Read our abridged list of recommendations here.
Executive Summary
The One Big Beautiful Bill Act, now made law, looks better for the Loan Programs Office than what the Senate Energy and Natural Resource Committee had initially proposed. That first draft both rescinded funding for and repealed the authorities of all the LPO’s various loan programs—and, even though it proposed creating a new “Energy Dominance Financing” authority, those repeals and recissions would have amounted to a forced restart for the office.
The final text of the reconciliation bill does not go so far. Notably, where the LPO is concerned, it does the following:
- For the Advanced Technology Vehicle Manufacturing (ATVM) loan program, it rescinds the unobligated credit subsidy appropriations left over from IRA appropriations.
- It rescinds the unobligated credit subsidy appropriations left over from IRA appropriations for the following LPO programs without repealing their authorities:
- Section 1703—the marquee loan guarantee authority for innovative energy and supply chain projects that target specific technologies and sectors. This authority was introduced in the Energy Policy Act of 2005.
- The Tribal Energy Loan Guarantee Program.
- It rewrites Section 1706, transforming what was formerly known as the Energy Infrastructure Reinvestment (EIR) program into the “Energy Dominance Financing” program, with a modified remit, a new sunset date of September 2028, and with new appropriations of $1 billion. Previous appropriations authorized in BIL and IRA were rescinded.
This piece examines the implications of these changes to the two parts of the LPO’s Title 17 authority on which we have historically focused our attention: Section 1706, formerly known as the Energy Infrastructure Reinvestment authority but remade into the Energy Dominance Financing program, and Section 1703, the flexible loan guarantee authority the LPO can use to support innovative technologies, supply chain-related projects, and projects supported by state instrumentalities. We place particular emphasis on investigating the impacts of defunding Section 1703 and the potential of the new Section 1706 program to replace some of its activity.
Despite some hope that 1706 can play a comparable role to that of 1703’s flexible loan guarantee, we believe the program will face headwinds in pursuit of that purpose. Our analysis is informed by conversations with state agencies, energy project developers, and former DOE officials. To achieve strong outcomes, the LPO must provide clear and substantive guidance on its business development plans and financial product offerings.
As such, this report will conclude with a set of recommendations—first, for LPO and Department of Energy staff seeking to maximize the uptake of what the office still has to offer and, second, for Congress, which we encourage to provide the LPO with greater operational flexibility.
Recommendations
Here, we offer recommendations to the LPO to provide clarity to the market, as well as offer recommendations to Congress for augmenting the LPO’s ability to create energy abundance over the longer term.
Recommendations for the LPO:
- Confirm the “clear nexus” rule by stating that, under Section 1706, the LPO will consider providing financing under Section 1706 to greenfield infrastructure and supply chain projects that support the efficiency and/or output of existing energy infrastructure sites.
- Confirm the definition of “known or forecastable” to clarify that the LPO will not reject prospective applicants seeking Section 1706 financing specifically on account of the particular energy resources or grid infrastructures they seek to develop.
- Clarify that, under the SEFI Carveout to Section 1703, state governments and state instrumentalities can provide “meaningful support” to project developers by providing developers with the credit subsidy they would need to access LPO financing—supporting developers’ access to the LPO through the “borrower-pay” mechanism. The LPO should more broadly clarify how state governments can and should pursue the SEFI Carveout to secure financing to address the long-standing underutilization of this catalytic risk-share program.
- Hire additional staff to process applications and close conditional commitments more quickly in order to provide greater value to applicants and interested developers.
- Commit to honoring existing loans and conditionally committed loans. To do otherwise would be to shake faith in the LPO’s ability to work with current and prospective borrowers, to mobilize other investors, and to maintain its independence. The LPO only works when it can provide certainty to its applicant pool.
Recommendations for Congress
- Increase the LPO’s credit subsidy, particularly for Section 1703 but also for Section 1706, to ensure that it can provide larger volumes of finance at better rates to more borrowers, particularly ambitious higher-risk borrowers working on the development and commercialization of innovative technologies.
- Empower the LPO with the authority and appropriations to use more flexible financing tools, including but not limited to Other Transactions Authority. This authorization would allow the LPO to design and deploy financial tools including offtake contracts, equity stakes, construction loans, cost-share agreements, and—in the case of Section 1703—loan refinancing, in order to ensure that the LPO can provide maximum value to applicants and interested developers, particularly those who have weaker market positions or greater upfront capital needs.
- Explicitly permit the LPO to provide cost overrun insurance products, particularly for advanced nuclear projects and for other energy technologies that have extremely uncertain development trajectories. Cost overrun insurance would provide significant security to investors.
- Authorize the LPO to hire additional permanent staff and appropriate the funding necessary for this task.