Three big transmission projects win $1.3B in DOE loans

The Biden administration has a multifaceted plan to speed construction of the transmission lines needed to decarbonize the U.S. grid. Part of that plan: offering loans to bridge the gap between securing financing to build transmission projects and lining up the buyers of the clean energy they’re meant to deliver.

On Monday, the U.S. Department of Energy unveiled plans to loan a total of $1.3 billion to three long-range transmission projects for just this purpose. It’s the first-ever award under the $2.5 billion Transmission Facilitation Program created by the 2021 Bipartisan Infrastructure Law. But according to Energy Secretary Jennifer Granholm, it’s far from the last.

That’s because the program is ​“basically a revolving fund that allows for the Department of Energy to be sort of an anchor tenant on these lines,” Granholm said in a Friday briefing ahead of the public announcement. Rather than lending money for each project’s construction and financing costs, DOE is signing ​“capacity contracts” equal to payment for up to half of the total electricity supplies each line is capable of providing.

The chosen projects are utility National Grid’s 1.2-gigawatt Twin States Clean Energy Link between New England and Quebec, Canada; TransCanyon’s 1.5-gigawatt Cross-Tie Transmission Line between Utah and Nevada; and Grid United and Black Forest Partners’ 1-gigawatt Southline Transmission Project between New Mexico and Arizona.

DOE won’t actually buy the electricity from these projects, Granholm emphasized. Instead, the loans are meant to help them ​“achieve the financing necessary” to move ahead and begin construction, she said.

Then, as the projects secure offtakers for the share of electricity purchases the loans were covering, the project developers will pay DOE back, she said. Those payments will replenish the program’s finances for the next set of projects seeking a similar ​“de-risking” boost to get the financing they need to move ahead.

The $2.5 billion available from this DOE program is only a fraction of the amount of money it will cost to build the transmission lines needed to reach the Biden administration’s target of a carbon-free grid by 2035. Studies from groups including the U.S. Department of Energy, the Massachusetts Institute of Technology and Princeton University have found that the country must roughly double or more its current transmission grid to make room for the clean energy needed to hit that goal, at a cost estimated in the hundreds of billions of dollars.

The enormity of the gap between what’s needed and what’s being built today was highlighted in a September report from trade group Americans for a Clean Energy Grid tracking 36 large-scale transmission projects now in development, including two of the three projects getting DOE loan backing. Those projects will cost a cumulative $64 billion and will enable 187 gigawatts of new renewable energy capacity, according to the report — but that still represents less than 10 percent of the new transmission capacity needed to reach a zero-carbon grid.

Nor does the pace of transmission development match the urgency needed to combat climate change. Transmission projects can take more than a decade from inception to completion, and many projects falter in the face of financing, permitting and legal challenges.

But roughly half of the carbon-cutting benefits of the Inflation Reduction Act’s hundreds of billions of dollars of tax credits and incentives for clean energy development rely on a rapid expansion of grid capacity, according to a July report from Princeton University’s Repeat project.

How DOE loans can solve a ​“chicken-and-egg” problem for transmission developers

For the ​“merchant” developers undertaking the largest and most ambitious transmission projects in the country today, getting anchor customers for electricity delivery is a big deal. Unlike the majority of transmission that’s built and financed in the U.S. — projects that are essentially paid for by regulator-approved increases on the bills of millions of utility customers — merchant developers must line up buyers for the electricity they intend to move from remote wind- and solar-rich parts of the country to the population centers where it’s needed.

This can create a ​“chicken-and-egg” problem for merchant developers, as Nicole Luckey, senior vice president of regulatory affairs for clean-energy and transmission developer Invenergy, described during an April webinar hosted by Americans for a Clean Energy Grid. Many state authorities require projects to have committed power buyers before they issue permits — but many would-be power buyers don’t want to commit until projects have all their permits in place.

Invenergy is well acquainted with the challenges of long-range merchant transmission development as the owner of the Grain Belt Express project, a $7 billion, 5-gigawatt line meant to stretch from western Kansas to the Illinois-Indiana border. Earlier this month, Grain Belt Express secured the final state regulatory approval it needs to move ahead. But it’s not yet making public the status of negotiations with utilities and corporations that it’s lining up to purchase the power it will deliver.

