Canarian Media Down to the line column addresses the more complicated challenges of decarbonizing our energy systems.
The Inflation Reduction Law includes $369 Billions 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 Office of Lending Programs the power to drive not only the construction of new clean energy resources, but also the conversion of old or dirty energy infrastructure into new or upgraded clean facilities and the revitalization of communities that have old infrastructure sits now.
In the implementation of the Energy Infrastructure Reinvestment Program – also known as Section 1706 Program – the Loan Programs Office can make up to $250 Billions in low-interest loans. This is a tremendous opportunity: $250 Billions is enough money to radically restructure entire parts of the US energy landscape.
Projects aimed at shutting down or repurposing dirty infrastructure can be difficult to fund through traditional private sector debt models, and the tax credits and incentives offered under most Inflation Reduction Act programs are geared towards building new projects rather than on the conversion of old projects. 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 connection challenges they face when building new clean energy projects. Coal power plants have massive power lines and transformers that can be used by other types of power plants, for example, and existing transmission lines can be upgraded with new power cables much easier than building brand new transmission corridors. And finding new uses for dirty power plants or petrochemical plants can create jobs and tax revenue in communities that would otherwise struggle if they shut down.
The section 1706 The program differs from other programs administered by the Loan Programs Office in important respects, notably:
- Projects are not required to be technologically innovative.
- It expires relatively soon, at the end 2026.
- It basically works on a first come, first serve basis.
However, many questions swirl around about this novel program. Most of the companies that could benefit from it don’t have a clear idea of what kind of projects they could get loans for and how the system will work.
In this column and an upcoming episode, we’ll cover the basics of the section 1706 program and explore the opportunities it presents and challenges that may limit its reach.
What types of projects can qualify?
The Inflation Reduction Act states that Section 1706 Program may offer loans for projects that “retrofit, retool, repurpose or replace decommissioned energy infrastructure or activate infrastructure that is still operational “To avoid, reduce, use or bind CO2 emissions or air pollutants. This could include a dizzying array of projects.
“The entire energy infrastructure ecosystem qualifies to participate in the 1706 program,” Jigar Shah, Head of DOE‘s Loan Programs Office, Canary Media said in a recent interview. Since the anti-inflation bill was passed, his office has received a variety of proposals for the program, he said — and the variety could be even greater.
The section 1706 The program could provide loans to energy developers to convert coal and fossil-gas plants into solar and wind farms backed by battery storage, Shah noted in a recent conversation with Bloomberg. Similar projects have been proposed for locations in Illinois, Louisiana, New Mexico and other states.
Small modular nuclear power plants could recently be built on former sites of coal-fired power plants DOE Study suggests whether SMRs are ready for commercial-scale deployment. Existing nuclear plants that are struggling to stay open or that have already been shut down could be upgraded to run decades longer, he said, citing the example of Michigan’s recently closed Palisades power plant.
Existing power plants could be used for purposes other than electricity generation, Shah said, such as the former coal-fired power plant in Somerset, Massachusetts, which is being converted to make transmission cables for offshore wind farms and an offshore wind farm with the facility’s existing onshore wind farm connect power connectors.
And power plants aren’t the only potential target. A number of oil refiners and fossil gas pipeline operators have approached the Loan Programs Office with ideas to repurpose their systems to produce or transport clean hydrogen or carbon dioxide from power generation or industrial sites, Shah said in a September podcast .
in one Washington Post op-ed, Dan Reicher – Senior Research Scientist at the Doerr School of Sustainability at Stanford and formerly Associate Secretary at the DOE — created his own list of projects that Section could use 1706 Funding, from converting fossil gas-fired power plants to run on hydrogen to building underground transmission lines alongside highways and railroads.
The section 1706 Program could also be used to phase out coal-fired power plants through a similar process “Securitization,” which involves raising low-cost debt to shut down coal-fired power plants well before their revenue-generating lifetime for the utilities that own them and reinvest in cleaner, lower-cost renewable energy. Another option is to finance the ““Rerouting” swaths of the US transmission grid with advanced cables that can carry more power than standard aluminum and steel cables. But even with inexpensive federal funding, both of these types of projects can present a challenge to get across the finish line (more on that in the next Down to the line Pillar).
Speaking to Canary Media, Shah gave several more examples of how Section 1706 The lending authority could help projects that might otherwise struggle to get private sector support. With regulated utilities, this could be an example “to help utilities negotiate a deal with the regulator for future projects 80 percent debt-financed instead 50 percent debt-financed,” which would limit rate hikes for utility customers, he said.
Independent developers looking to rehabilitate coal-fired power plants may also encounter obstacles when it comes to obtaining financing that meets the environmental, social and governance requirements of private lenders (IT G) standards, even if they acquire this facility to shut it down and do something cleaner with it, he noted. “Many IT G Funds will not fund a coal plant even if they only own it for a week,” Shah said before it closes and cleanup work begins. “We can help close that gap.”