential applicants prior to EPA’s finalization of greenhouse gas regulations for existing power plants.
In the process of finalizing the solicitation, the Department of Energy has worked closely with the U.S. Environmental Protection Agency (EPA), other federal agencies, and states. The EPA Administrator has stated publicly that the forthcoming greenhouse gas standards for existing power plants will rely heavily on individual state implementation plans that will specify the types of emissions technologies and strategies they would like to use to comply with the standards. The LPO sees this as fully consistent with the goal of its solicitation to accelerate the domestic commercial deployment of innovative and advanced fossil energy technology.
As the President has made clear, fossil fuels currently provide more than 80 percent of our energy and they will remain a large source of energy for decades. The fossil solicitation reflects the Administration’s commitment to an “all-of-the-above” energy strategy- one that embraces a mix of fossil fuels, nuclear power, and renewable energy sources.
All projects that receive a loan guarantee under Title XVII must comply with the Cargo Preference Act of 1954, which establishes certain requirements for the use of U.S. flagged vessels in the movement of cargo in international waters. These requirements may apply to shipments contracted for or made prior to receiving a loan guarantee. DOE urges applicants to contact the Maritime Administration directly to ensure that relevant project agreements provide for compliance with the Cargo Preference Act. General information on cargo preference can be found at the Maritime Administration’s web site: www.marad.dot.gov/cargopreference. You may also address questions on cargo preference to the Maritime Administration’s Office of Cargo Preference and Domestic Trade at (202) 366-4610 or via email to cargo.marad@dot.gov.
Davis-Bacon Act
All projects involving construction work financed in whole or in part by a loan guarantee under Title XVII are required to comply with Davis-Bacon (DBA) requirements. “Construction” is defined in DBA regulations at 29 CFR §5.2(j).
Specifically, Section 1702 of Title XVII was amended by Section 310 of the Energy and Water Development and Related Agencies Appropriations Act, 2010, P.L., No. 111-85, to add at the end the following new subsection (k):”WAGE RATE REQUIREMENTS.- All laborers and mechanics employed by contractors and subcontractors in the performance of construction work financed in whole or in part by a loan guaranteed under this title shall be paid wages at rates not less than those prevailing on projects or a character similar to the locality as determined by the Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code. With respect to the labor standards in this subsection, the Secretary of Labor shall have the authority and functions set forth in Reorganization Plan Numbered 14 of 1950 (64 Stat. 1257; 5 U.S.C. app.) and section 3145 of title 40, United States Code.”
Under DOL regulations at 29 CFR 5.5(a)(6), a borrower who receives a loan guarantee under Title XVII is responsible for DBA compliance by all contractors and subcontractors.
Consistent with applicable DBA regulations at 29 CFR §1.6(g), the DBA requirements must be complied with from the start of construction of a Section 1703 project, regardless of when the issuance of the DOE loan guarantee has occurred. As such, a Project Sponsor seeking a DOE loan guarantee under Section 1703 for a project that has commenced such construction prior to the issuance of such a loan guarantee will have to make any necessary wage adjustments no later than the closing of the DOE guaranteed loan. There is an exception under 29 CFR §1.6(g) if the Administrator of the Wage and Hour Division, Employment Standards Administration, U.S. Department of Labor (DOL) finds that (i) such relief is necessary and proper in the public interest to prevent injustice or undue hardship and (ii) there was no evidence of intent to apply for Federal funding or assistance prior to the start of construction.
If the warranty work is performed after the construction contractor and subcontractors have finished, left the site, and the contracting agency has accepted construction of the project, the work would not be covered by DBA. For LPO, acceptance of the loan guarantee project occurs when DOE consents to a borrower’s certificate of final completion of construction. Generally, consent to the certificate of final completion of construction occurs once all necessary testing to establish operational status at the site has occurred and the project has become operational. At this point, the construction financed by the loan guarantee is complete, and any warranty work rising to the level of construction would not be a part of the DBA-covered construction project because it is not work closely related in purpose (repairing equipment already in operational status, as opposed to construction associated with build-up of the equipment) or time (segregated by the certificate of completion date). This conclusion is consistent with the principle set forth in DOL All-Agency Memorandum No. 207, "Applicability of Davis-Bacon labor standards to Federal and federally-assisted construction work funded in whole or part under provisions of the American Recovery and Reinvestment Act of 2009," (May 29, 2009), p. 5, that DBA coverage on Recovery Act projects does not last in perpetuity.
