From The Editor | August 27, 2014

Financial Aid For Utilities: Do You Qualify?

By Kevin Westerling
@KevinOnWater

money

We have the technology to make treatment plants of the future, but innovation can be expensive. Enter the federal government, offering billions in loans to finance new builds and plant upgrades.

The water intelligentsia often preaches to utilities that they should update their plants with innovative and energy-efficient technologies in order to preserve resources, operate more efficiently, and save money over the long run. But it’s often the short run that most concerns utilities, and municipal budgets simply don’t allow for such investments in the face of pressing, day-to-day responsibilities. There is money to be had, however.

While the federal budget is also under pressure from all around, there is plenty of flexibility in those purse strings, and long-term investing in our country’s infrastructure is never a bad idea (if carried out correctly). The federal government has therefore made a variety of loans available to water and wastewater utilities through the U.S. Loan Programs Office (LPO). Certain stipulations apply, of course, but the core requirement — and the very purpose of the program — is a move toward more advanced, efficient technologies.

What’s Available?

During a recent webinar run by the U.S. Department of Energy (DOE), Brendan Bell, special advisor to DOE's LPO, reported that DOE has already invested $30 billion in energy-efficient projects, and has $40 billion in remaining loan authority. For water/wastewater utilities, that total is whittled down to roughly $12 billion, falling under the categories of advanced fossil energy ($8 billion) and renewable energy ($4 billion); the remaining portion is devoted to either the Advanced Technology Vehicles Manufacturing (ATVM) program or for nuclear power. Still, $12 billion is considerable chunk of change available to the right candidates.

Qualifications

The clean-energy loan guarantees are provided under the Title XVII program, which was created by Congress in 2005 and targets large-scale facilities. "The purpose [of the program] is to help finance innovative energy projects ... to help get those first few deployments of new technology out and demonstrated in the market,” said Bell.

Projects must exhibit the following four characteristics to qualify for a Title XVII loan:

  1. Innovative Technology

"We define ‘innovative’ as a new or improved technology that is part of a project and hasn't been used at commercial scale in the U.S. more than three times over the last five years," explained Bell. As an example, he cited a utility-scale solar project that incorporated an inverter that was previously only utilized in wind energy. "It doesn't have to be dramatically new technology,” he stated. “It just has to be an improvement over existing technology."

  1. Greenhouse Gas (GHG) Benefits – The project must reduce, avoid, or sequester greenhouse gases.
  2. Located in the U.S. – Eligible projects must be located in the U.S., but may be foreign-owned.
  3. Reasonable Prospect of Repayment

"Our track record is pretty good,” Bell noted. “On our $30 billion portfolio, we've only had losses of about 2 percent, and the market average is more like 10 percent. We tend to get return on our investments."

Loan Structure

LPO loans can be issued in a variety of ways. They can back a privately issued loan from a bank or a municipally issued bond, or the LPO can give the loan guarantee directly to the U.S. Treasury, which would then supply a direct loan to the project.

The LPO’s interest rate is the equivalent U.S. Treasury rate, plus a credit-based liquidity spread. “In general we're lending at about 3 to 4 percent over the term of our loans,” said Bell, adding that loans can cover 30 years or the useful life of the project, with terms negotiated on a deal-by-deal basis.

By law, however, the LPO cannot guarantee more than 80 percent of total project cost, so some equity must be in place for projects to qualify. “We’re very interested in lending with commercial banks,” Bell revealed. “The sooner we get private banks to learn about new technology, the sooner they’ll have confidence in it and start financing those projects at a wider scale.”

Technology Types

Under the Advanced Fossil Energy Projects Solicitation, the LPO recognizes four technology areas eligible for $8 billion in loan guarantees. Qualifying projects may include, but are not limited to, the technologies within:

  • Advanced resource development (e.g., coal-bed methane recovery; novel oil and gas drilling)
  • Low-carbon power systems (e.g., fuel cells)
  • Carbon capture (e.g., CO2 captured from traditional coal or natural gas electricity generation; permanent geologic storage or utilization in enhanced oil recovery)
  • Efficiency improvements (e.g., combined heat and power [CHP] and industrial waste recovery; high-efficiency distributed fossil power systems; micro-grids)

Under the Renewable Energy & Efficient Energy Projects Solicitation, the LPO seeks to finance areas that are catalytic, replicable, and market-ready, with $4 billion for projects such as:

  • Advanced grid integration and storage
  • Drop-in biofuels
  • Waste-to-energy
  • Enhancement of existing facilities
  • Efficiency improvements

Staking Your Claim

To get in on the LPO’s financing opportunity, ensure that your project meets the four basic criteria of being innovative, GHG-reducing, U.S.-based, and capable of returning the investment (with interest). Remember that both new builds and upgrades to existing facilities will qualify, and that the efficiency or resiliency improvements you propose needn’t be earth-shattering — just unique and forward-looking.

"If you meet these requirements, we're very interested in seeing applications," Bell implored utilities.

Visit http://energy.gov/lpo/services/solicitations to stake your claim for financing that could help your municipality and the industry at large usher in a new era of efficiency and sustainability.

Image credit: "Money," Ervins Strauhmanis © 2011, used under an Attribution 2.0 Generic license: https://creativecommons.org/licenses/by/2.0/

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