Last July, NAATBatt International hosted a webinar on the U.S. Department of Energy’s loan guarantee program, authorized under Section 1703 of Title XVII of the Energy Policy Act of 2005. Under the program, the DOE can make up to $4 billion of loan guarantees available to developers of projects that, among other things, use new technology to produce or facilitate the production of renewable energy. The impetus for the webinar was the DOE’s designation of “advanced grid integration and storage” as one of five areas of special focus of the loan guarantee program.
During the webinar, one of the concerns raised about the loan guarantee program was that its design was better suited to facilitating the financing of large, single megaprojects, such as a wind farm or a bio-fuel refinery, rather than multiple smaller deployments of energy storage technology supporting, for example, distributed solar energy generation. More than six months after the webinar, the concern raised about the suitability of the Section 1703 program for supporting storage technology seems to have been validated. The DOE has not issued a single loan guaranty in support of a distributed energy storage project anywhere.
But the need for DOE guarantees to support the commercialization of new energy storage technology is real. Using advanced batteries to provide ancillary services on the grid is still in its infancy. Few, if any, major financial institutions are willing to accept the technology risk that an advanced battery will reliably perform its function on the grid over a ten or more years, since no advanced battery has ever been deployed on the grid for such a length of time. This is exactly the problem that Section 1703 of the Energy Policy Act is supposed to address.
A close read of the Energy Policy Acts indicates that, though the DOE has confined the use of Section 1703 guarantees to guarantying the loan indebtedness of large megaprojects, the Energy Policy Act empowers the DOE to issue guarantees in forms that would be much more suitable, and much more helpful, to the development of distributed renewable generation and distributed storage. Section 1701 of the Act specifically defines an obligation that can the DOE can guarantee as including a “loan or other debt obligation…”. Those “other debt obligations” would include manufacturers’ warrantee obligations as to the performance of their batteries on the grid or behind the meter over time.
The United States electricity grid is evolving in a way that would have seemed far-fetched just a few years ago. Distributed generation, enabled by the rapidly falling price of solar PV systems and the rising costs of maintaining many centrally located generation assets, is going to account for a major portion of the power used on the grid. Electricity storage technology will be essential to facilitating the transformation of the U.S. electricity grid from one based on centralized generation to one in which distributed renewable generation plays an important, if not eventually a leading, role.
The DOE’s current approach to Section 1703 loan guarantees of large megaprojects is a relic of an electricity system based on centrally generated electricity. That was yesterday’s grid. The Section 1703 guarantee program should be reformed to support the new technologies that will enable the grid of the future — one in which smaller, distributed projects relying on technologies that are still relatively new and unproven today will play a major role.
One approach would be to use Section 1703 authority to guarantee the performance warranties of advanced battery manufacturers whose systems are deployed in support of distributed, renewable energy projects on the grid or behind the meter. Those guarantees might initially be confined to warrantying the performance lithium-ion batteries that comply with certain standards, are manufactured in a certain way, and are operated within certain specified parameters. Industry already knows, by extrapolation, what those standards and parameters need to be. The problem is that for the financial markets, and for many potential customers, extrapolated data is not good enough. Financiers and customers want to see actual data — data that, by definition, will not be available for many years. Addressing this problem is exactly what Section 1703 is supposed to do.
NAATBatt International respectfully calls on the DOE to start thinking outside the megaproject box and to address the needs of the emerging technologies that will make distributed, renewable energy generation an important part of the United States’ energy future. A good way to do that is to use Section 1703 guarantees to backstop the performance warranties of qualified advanced battery manufacturers that deploy systems in support of distributed, renewable energy generation.