Please see the Department of Labor DBA website for more information and links to the DBA and its regulations: www.dol.gov/compliance/laws/comp-dbra.htm.
National Environmental Policy Act
NEPA is the National Environmental Policy Act, which requires federal agencies to assess the environmental impact of all major Federal actions significantly affecting the quality of the human environment. The White House Council on Environmental Quality (CEQ) has promulgated NEPA implementing regulations (40 CFR Parts 1500-1508) that are applicable to all agencies. DOE’s NEPA Order (451.1B) and regulations (10 CFR Part 1021) contain implementing procedures that specifically address their programs. The NEPA Flow Chart[D1] displays the steps in the NEPA process.
There are three types of review under NEPA: categorical exclusions (CX), environmental assessments (EA), and environmental impact statements (EIS). DOE’s NEPA implementing regulations specify actions that normally require an EIS or EA, and actions that can be categorically excluded. DOE’s categories of actions identifying CXs, EAs, and EISs are listed in Appendices A, B, C, and D to Subpart D of DOE’s NEPA rule. An EIS is a detailed analysis of actions presumed to have significant environmental impacts, and is followed by a Record of Decision (ROD). An EA is a concise public document that briefly provides sufficient evidence and analysis for determining whether to make a Finding of No Significant Impact (FONSI) or prepare an EIS. CX refers to a category of actions which do not individually or cumulatively have a significant effect on the human environment and do not require an EA or EIS. Examples of EA’s and EISs can be found on the LPO website at http://www.energy.gov/lpo/about-us/environmental-compliance.
Loan guarantees issued under the Title XVII program are considered major Federal actions and are subject to National Environmental Policy Act (NEPA) review. NEPA compliance is integrated into LPO’s decision-making procedures to ensure that environmental impacts are considered throughout the loan guarantee process. The NEPA review must be completed before a loan guarantee can be issued.
The National Environmental Policy Act (NEPA) requires federal agencies to consider the potential environmental impacts of their proposed actions. NEPA review must be completed before a loan guarantee can be issued. The NEPA review process begins after the project has been accepted into the due diligence phase. Once the due diligence phase has begun, the applicant should consult with DOE before doing any work on the project site (beyond preliminary design activities) so that the NEPA review and issuance of the loan guarantee is not put at risk. This is because such work might cause an adverse environmental impact or limit the choice of reasonable alternatives, which can put the NEPA review at risk and thus the issuance of the loan guarantee. While DOE cannot control what an applicant does with its own funds, the fact that an applicant has started work does not create any obligation on the part of DOE to issue a loan guarantee.
The Applicant is required to complete an Environmental Report as part of the loan application. This should be a comprehensive description and environmental effects analysis of their proposed project, the preparation of which may require the assistance of an environmental contractor, particularly for EIS-level projects. The information submitted should be based on guidance and requirements identified by LPO. For an example of such guidance, see Attachment B to the current solicitations for loan guarantee applications. Once a project sponsor has decided to submit an application, they are encouraged to contact the Environmental Compliance (EC) Division of LPO for additional guidance on what to include in their application.
Upon commencement of due diligence, the EC Division of LPO will work with the applicant and contractor in an iterative process to ensure smooth and timely completion of the NEPA process. DOE in many cases, particularly for EISs, develops the NEPA document using a contractor that will be paid by the Applicant under a “third party” arrangement as provided in CEQ regulations at 40 CFR 1506.5(c).
NEPA review begins once a project has been approved to begin due diligence. LPO makes a determination of the level of NEPA review required, and working in an ongoing process with the applicant or their contractor, begins a thorough review of all resource areas and their potential environmental impacts, coordinates public involvement and ensures legal and regulatory requirements are met as they develop the NEPA document
The average timeline for an environmental assessment is 6-9 months, and for an environmental impact statement around 18-24 months. Since the EIS process involves significant environmental impacts, it requires a more expanded review and public involvement process than an EA. This includes the solicitation of public review and comment on the draft EIS, and holding related public meetings and hearings.
