The U.S. Department of Energy (DOE) announced a $2 billion loan guarantee program on Tuesday for energy projects on Native American and Alaskan Native lands.
Under the Tribal Energy Loan Guarantee Program, the DOE can guarantee up to 90% of the unpaid principal and interest of a loan made to a federally recognized Indian tribe for energy development.
The program requires the tribal borrower to invest equity in the project and that all project debt is provided by non-federal lenders.
Tribal lands account for about 5.8% of the land area of the contiguous United States, but have about 6.5% of the total national renewable energy potential, according to the Tribal Energy Atlas just released by the National Renewable Energy Laboratory.
Tapping those resources, however, has been difficult because of limited access to financing.
Tribes have asked about developing renewable energy projects throughout the years, according to Taite McDonald, a partner with the law firm Holland & Knight. Finding affordable financing has always been "the big question and the obstacle," she told Utility Dive. "This program will unlock that obstacle."
The program is already on the radar screen of at least one energy storage developer. "We have some feet on the ground and are working on some pre-engineering studies right now," Stefan Schauss, executive director of CellCube Energy Storage, told Utility Dive. "A lot of things need to fall into place before we can even do financial due diligence," he said. However, he also said the potential for combining the long duration vanadium flow batteries his company manufactures with solar installations on tribal lands, especially in remote locations with little access to the grid, is exciting.
The $2 billion program is set to guarantee up to 90% of a loan for a renewable energy project. The loans can be for a broad range of energy projects with a focus on commercially-proven technologies, including fossil energy production and mining, renewable energy, transmission infrastructure and energy storage projects. It is the first time the loan program has been extended to projects on tribal lands. The program is authorized under the Energy Policy Act of 2005 but was only recently funded under the Fiscal Year 2017 Omnibus Spending Bill.
In the past, one of the loan program's pitfalls was the cost of the application fee, the so-called credit subsidy fee.
For the tribal loan program, however, the fee has been lowered to $35,000, which will make the program much more attractive to potential borrowers, McDonald said. Fees for other currently open solicitations are $150,000 for loans of less than $150 million and $400,000 for loans greater than $150 million.
The tribal loan program also differs from other DOE loan programs in that the tribal program is structured to be a partnership between eligible lenders and the DOE. Eligible lenders include commercial banks or other non-federal lenders with suitable experience and capabilities. That means a tribe seeking financing would apply to an eligible lender, which in turn would apply to DOE for the partial guarantee. The tribal loan program also allows for projects to be partially owned by non-tribal participants.
Eligible projects could hypothetically include generation projects serving both non-tribal customers and residents of Indian lands, McDonald wrote in a blog. They could also include transmission projects facilitating the sale of electricity generated on Indian land to outside markets or even transmission projects across Indian lands that connect outside generation to outside markets, where no tribal customers are served. Eligible projects could also be structured to include plans in which a tribal borrower participates as an investor, but bears no other direct relationship to the tribe or Indian lands.
McDonald expects interest to be high for solar-plus-storage projects, especially in the form of microgrids that serve remote locations. Solar-plus-storage projects are likely to drive the success of the program, she said.