8 August 2023 Ron Erlichman Energy and Infrastructure

Navigating Carbon Capture and Storage (CCS) Financing from the U.S. Department of Energy (DOE)

Linklaters Co-Head of Energy & Infrastructure in the Americas Ron Erlichman and E&ITax Partner Judy Kwok spoke with Khalid Abedin, Managing Investment Officer at the U.S. DOE, about how to take advantage of loan opportunities at the U.S. DOE on their panel during the Houston CCS/Decarbonization Project Development, Finance & Investment conference on July 26, 2023. Abedin has over 20 years of experience in origination, debt underwriting, capital investment and risk management in the energy sector. The challenges in this burgeoning industry range from retrofitting outdated energy facilities to accommodate the three primary CCS liability issues—capture, transportation and storage—to ensuring loan program applicants have strong financial models and contingency plans at the outset of each project. Abedin advises applicants to educate themselves on CCS construction risks to prepare for the application process.

Key Takeaways:
  • DOE Takes Technology Risk. The DOE’s loan program is set up to take the risk that the commercial market won’t take.
  • DOE Loan Program Deadlines. While 1703 andCarbon Dioxide Transportation Infrastructure Finance (CIFIA) do not have expirations, the 1706 program capital has to be deployed by Fiscal Year 2026.
  • The IRA’s Impact. The DOE is open to new financing structures that may arise from the IRA but we are still at an early stage and more Treasury guidance may be needed.
  • Project Risk. The biggest risks considered by the DOE when evaluating loans are construction risk, reaching commercial operation and maintaining efficient operation of the plant under base case models.
  • Get your DOE Ducks in a Row. Credit ratings are required as well as an evaluation of operations plans and debt servicing for underwriting purposes. However, the DOE evaluates all applications equally and does not favor any type of applicant or asset.
  • Stay Tuned. The DOE is currently considering the role of additionality in assessing whether a project meets the requirement of reducing greenhouse gas emissions under a lifecycle analysis.

For more information on the DOE’s loan application process, visit their website, here: Loan Programs Office | Department of Energy.

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