The massive, consolidated bill Congress passed before the new year has a wide range of COVID-19 relief and energy provisions. Included inside is the Energy Act of 2020, authorizing $35 billion of new funds for energy programs, reforming the DOE’s Loan Programs Office (LPO) loan guarantee programs under Title XVII of the Energy Policy Act of 2005, and extending tax credits that the federal government awards to equity investors in and owners of certain kinds of renewable energy projects. This collective set of policies, combined with critical new limitations on the emission of HFCs, is being hailed by some as the most significant energy or climate bill ever passed by Congress.
As important and laudable as these measures are, they mostly add up to a continuation of the status quo when it comes to federal support for clean energy. The spending is directed to research, development and demonstration of a range of innovative, pre-commercial technologies, including advanced nuclear and carbon capture. Reforms to the much maligned and largely dormant Title XVII loan guarantee programs double down on its focus on innovative, pre-commercial technologies. And the tax credit extensions merely press the repeat button on the cycle of tax extenders that has played on loop for over a decade.
What is missing are policies that address all three of the core components of President-Elect Biden’s climate platform: economic revitalization, deployment and justice.
Nearly 20M Americans are still collecting unemployment benefits. How many jobs will be created through new R&D spending? How much of the $35 billion in new DOE funds for innovative technologies goes to the widespread deployment of commercially ready clean energy technologies that must begin immediately to meet President-Elect Biden’s goals of 100% decarbonization of the power sector by 2035 and economy-wide net zero carbon emissions by 2050? And how much of the new funding can and will be used for targeted investment in underserved communities that suffer disproportionate effects from climate change? The answer to all three questions is the same – none.
That means the incoming Biden Administration has its work cut out for it if it wants to meet its climate and economic commitments. The new funds for innovative clean energy technologies and the reforms to the Title XVII loan guarantee programs may or may not help in meeting these commitments, and whatever help they may provide will be small and not immediate relative to the overall need for large-scale and rapid decarbonization, which will require $2 trillion in combined private and public investment. Because this $35 billion in new funding cannot meaningfully help the Biden Administration begin to meet its decarbonization goals, it means the Biden Administration will need to seek much larger appropriations for investments in clean energy technologies, likely an amount of at least several hundred billions of dollars to meet its stated goals.
What else is needed to meet Biden’s Climate Goals
The Clean Energy and Sustainability Accelerator (The Accelerator) is the flexible, purpose-built, independent and non-partisan non-profit that the Biden Administration needs to make meaningful progress towards its climate and economic objectives. With a $100B up-front capitalization from Congress, the Accelerator will create 4M jobs within four years. It is heavily deployment-focused, investing across sectors to specifically achieve deep market penetration. And, because it is an independent non-profit, it is uniquely capable of targeting its investment, directly and through state green bank partners, into disadvantaged communities.
In fact, 40% of investment will be required to flow to those communities to deliver jobs, savings, cleaner air, and new businesses. And because that $100B will create nearly half a trillion in total investment due to private sector-leverage, the policy has incredible bang-for-the buck when it comes to meeting the Biden Administration’s $2T investment target.
Here are specific examples of what the Accelerator will do:
- Investments in grid modernization and resilience are desperately needed to enable an electricity system with variable, distributed resources, storage and vehicle-to-grid power flows. And that grid must be able to withstand the growing impacts of climate change. No funding was provided in the Energy Act of 2020 to support such investments. And utilities can no longer be relied upon to be the sole drivers of this investment. In 2018, regulators approved only $2 billion of the $14 billion in grid modernization investments requested by utilities. Utilities are in a bind – they know that these investments are essential to the future of their businesses AND to meeting their social obligation of providing reliable service. But regulators won’t allow them to rate base the investments seen as slightly beyond what is immediately justified. This gap is precisely what the Accelerator will address through investments in transmission and grid resilience measures.
