The massive infusion of money the clean energy investment landscape enjoyed via the Inflation Reduction Act and Bipartisan Infrastructure Law now appears on the verge of disappearing just as quickly as it came.
But as the Senate works to finalize a Trump budget bill, efforts are ongoing to shore up some protections for clean energy. There’s just a small window for non-federal actors to attempt to save a slew of projects — by designing a new financing paradigm for clean energy, and ideally better preparing the sector for long-term stability at the same time.
Many of the country’s biggest clean energy projects currently facing uncertain futures were developed with a backbone of federal financing, explained Hannah Safford, associate director of climate and environment at the Federation of American Scientists.
“Now that backbone is being taken away, and it doesn’t necessarily mean that the projects are no longer viable, it just means that we need to restructure how we’re approaching them,” she said.
In a new white paper exclusively shared with Latitude Media before publication, FAS, in collaboration with Climate Group and the Center for Public Enterprise, outlines a roadmap for scaling subnational project finance for climate projects. It was based on a series of closed-door conversations with developers, financiers, and local-level stakeholders.
The immediate challenge, Safford explained, is stabilizing high-impact projects in the U.S. that were shovel-ready before the second Trump administration withdrew, or threatened to withdraw, funding. That requires stakeholders to come together to direct bridge funding toward those projects, via a suite of financing mechanisms designed to leverage public sector advantages.
Revolving loan funds, for example, allow public entities to provide lower-cost debt financing that can help attract private capital, with loan repayments recycled for future projects. Another key mechanism is joint procurement, where multiple buyers coordinate purchases, increasing volume and reducing costs early on in a tech’s maturation. (One key example the white paper outlines here is that of cities jointly buying electric buses to get better pricing and streamline contracts.) Public equity participation, meanwhile, could allow states to take small ownership stakes in projects, sharing both risks and revenues.
Critically, Safford and her co-authors said, these mechanisms leverage the “superior bond ratings” of state institutions, thereby reducing borrowing costs substantially.
Identifying projects
This pipeline of relatively de-risked, developed, and investable projects can no longer rely on the federal government, Safford said, and therefore need bridge funding or other investments in the immediate future. But the first step in getting that financing is identifying projects in need of support.
Top of mind for Safford are projects seeking funding by the Department of Energy’s Loan Programs office. Many of LPO’s projects are likely to be viable on their own, she added, but filling in the near-term funding gap through other means could boost the number that survive.
Jigar Shah, who led the Loan Programs Office during the Biden administration, said it may be challenging now for projects that received loans to raise the required capital to match that financing. “But states could come up with some of that cash, because for them it’s more about economic development,” he explained.
Where LPO is limited in the amount it can loan out, based on whether and when it will be paid back in full, states can value other elements of a project, he said. “States could be like, well there’s going to be 1,500 jobs in a part of the state that needs economic development, so we’re happy to subsidize it,” he explained.
Outside of LPO, Stafford and her co-authors suggested that pinpointing which projects would make good candidates could be quickly accomplished through Requests for Information, like the one the New York Power Authority recently used to find clean energy projects in the state. In that case, the RFI essentially “pulled a 3.5-gigawatt pipeline out of thin air in less than a year.”
The RFI approach doesn’t require new legislation, and could be adopted by other public entities with bonding authority, the white paper suggests.
Another pathway to identifying projects is through existing databases of projects, such as those funded by or proposed for funding under the IRA or IIJA. There’s even the possibility of creating a “matchmaking platform,” modeled on a similar effort to connect donors with aid programs facing risk due to USAID cuts.
Existing projects that are already vetted by the federal government are primed for state-level investment, Shah said. But for future projects, state actors need to understand what makes a good project.
“I had lots of conversations with governors where they [said] it’s super good to have [LPO] do all the diligence, and then for us to be more confident in giving them an economic development package,” he said. But that vetting role is not one that states currently have the resources to fill, “and they never will.”
“We need governors now to recognize that they need Citibank or somebody to vet these projects,” Shah added. “It can’t be that their economic development people do the vetting.”
The private sector’s role
In many ways, the subnational landscape is primed to step up in the current moment, Safford said. The ecosystem of green banks, for example, has expanded dramatically in recent years, thanks to the “crowding in effect” of federal funding during the Biden administration.
“When Tesla was starting to build out itself, the only entity that was willing to step in and assume that risk and pay for a lot of the money up front was the federal government,” Safford said, nodding to the EV company’s loan from the Loan Programs Office in 2010.
“That’s not true now,” she added, pointing to the recent launch of Slate Auto, an EV startup backed by Jeff Bezos. “That’s entirely privately funded, but it’s still a new, giant company in the transportation space.”
After the immediate problems of stabilizing projects have been addressed, Safford added, there’s general agreement that climate and clean energy need “a new paradigm” for driving progress. That effort, she said, requires building up and demonstrating the capacity of subnational players like states, philanthropies, green and infrastructure banks, and other financial institutions.
In the last decade, energy as a sector has been very focused on Washington, D.C., and a “top-down, regulatory-driven, federal funding-driven” strategy for scale, Safford said.
But that’s beginning to change: “What we’re starting to transition into is a longer-term, politically durable and economically durable, polycentric strategy…with the federal support being part of the scaffolding instead of the load-bearing center.”
Editor’s note: This story was updated on June 18 to incorporate an interview with Jigar Shah.
