FIPP May Streamline DOE Loan Guarantee Awards

By Gregory J. Lynch and Melissa M. Turczyn | November 11, 2009
The implementation process for the U.S. DOE loan guarantee program has long been criticized as slow, expensive and inefficient. The DOE has been attempting to address these concerns, and the recent announcement of its long-awaited Financial Institution Partnership Program is a step in the right direction. Although the terms of this announcement do not apply to leading-edge biofuels projects under the DOE loan guarantee program, the formal introduction of the FIPP has the goal of streamlining the DOE loan guarantee process and helping to restart the lending markets for conventional renewable energy technologies by providing partial loan guarantees used to finance commercially accepted renewable energy systems. Further, the principles under the FIPP may be applicable to future DOE loan guarantee solicitations.

Types of Projects
The Oct. 7, solicitation that introduced the FIPP only applies to commercial technology, renewable energy generation projects and not to manufacturing, transmission or leading-edge biofuels projects. The following non exclusive list of potential types of eligible projects may be applicable to ethanol producers who are seeking large-scale replacement of natural gas or coal with renewable energy generation:

Closed-loop biomass facility

Open-loop biomass facility

Landfill gas facility

The DOE has indicated that a future DOE FIPP solicitation is expected to afford opportunities for the submission of additional loan guarantee applications in support of commercial renewable manufacturing projects.

Financial Institution Partnership Program
The FIPP is intended to make the loan guarantee process more efficient by the DOE relying on lead lenders who satisfy the DOE's underwriting criteria for much of the underlying credit analysis of eligible projects. Each loan guarantee will be expected to have a lead lender who has experience being a lead lender or underwriter in large commercial projects or energy-related projects. The lead lender will act as the administrative agent for the obligation and will service the obligation.

Under the FIPP, financial institutions will apply directly to the DOE for a loan guarantee and the DOE is expected to review each application with a primary focus on confirmation of the lender's internal underwriting and credit analysis. The maximum debt financing allowed under the FIPP is 80 percent of the total project costs and the DOE will provide a full faith and credit guarantee up to 80 percent of the principal amount of the debt. Participating financial institutions will share in the risk associated with each loan under the FIPP on a pari passu basis with the DOE, as they will be expected to fund and retain all or a substantial portion of the debt. Each financial institution participating in the FIPP will be required to execute a loan agreement and guarantee agreement which will contain certain transfer restrictions on the debt.

We hope the introduction of the FIPP will expedite the granting of DOE loan guarantees for commercial renewable energy generation projects. More importantly for ethanol producers, we hope that the FIPP and other policies adopted by the DOE will be applied to future solicitations for manufacturing and leading-edge biofuels projects.

Gregory J. Lynch is the co-chair of the renewable energy team and Melissa M. Turczyn is a member of the renewable energy team at Michael Best & Friedrich LLP, a full-service law firm serving the renewable energy industry. Reach Lynch at (608) 283-2240, gjlynch@michaelbest.com or http://twitter.com/Renewable_Energ. Reach Turczyn at (608) 257-7484 or mmturczyn@michaelbest.com.