Two other major merchant projects — the $3 billion TransWest Express line from Wyoming to California and the $5 billion SunZia Southwest project from New Mexico to Arizona — have also won vital regulatory and permitting approvals this year and begun construction. Others, such as Pattern Energy’s Southern Spirit project from Mississippi to Texas and the SOO Green Link project from Iowa to Illinois, are still in the midst of securing the approvals needed to proceed.

Beyond expanding capacity for clean power, the three projects DOE is backing with its new loan funding will ​“strengthen critical infrastructure to keep the power on during extreme weather,” Granholm said. Multiple studies have shown that long-range transmission can help provide much-needed extra power to support grids during extreme weather events like the winter storms that have caused grid emergencies across the country in the past decade.

The bigger transmission push from the Biden administration

The $2.5 billion in lending authority isn’t the only federal funding available for transmission projects, White House National Climate Advisor Ali Zaidi pointed out during Friday’s briefing. Earlier this month, DOE announced $3.5 billion in awards from the Bipartisan Infrastructure Law’s Grid Resilience and Innovation Partnerships Program. The largest single award of $435 million will go to a set of multibillion-dollar transmission projects linking the power grids of the Midcontinent Independent System Operator and the Southwest Power Pool, two grid operators spanning nearly a dozen Midwestern states. These projects are expected to add more than 30 gigawatts of clean energy capacity between the two regions.

The U.S. Department of Agriculture also has $10.7 billion in grant and loan authority for the rural electric cooperatives that encompass more than half of the country’s landmass and serve about 42 million customers, Zaidi noted. While much of that money is expected to boost clean-energy and grid-technology projects, transmission is also eligible for funding.

DOE also released on Monday a series of reports from its National Transmission Needs Study program that identify key gaps in transmission networks across the country. This effort is meant to inform where DOE could designate National Interest Electric Transmission Corridors (NIETC) — areas where ​“electric energy transmission capacity constraints or congestion are adversely affecting consumers” — that could be eligible for an additional $2 billion in lending authority created by the Inflation Reduction Act.

NIETC-designated projects could use the federal government’s eminent-domain powers to fast-track siting and permitting of projects over the objections of local landowners, governments and state regulators. That’s a controversial proposition — previous efforts to use NIETC authority for this purpose have been blocked by legal challenges. It’s not clear how DOE and the Federal Energy Regulatory Commission, which is in the midst of crafting rules for using its ​“backstop siting” authority for these purposes, might use these powers.

Granholm highlighted that DOE’s efforts to speed transmission include ensuring that the projects it’s backing help rather than harm the communities and landowners affected by them. The three projects getting the $1.3 billion in DOE loans will ​“directly benefit rural and underserved communities who’ve obviously historically borne the brunt of the climate crisis,” she said. Those benefits will come in the form of lower-cost clean energy for the regions that will get electricity from the new lines, she said. They also include more than 13,500 direct and indirect jobs that the projects are expected to create.

DOE’s loan program requires applicants to craft community benefits plans that can ensure that a significant portion of the energy, jobs and economic benefits of the projects flow to disadvantaged communities, Granholm added. For example, as part of the Twin States Clean Energy Link project, National Grid is forming partnerships with community colleges to ​“create apprenticeship programs in a number of disadvantaged communities in New Hampshire,” she said. The utility will also fund energy-efficiency, electrification and low-cost-financing projects at local clean energy organizations, she said.

These kinds of benefits can help build community support to counterbalance the concerns of landowners, environmental advocates and other groups that have fought transmission projects in the past, she said. A notable example of a project stalled by local opposition is the New England Clean Energy Connect transmission line, meant to carry Canadian hydropower to New England power markets, which has faced a yearslong legal and political battle with opponents in Maine.

Beyond meeting the Biden administration’s mandate that its climate and energy spending assist disadvantaged communities, effective community benefits plans can ​“make sure that there is buy-in from the region so that we won’t have those same kinds of problems again,” Granholm said.