During the NEPA review process a number of other environmental laws require coordination and compliance. These include Section 7 of the Endangered Species Act, Section 404 of the Clean Water Act, Section 106 of the National Historic Preservation Act, in addition to various provisions of the Clean Air Act, several executive orders and other statutes. Issues such as environmental justice and socioeconomics, farmland protection, and Tribal concerns must also be taken into account. For many of these concerns it is imperative that collaboration take place as early as possible, for instance when notifying Tribes, State Historic Preservation Officers, or Fish and Wildlife Service of the proposed project. Since there are so many issues and requirements to consider during the NEPA review process, Applicants are encouraged to engage LPO’s EC Division early on to discuss the project and related requirements.
If another Federal agency is already preparing an EA or EIS, and if the schedule permits, DOE may seek to become a cooperating agency on the EIS or EA. Under this arrangement DOE works with the other Federal agency in preparing the NEPA document, resulting in a more efficient and timely review. Similarly, when DOE initiates a NEPA review for a proposed loan DOE will check to see if another Federal agency also has jurisdiction by law or special expertise concerning the project or its potential impacts, and will consider inviting the agency to be a cooperating agency in the preparation of the NEPA document.
A number of states also require environmental reviews similar to NEPA. In some cases, the state review will precede the DOE NEPA process, and DOE will be able to use the results of the state process to develop information for the EA or EIS. In other cases, DOE will work with the applicant and the state to prepare a single document that meets both state and Federal requirements. However, NEPA regulations do not allow DOE to adopt a non-Federal environmental review document.
DOE’s regulations require that EAs be reviewed by host states and Tribes for a minimum of 14 days. In some cases DOE may also want to provide for public review and comment for EAs, and, in all cases, will make EAs available to anyone upon request. Draft EAs will also be posted on the DOE Loan Programs Office website. For EISs, DOE will always have a scoping meeting prior to the draft EIS (DEIS) and at least one public hearing after the DEIS is issued. DEISs must have a public comment period for a minimum of 45 days. DEIS are also reviewed by the U.S. Environmental Protection Agency and other federal agencies, and host state and Tribal governments. EPA also reviews final EISs (FEISs).
An EIS is required for Federal actions significantly affecting the quality of the human environment. In reaching a decision on the need for an EIS DOE first determines if the project is a type that is included in DOE’s classes of actions that normally require EISs as set out at Appendix D to Subpart D of 10 CFR Part 1021. If not, DOE may then prepare an EA to determine if a Finding of No Significant Impact can be made for the proposed action or if an EIS is required. Or DOE may decide that an EIS is needed without going through the EA process. In deciding on the need for an EIS, DOE considers the context and intensity of any potential impacts, including whether there are likely to be any significant environmental impacts that cannot be mitigated. Factors DOE may consider include the following:
-The project would significantly affect public health or safety;
-There are unique characteristics in the geographic area of the project, such as park lands, historic or cultural resources, prime farmland, wetlands, wild and scenic rivers, or ecologically critical areas that would be affected by the project;
-There is any controversy over the degree of environmental effect of the project;
-The project presents unique or unknown environmental risks;
-The project sets a precedent for future actions that are likely to have significant environmental impacts;
-The action is related to other actions which, taken together, could have significant cumulative impacts;
-The project adversely affects any sites, structures, etc., listed in or eligible for listing in the National Register of Historic Places;
-The project adversely affects an endangered or threatened species or its habitat that have been determined to be critical under the Endangered Species Act;
-The project threatens a violation of federal, state, or local laws or requirements imposed for the protection of the environment;
-The project would have a disproportionate and adverse impact on minority or low-income populations.
There are a number of companies and consultants that specialize in NEPA work. Information about companies and consultants can often be obtained from professional organizations, architectural and engineering firms, and law firms. Information about companies and consultants that have prepared environmental documents for federal agencies is generally listed in Federal EISs or EAs, many of which are available on the Internet. Although DOE cannot recommend consultants or companies for NEPA work, DOE pre-qualifies several contractor teams for NEPA support services to DOE Program and Field Offices. The names of these contractor teams are available on DOE’s Office of NEPA Policy and Compliance website at www.energy.gov/sites/prod/files/nepapub/nepa_documents/RedDont/NEPA-Cont...
