What challenges will the DOE financing program for energy retrofits face?

canary media down to the wire This column tackles the more complex challenge of decarbonizing the energy system.

in us Previous down to the wire digit, laid out the basics of a new federal loan program aimed at turning old, dirty energy infrastructure into new, clean energy infrastructure.of section 1706 programalso known as the Energy Infrastructure Reinvestment Program. Inflation control lawthe U.S. Department of Energy Loan Program Office up to $250 $1 billion in corporate loans for eligible projects. This program has great potential to reshape the U.S. energy landscape, but it is often not easy.

Jigger Shah, head of the Loan Program Office, has spent the past two months discussing various projects that may be eligible for loans under the new program. Examples include diverting refineries and pipelines to clean hydrogen and recovered carbon dioxide, replacing backup generators with batteries, and developing solar farms on decommissioned mining sites. , extends to possible but not certain applications.

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some sections 1706 The loans can be expected to be used for infrastructure restructuring managed by the utility. Investor-owned utility, public utilities When electric cooperative — and unregulated divisions of independent energy companies and large utility holding companies operating in highly competitive markets. Today, utilities and independent energy companies are turning coal-fired power plants into clean energy, retrofitting old power lines to deliver more power, and restarting shut-down nuclear power plants. Securing cost-effective funding for a project can be difficult.

But lack of funding isn’t the only reason these kinds of projects fail. Simply put, when making large-scale changes to a long-standing energy infrastructure, there are many moving parts to coordinate and conflicting motivations among the parties involved.

can section 1706 Can a loan help transform a coal-fired power plant into a clean energy center?

Understand the concept of using Section 1706 Loans to reduce the cost of closing and reusing coal-fired power plants.

most US utilities not moving so fast Closing coal-fired power plants where necessary to forestall the worst impacts of climate change. One big reason is that even though the electricity that power plants produce is more expensive than electricity from renewable sources, many utilities still recoup the costs of building those plants from their customers. is doing

For the past decade or so, coal retirement advocates have centered around the following concepts: naWe are looking at “securitization” as a way to overcome the utility’s preference to keep older coal plants running. Simply put, securitization is a way for utilities to raise low-cost borrowings to cover some of the losses they would incur in closing a power plant before it has fully recovered its construction costs. provided to those A handful of states have passed laws enabling securitization, Few Coal Power Plants Closed Michigan and Wisconsin, and so far not other states like Colorado and New Mexico.

section 1706 The program does not offer securitization of the debt of such projects, but rather naIt’s an asset diversion,” Shah said. naimpossible, naI want to close this coal-fired power plant. ” it must be, naWe want to turn it into a nuclear power plant, a hydrogen facility, a solar cell facility, or a manufacturing facility,” he said, listing some of the potential redevelopment options.

under section 1706the Loan Program Office created a nationwide structure to do this, providing low-cost loans, $ or more100 a billion Value of coal-fired power plant assets paid by U.S. utility customers in monthly electricity bills According to a nonprofit think tank RMI, and replace that coal capacity with a clean alternative. (Canary Media RMI.)

This has the potential to reduce electricity bills for utility customers. nathat’s all 20 Save more than $ a year300 If used to decommission and recycle coal-fired power plants, it could be worth $1 billion to toll payers, Ben Serrurier said. RMIcarbon-free power team.

Financing coal mill redevelopment projects will also spur economic development in the coal community. Community reinvestment is a key component of the coal retirement plan. Just and equitable energy transitionsaid Serrier.

section 1706 A program should be a good tool for doing this. Projects should benefit both the communities historically supported by the facility and the toll payers who rely on the project to remodel or replace the facility, Shah said.

But what investor-owned utilities want, what regulators will allow, and what the community needs are often not aligned.

Where there is a conflict between the interests of the utility and the interests of the local community

Utilities are most interested in getting a return on investment and working out liabilities such as the cost of environmental remediation,” said Serrurier.

Regulators, on the other hand, are supposed to represent the interests of utility customers and the state’s residents as a whole. If they’re doing the job right, they’re minimizing costs to their customers, repairing the environmental damage caused by coal-fired power plants, and shifting the economy to communities that have depended on power plants for jobs and tax revenue. I would be interested in providing funding.

But for investor-owned utilities, every dollar spent on cleanup and economic redevelopment is a dollar that cannot be used to invest in new projects that benefit the company. This is one of the key holdups that turns any discussion of securitization of coal-fired power plants into a tug-of-war between utilities, regulators, and other stakeholders.

So the section 1706 The program has the potential to create a national framework for funding that works similarly to securitization, including states that have not passed securitization laws, but the underlying tensions that make this process difficult. It doesn’t work.

Ron Binns, former chairman of the Colorado Public Utilities Commission, said: Advice on the energy transitionnoted that utilities are profiting under the current status quo and may not have sufficient incentive to shut down coal plants early via securitization or similar new processes under the section. doing 1706.

Utilities are now eating the cake when it comes to moving from coal and natural gas to solar and wind,” he said. We want our customers to continue to pay for the unrecovered costs of our coal-fired power plants after they are shut down, while still getting a consistent rate of return from our customers on new clean energy investments. .

Utilities may be motivated to seek out DOEs Binz said if regulators fear not approving their proposals that drive up costs for customers. But it’s hard to predict how utilities and regulators will reach consensus on how ready they are to try. 1706.

For example, in Arizona, the utility Arizona Public Service offered to pay its customers a fee of $1.144 A million economic transition plans have been developed to help tribes and other communities that have relied on soon-to-close coal-fired power plants. Ratepayer proponents argue that utility shareholders, not customers, should pay the majority of the plan. Staff at the Arizona Corporation Commission, Arizona’s utility regulator, recently Toll Payer Defender’s Side.

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