- Any pathway to broad and rapid decarbonization requires rapid electrification of both transportation and building energy use. Electrify America found that households across the country will save money by converting their home and vehicle energy use to electricity, and that the only barrier is the trillions of dollars of upfront capital needed, which is then repaid over time. There is a small pot of money available for R&D related to electric vehicles in the Energy Act of 2020l, but nothing for deployment, nothing for charging infrastructure, and nothing at all for electrification. This is a second area that Accelerator will focus on and invest in. The Accelerator will help create the hundreds of new businesses necessary to serve this market.
- And last but not least, there is no funding at all in the Energy Act of 2020 to support low and moderate-income, disadvantaged or communities of color, or to support a just transition for communities directly harmed by the transition. In fact, if anything the bill doubles down on the existing inequalities with the extension of the investment tax credit. The Accelerator is required to invest 40% of its capital in these communities. This means it will provide capital to start new businesses to serve those communities. It will provide a combination of grants and low cost financing to electrify low and moderate-income households first, not last, in this country. It will help communities prepare for the impacts of climate change with smart surfaces and distributed micro-grids (combining distributed generation with storage). None of this is possible under existing programs or through the Energy Act.
Investment beginning as soon as possible through the Accelerator is how the Biden Administration can achieve its climate and economic commitments. There are more than two dozen specific investment examples, showing precisely how and where the Accelerator will invest to crowd-in private capital investment or otherwise make investments that provide large-scale climate, public health or economic benefits to communities that are economically disadvantaged or at the front-line of the transition from dirty to clean energy (e.g., communities dependent on coal-fired generation for jobs and local tax revenues) . Not one of these investment or programmatic structures can be implemented with an existing federal clean energy program.
Permanent Limitations of the LPO
There is new hope that the Title XVII loan guarantee programs can be revived to play a similar role with regards to innovative, pre-commercial technologies (e.g., advanced batteries, advanced vehicle manufacturing, electrification of industrial combustion processes, CCS, small modular nuclear generation). And there are genuinely worthy and important reforms to the Title XVII loan guarantee programs included in the Energy Act of 2020, including the removal or reduction of some of the applicant fees and moving the obligation of an applicant to pay for DOE’s costs to process an application to financial close. But make no mistake – there is nothing in the Energy Act, Title XVII and DOE’s regulations and practice thereunder that indicates the Title XVII loan guarantee programs can do much, if any, of what the Accelerator is designed to do.
The Title XVII loan guarantee programs are not sitting on $40 billion of cash, as has been reported. DOE has $40 billion in loan guarantee authority, which either Congress will have to appropriate additional funds or a borrower will have to pay in credit subsidy cost to unlock. Only 10% of that loan guarantee authority is for the deployment of renewable energy system and energy efficiency measures – the rest is for nuclear power, advanced fossil fuels and advanced vehicle manufacturing.
The Title XVII loan guarantee programs are limited to providing loan guarantees for pre-commercial technologies – i.e. they cannot be used to spur the broad and rapid deployment of proven commercial technologies. These programs have never provided a loan guarantee for distributed generation or microgrids. DOE has no legal ability to use these programs to direct its financing support to targeted communities. And it hasn’t provided a loan guarantee for a renewable energy project in almost a decade (and the last project approved for a loan guarantee was in 2016 for a CCS project, and this project has yet to reach financial close).
Let’s hope the Title XVII loan guarantee programs can be fixed to do what they are meant to do – spur the development of innovative, pre-commercial technologies. But let’s also hope the new administration does not put misplaced or oversized confidence in the ability of these programs to help meet its climate goals.
There is much that is right and necessary with more federal funding support for basic clean energy R&D and financing support for innovative, pre-commercial clean energy technologies. And there is much that is right and necessary with trying to make the Title XVII loan guarantee programs more accessible and customer-friendly. But we cannot pretend and would be greatly mistaken to presume that these types of policies and programs will actually create the just and rapid clean energy transformation that President-Elect Biden was elected to undertake.
For that, the new administration needs the Accelerator.