Revitalizing the DOE Loan Program Office to Support Clean Infrastructure Development
Authors: David Foster, Michael Kearney, and Chris Knittel
The Biden-Harris Administration should expand the focus of the Department of Energy’s (DOE) Loan Program Office (LPO) to meet the demands of a changing energy industry. The LPO was established to serve as a backstop to private-sector financing for large-scale energy projects with embedded technology risk. The program’s success in scaling large scale power plants and manufacturing plants for next generation energy technologies is well documented. However, the energy industry has changed since the program’s beginning, and the needs for support from the federal government have evolved. For example, technology areas that were deemed risky in 2009 are now mature, and in some circumstances, for example in electricity generation, the industry structure that was historically highly centralized has become much more distributed. Modernizing the LPO is a critical means for advancing the Biden-Harris Administration’s climate agenda because the Office supports the development of clean energy projects at commercial scale, leverages private sector capital, and creates middle-class jobs.
This memo recommends three important changes to the DOE LPO:
The aperture of the LPO must be expanded to include a much larger set of technology areas. In particular, energy storage, hydrogen production and carbon capture, utilization and storage, among other nascent fields, should be supported. Authorizing legislation should be changed to give the Program Office the opportunity to support a technological area at its discretion.
The Loan Program must reduce the cost of application to incentivize more deployment of smaller projects. This will expand the potential set of projects to be supported and align the Office with overarching trends in the energy sector.
The Loan Program should expand its purview to support projects impeded by other financing risks in the energy system. These could include grid modernization, system hardening or smart grid updates (which often do not pass traditional cost-benefit analyses), and electric vehicle infrastructure deployment.
About the Authors
David Foster is currently a Visiting Scholar at MIT and previously served as Senior Advisor to U.S. Secretary of Energy Ernest Moniz from 2014-2017 on energy, environmental, climate, economic development, workforce development and labor relations issues. During that period, he designed and implemented the creation of the Department of Energy’s Jobs Strategy Council, an initiative that linked the department’s technical and financial resources to a wide group of external stakeholders including state and local governments, private sector energy and manufacturing businesses, non-profits, academic institutions, and labor unions. He led the interagency effort to create the Energy and Advanced Manufacturing Workforce Initiative, which formally linked the DoE with the Departments of Labor, Education, Commerce, Defense, and the NSF on workforce development issues.
Michael Kearney is an economist at MIT. Michael’s experience spans operations, investment and research on climate and energy issues. Michael's background combines training in economics and systems engineering with expertise in energy technology and market development. Mike holds a Ph.D. from the MIT Sloan School of Management, where his research focused on frictions in the commercialization of science, regulatory barriers to innovation and entrepreneurial strategy. Michael received an M.S. in Technology and Policy from MIT and a B.A. from Williams College.
Christopher R. Knittel is the George P. Shultz Professor of Applied Economics at the Sloan School of Management, Director of the Center for Energy and Environmental Policy Research, and Co-Director of the MITEI Low-Carbon Energy Center for Electric Power Systems Research at the Massachusetts Institute of Technology. He joined the faculty at MIT in 2011, having taught previously at UC Davis and Boston University. Professor Knittel received his B.A. in economics and political science from the California State Uniersity, Stanislaus in 1994 (summa cum laude), an M.A. in economics from UC Davis in 1996, and a Ph.D. in economics from UC Berkeley in 1999. His research focuses on environmental economics, industrial organization, and applied econometrics.