Canary Media’s On the string The column addresses the more complex challenges of decarbonizing our energy systems.
The Inflation Reduction Act contains $369 billions of dollars in tax credits, grants and incentives designed to spur investment in new clean energy technologies over the next decade, a fact that has been widely reported. But it also gives the Department of Energy’s Loan Programs Office the power to stimulate not only the construction of new clean energy resources, but also the transformation of old or dirty energy infrastructure into new or upgraded clean assets, and the revitalization of communities where that old infrastructure now stands.
As part of the implementation of the Energy Infrastructure Reinvestment Program — also known as the 1706 program — the Loan Programs Office will be able to earn up to $250 billions of dollars in low-interest loans. This is a huge opportunity: $250 billion is enough money to radically restructure whole sections of the American energy landscape.
Projects to retire or repurpose dirty infrastructure can be difficult to finance through traditional private sector debt models, and the tax credits and incentives offered under most law enforcement programs reducing inflation are aimed more at building new projects than reallocating old ones. So the section 1706 program could play a crucial role.
Renovating or repurposing existing infrastructure can help developers avoid many of the siting, permitting, and grid interconnection issues they face when building new clean energy projects. Coal-fired power stations have massive power lines and transformers that can be used by other types of power stations, for example, and existing transmission lines can be upgraded with new power cables much more easily than new ones. transmission corridors can be built. And finding new uses for polluting power plants or petrochemical facilities can bring jobs and tax revenue to communities that would otherwise face hardship when they shut down.
The section 1706 differs from other programs administered by the Lending Programs Office in several ways, including:
- It does not require projects to be technologically innovative.
- It expires quite early, at the end of 2026.
- It basically operates on a first-come, first-served basis.
Many questions swirl around this new program, however. Most of the companies that could benefit from it don’t have a good idea of the types of projects they could get loans for and how the system works.
In this column and a follow-up to come, we will explain the basics of the section 1706 program and explore the opportunities it offers and the challenges that might limit its reach.
What types of projects can be eligible?
The Inflation Reduction Act states that the section 1706 program can provide loans for projects that “retool, repower, repurpose or replace” closed energy infrastructure or allow infrastructure still in operation to “avoid, reduce, use or sequester” carbon emissions or air pollutants. This could encompass a dizzying array of projects.
“The entire energy infrastructure ecosystem is qualified to enter the 1706 program to be reoriented”, Jigar Shah, head of DOE‘s Loan Programs Office, told Canary Media in a recent interview. A variety of proposals for the program have come to his office since the Cut Inflation Act was passed, he said — and the variety could be even wider.
The section 1706 The program could provide loans to energy developers to convert coal and fossil gas power plants into solar and wind farms backed by storage batteries, Shah noted in a recent chat with Bloomberg. Similar projects have already been proposed for sites in Illinois, Louisiana, New Mexico and other states.
Small modular nuclear power plants could be built on former coal-fired power plant sites, DOE the study proposes – whether SMRs are ready for commercial-scale deployment. Existing nuclear plants that are struggling to stay open or have already been shut down could be upgraded to operate for decades longer, he said, citing the example of the recently shut down Palisades plant in the Michigan.
Existing power plants could be used for purposes other than electricity generation, Shah said, such as the old coal-fired power plant in Somerset, Massachusetts, which is being converted to produce transmission cables. for offshore wind farms and to connect an offshore wind farm to the pre-existing onshore plant. network connections.
And power plants aren’t the only potential target. A number of oil refineries and fossil gas pipeline operators have approached the Lending Programs Office with ideas for repurposing their systems to produce or transport clean hydrogen or carbon dioxide captured from sites power generation or industrial, Shah said in a September podcast.
In a Washington Post editorial, Dan Reicher – senior fellow at Stanford’s Doerr School of Sustainability and former assistant secretary at the DOE — compiled its own list of projects that could use Section 1706 financing, from converting power plants to fossil gas to run on hydrogen to building underground transmission lines along highways and railroads.
The section 1706 The program could also be used to decommission coal-fired power plants early through a process similar to “securitization,” which involves raising low-cost debt to shut down coal-fired power plants well ahead of their revenue-generating lifespan for the utilities that own them and reinvesting in cleaner, more cost-effective renewables. Another possibility is to finance the “reconductoring” of swathes of the US transmission grid with advanced cables that can carry more power than standard aluminum and steel cables. But even with low-cost federal funding, both of these types of projects can be difficult to cross the finish line (more on that in the next On the string column).
Speaking with Canary Media, Shah gave several other examples of how Section 1706 the lending authority could help projects that would otherwise struggle to gain private sector support. In the case of regulated utilities, an example might be “to help utilities negotiate an agreement with the regulator for projects to 80 % financed by debt instead of 50 financed by debt,” which would limit rate hikes for utility customers, he said.
Independent developers seeking to redevelop coal-fired power plants may also face hurdles in obtaining financing that meets the environmental, social and governance requirements of private lenders (ESG), even if they acquire this factory to close it and make something cleaner, he noted. “A lot of ESG the funds will not fund a coal-fired plant, even if they only own it for a week” before it closes and redevelopment work begins, Shah said. “We can help bridge that gap.