Title XVII: Closing
Credit subsidy cost has the same meaning as “cost of a loan guarantee” in section 502(5)(C) of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a(5)(C)), which is the net present value, at the time the Loan Guarantee Agreement is executed, of the following estimated cash flows, discounted to the point of disbursement: (1) payments by the Government to cover defaults and delinquencies, interest subsidies, or other payments; less (2) payments to the Government including origination and other fees, penalties, and recoveries including the effects of changes in loan or debt terms resulting from the exercise by the Borrower, Eligible Lender or other Holder of an option included in the Loan Guarantee Agreement. Section 1702(b) of Title XVII provides that no guarantee shall be made unless (1) an appropriation for the cost of the guarantee has been made, (2) the Secretary has received from the applicant a payment in full for the cost of the guarantee and deposited the payment into the Treasury, or (3) a combination of one or more appropriations under (1) and one or more payments from the applicant under (2) has been made that is sufficient to cover the cost of the guarantee. The applicant may not finance the payment of the credit subsidy cost through funds obtained from the federal government or through a loan made or guaranteed by the federal government, unless otherwise explicitly authorized by Congress. In accordance with FCRA, DOE must consult with OMB and obtain OMB’s approval of DOE’s calculation of the credit subsidy cost for each proposed loan guarantee prior to issuing any loan guarantee. More information on Credit Based Interest Spread can be found by visiting: www.energy.gov/sites/prod/files/2015/04/f21/Credit-Based_Interest_Rate_Spread_7.9.14.pdf.
LPO has received $169 million in appropriated credit subsidy for Renewable Energy and Efficient Energy Projects. For a Qualifying Project the portion of the credit subsidy cost that DOE will pay is the amount of the credit subsidy cost that is above seven percent (7%), up to a total of $17,000,000. In all cases the applicant will pay the amount of the credit subsidy cost that is seven percent (7%) or less.
LPO has not received any appropriated funds from Congress to pay the credit subsidy cost for projects applying under the Advanced Fossil Energy Projects solicitation. Accordingly, the credit subsidy cost must be paid by the borrower at closing.
Credit subsidy cost is a reserve established by the U.S. government to cover the risk of estimated shortfalls in loan repayments. It was established by the Federal Credit Reform Act of 1990 (“FCRA”) and represents the net present value of the estimated long-term cost to the U.S. government of the loan guarantee. Credit subsidy cost is primarily influenced by two key variables: Probability of default; and the “recovery” after default. These variables are used to “risk adjust” the borrower’s principal and interest payments to the government, and provide an estimate of payment shortfalls. Section 1702(b) of Title XVII provides that DOE must receive either an appropriation for the credit subsidy cost of a loan guarantee or, in lieu of an appropriation, a cash payment of such cost directly from the applicant
As a matter of policy, the Loan Programs Office strongly disapproves of fee arrangements with financial and/or other professional advisors to loan guarantee applicants that provide for payment of a contingent fee computed as a percentage of the amount of a loan guarantee issued by the Department (or of the underlying loan). Generally, the Loan Programs Office will require restructuring of any such fee arrangement as a condition to the issuance of a loan guarantee. Fees that are computed on other terms, such as a fixed fee or a time and materials fee, but payable only at closing, are acceptable. Applicants are advised to structure, or, if necessary, restructure, their fee arrangements accordingly, and to clearly disclose in their financial model the basis of computation of all advisory fees to be paid in connection with the project.
Yes, but there are special considerations.
As a preliminary matter, Title XVII requires that the credit subsidy cost be paid at the time of issuance of a loan guarantee, which occurs at closing of a guaranteed loan. The credit subsidy cost is based on the size of a guaranteed loan and other relevant factors. In response to (a) an application for a qualified project that will be developed in phases, and (b) a request from an applicant to pay the credit subsidy cost for each phase at the time the guaranteed loan is made available for a phase, DOE would likely issue a separate conditional commitment applicable to each phase of the project (in effect, each phase would be financed with a separate guaranteed loan). In such an instance, at the closing of the guaranteed loan associated with a phase of the project, only the associated credit subsidy cost would be payable.
It is important to note that issuance of the loan guarantee at the closing of a guaranteed loan for each phase would be subject to: (1) the satisfaction of the conditions precedent set forth in the conditional commitment, (2) DOE’s right to terminate the conditional commitment pursuant to LPO’s regulations (see the definition of Conditional Commitment at 10 CFR §609.2), and (3) the availability of authority and appropriations when the loan guarantee is issued.
Finally, the application and facility fees, both of which are non-refundable, are payable based on the aggregate of the guaranteed loan amounts specified in each of the conditional commitments issued pursuant to an application. The facility fee is not payable until the first closing.