DOE update

DOE Issues Loan Guarantee Solicitation for Renewable Energy Manufacturing Projects and Creates Online Application

The Department of Energy (“DOE”) issued a new loan guarantee solicitation on August 10, 2010 (the “Solicitation”) under Section 1705 of the Energy Policy Act of 2005, as amended (the “EPAct”). The Solicitation invites applications from borrowers for loan guarantees to finance projects and facilities that manufacture commercial technology renewable energy systems or related components, such as wind turbine systems, blades or photovoltaic components. DOE is making up to $750 million available to pay the “credit subsidy costs”1 of the loan guarantees to be issued under the Solicitation.

Eligible Projects

Section 1705, which was added to the EPAct by the American Recovery and Reinvestment Act of 2009, authorizes DOE to provide loan guarantees for certain renewable energy projects and related manufacturing facilities, electric transmission systems and leading edge biofuel projects. The current Solicitation is limited to renewable energy manufacturing projects or facilities that: (i) manufacture “commercial technology” products that support the generation of electricity or thermal energy from renewable resources, (ii) have project costs greater than $75 million, (iii) could obtain a credit rating of “BB” or better from S&P or Fitch or “Ba2” or better from Moody’s without the benefit of any DOE loan guarantee or other credit support and (iv) will create or retain jobs in the United States. For purposes of the Solicitation, “commercial technology” is defined as technology that has been installed and is being used anywhere in the world in three or more commercial projects similar to the proposed project and has been in operation in each case for a period of at least two years.

In addition, in order to be eligible under the Solicitation, a project must (i) be able to “commence construction”2 no later than September 30, 2011, and (ii) meet all other applicable requirements of Title XVII of the EPAct, including the Davis Bacon and Buy American requirements. The Solicitation includes the following non-exclusive list of eligible projects: wind energy component or system manufacturing facilities, solar photovoltaic (PV) component or system manufacturing facilities, concentrated solar power component or system manufacturing facilities, hydropower component or system manufacturing facilities, geothermal component or system manufacturing facilities, other geothermal power cycle component or system manufacturing facilities, and ocean wave, tidal and river current (e.g. hydrokinetic) component or system manufacturing facilities.

Certain Financing Terms

Loan guarantees issued under the Solicitation will cover 100% of the guaranteed debt facility, which must be senior secured debt funded by the Federal Financing Bank. Generally, the face value of the debt guaranteed by DOE must not exceed 80% of total project costs. However, if the project receives an advanced energy manufacturing investment tax credit under Section 48C of the Internal Revenue Code of 1986, the total debt guaranteed by DOE may not exceed 60% of total project costs.

As stated in the Solicitation, DOE expects that the guaranteed obligations will constitute senior secured debt benefiting from full recourse to the balance sheet of the applicant and/or a full guarantee from the project sponsor, a creditworthy parent or a third-party acceptable to DOE. The Solicitation provides that to the extent practicable, DOE may consider limited recourse project financing structures (with full recourse to the balance sheet of the project sponsor until certain defined completion tests are met) for start-up manufacturing operations. 

Application Process and New Online Portal

The application is divided into two parts. There are two submission due dates for the more limited Part I application: September 30, 2010 and November 30, 2010. A detailed Part II submission may be filed at any time after DOE notifies the borrower that its Part I is complete and its project is eligible. DOE will hold three rounds of review for Part II submissions. The first due date for Part II submissions is November 30, 2010, followed by December 31, 2010 and January 31, 2011. After the due date for a round of Part II submissions, DOE may approve an application and offer the borrower a term sheet, which, if accepted and agreed by DOE and the borrower, will represent a conditional commitment of DOE. The Secretary of Energy will retain the right to terminate a conditional commitment for any reason at any time prior to the execution of the relevant Loan Guarantee Agreement.

At or prior to closing, DOE will pay the credit subsidy cost, while the borrower will pay the fees detailed below. The Office of Management and Budget, the Department of the Treasury and DOE must each review the calculation of the credit subsidy cost.

All applications must now be submitted in electronic form via DOE Loan Guarantee Program’s new online application portal at https://www.doeloan.com, which was launched on August 12, 2010. Applicants for outstanding DOE solicitations are also highly encouraged to apply via the online portal (for Baker Botts Updates regarding the other currently open solicitations for loan guarantees, please click here and here).

Fees

The Solicitation requires the payment of three fees: (i) the application fee, (ii) the facility fee, and (iii) the maintenance fee. The application fee is $125,000, 25% of which is due on or prior to submission of Part I of the application, while the remaining 75% is due on or prior to submission of Part II. The facility fee will be equal to ½ of one percent of the guaranteed debt. The borrower must pay 25% of the facility fee on or prior to execution of the term sheet, and the remaining 75% at or prior to the financial closing under the Loan Guarantee Agreement. The maintenance fee is expected to be between $50,000 and $150,000 per year, payable either each year in advance by the borrower, commencing upon the closing date, or as a one-time fee on the financial closing date in an amount equal to the aggregate sum of such annual maintenance fees. The borrower is also responsible for paying the fees and expenses of DOE’s outside counsel and consultants.

Baker Botts Loan Guarantee Experience

Baker Botts is currently representing a number of clients in connection with the preparation of applications and the negotiation of loan guarantee documentation with DOE under previous solicitations.

DOE Press Release and Solicitation

Links to DOE’s press releases and the Solicitation are listed below:

http://www.lgprogram.energy.gov/press/081110-1.pdf

http://www.lgprogram.energy.gov/press/081110-2.pdf

http://www.lgprogram.energy.gov/sol-08-12-10.pdf

1 The “credit subsidy cost” of any guarantee is the net present value of the estimated long-term cost to the U.S. government of the guaranteed loan, as calculated in accordance with the applicable provisions of the Federal Credit Reform Act of 1990, as amended.

2 Under the Solicitation, “commencement of construction” means that (i) the borrower has completed all pre-construction engineering and design, has received all necessary licenses, permits and local and national environmental clearances, has engaged all contractors and has ordered all essential equipment and supplies as, in each case, can reasonably be considered necessary so that physical construction of the project may begin (or, if previously interrupted or suspended, resume) and proceed to completion without foreseeable interruption of material duration and (ii) such physical construction (including, at a minimum, excavation for foundations or the installation or erection of improvements) at the primary site of the project has begun or resumed.