Yes, Obama Said “Microgrids”…and Microgrid Loan Guarantees too

Aug. 27, 2015
It’s always a big deal when an energy technology catches the attention of the highest office holder in the U.S. Such was the case this week when Obama talked about microgrids — and microgrid loan guarantees. Here are some details on the financing.

It’s always a big deal when an energy resource, especially one that’s just beginning to make commercial inroads, catches the attention of the highest office holder in the United States.

Such was the case this week when President Barack Obama talked about microgrids in his keynote address before the National Clean Energy Summit in Las Vegas.

We’re not sure if it was the first time Obama mentioned microgrids in a major speech, but it was the first time we caught it.

Obama was talking about the rise of a distributed energy paradigm in the U.S. (See our article on Obama’s address here.) Microgrids came up in the context of $1 billion in loan guarantees that the Department of Energy is offering for distributed energy.

The DOE is offering the loan guarantees to help distributed energy resources, including microgrids, overcome the lending barriers often faced by new technologies. Commercial lenders don’t want to take a risk on innovation until it has a solid credit and operating track record — which creates a kind of Catch-22. Without financial backing, the technology has little chance to prove itself. Hence, the federal loan guarantees.

Distributed energy developers have shied away from the federal loan guarantees because of unclear eligibility rules. So the agency issued a supplement to explain the terms more thoroughly and encourage distributed energy to apply.

To be eligible, the applicant must put distributed energy at multiple sites, in keeping with a master business plan. The idea is to aggregate several small projects that are too small to attract investor interest individually.

The DOE illustrated three possible lending structures.

In the first, the borrower develops, constructs, operates and owns revenue-generating distributed energy at multiple sites. The developer contracts with an experienced EPC master contractor to install the technology.

Under the second scenario, the borrower derives its revenues from standardized contracts, such as equipment leases or power purchase agreements with multiple host site-owners. Two or more installers are involved.

The third scenario occurs when a borrower uses a mobile technology and derives revenue from setting up and operating the technology at multiple customer sites.

Credit: DOE

The guidance also clarifies that:

  • State-affiliated financial entities, including state green banks, may submit applications for distributed energy projects
  • State and state-affiliated entities may participate in distributed energy projects as lenders or co-lenders, equity providers, or off-takers.

The DOE will take new applications for the $1 billion of loan guarantees through two programs, the Advanced Fossil Energy Projects and the Renewable Energy & Efficient Energy Projects solicitations.

Between the two agencies, a range of distributed energy resources can apply for the loan guarantees. The DOE provided illustrative lists that include many technologies found in microgrids, such as combined heat and power, district energy, solar, distributed energy storage, demand-management systems, building energy efficiency and islanding technology.

The program will be available following a 45-day Congressional notification period.

Renewable energy made a meteoric rise after 2008 when Obama became the first president to talk about renewables in an inaugural address. Of course, there were many other contributors to renewable energy’s ascendency, including federal tax credits, state efforts, and market will. Still it’s not a bad thing for an energy technology — this time microgrids — to find its name easily rolling off the tongue of a U.S. president.

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About the Author

Elisa Wood | Editor-in-Chief

Elisa Wood is the editor and founder of EnergyChangemakers.com. She is co-founder and former editor of Microgrid Knowledge.

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