In the wake of November’s election, the fate of the Department of Energy’s $400 billion loan program was a major question mark in the incoming administration’s plans. For those watching the Loan Programs Office closely, there seemed two potential pathways in Trump 2.0: hibernation (which is effectively what happened during Donald Trump’s first administration), or a pivot away from clean energy.
In the weeks since inauguration, though, it has become clear that the administration is opting for the latter.
First, the office’s leadership has begun to shape. Trump appointed John Sneed, who served as executive director during the first Trump administration, to lead what is now a much-expanded office. The fact that Trump appointed someone to lead LPO so early in his second term is evidence that the office will be much more active this time around, said John Lushetsky, senior vice president of ML Strategies.
And Sneed quickly got down to work disseminating the administration’s hopes for LPO. As Bloomberg reported this week, Sneed has said the office will focus specifically on technologies favored by the new administration, like nuclear power and natural gas.
As Peter Davidson, who led the office during the Obama administration, explained, a second Trump administration is “very dangerous” for LPO, regardless of whether it makes more active use of the agency than the first time around. That’s largely because there are billions of dollars in loans that haven’t yet been dispersed.
“The problem is that every loan, once it’s been approved by LPO and the Secretary of Energy, has to go through a system of approvals in Treasury and also Management and Budget,” Davidson told Latitude Media just after the election. “To the extent there are actors in those positions who don’t want to authorize the loans, they just will not be authorized no matter what the legislation says.”
Sneed served as the LPO director for just over two years, during the first half of the Trump administration, but departed in 2019 when he became chief of staff for Energy Secretary Rick Perry. As Lushetsky put it, during Sneed’s first tenure, “LPO was not actively promoted to do anything other than the Vogtle project, and to manage the existing portfolio.”
Today, though, after four years led by Jigar Shah, LPO’s impact has ballooned. Sneed will be overseeing a greatly expanded loan authority, plus a much more robust portfolio of existing projects that the office is tasked with managing. And if he succeeds in the Trump administration’s apparent aims for LPO, the consequences for the clean energy industry would be much graver than the first time around.
The funding is designed to spur private capital, which means that any Trump administration attempt to cancel loans wouldn’t just withhold the roughly $100 billion that Shah’s LPO allocated from the market, but rather several times that amount. BNEF has estimated that nearly 20 times more private capital was invested in utility scale solar in the wake of LPO’s first loan to the sector, and nearly 2.5 times as much invested in utility scale wind.
Clawing back funds
Before Biden left office, LPO had allocated around a quarter of its total loan authority, or more than $107 billion; that included roughly $47 billion for conditional commitments and more than $60 billion for closed loans and loan guarantees. That left billions of dollars uncommitted. And even of the committed money, a significant portion hasn’t gotten out the door yet.
It’s the conditional commitments, including the nearly $23 billion to electric utilities that LPO announced in its final week, that are the most at risk. According to Emily Hammond, an energy and administrative law professor at George Washington University who previously served as deputy general counsel for environment and litigation at DOE, LPO could end up “simply sitting on those obligations until time runs out to do the final closing.” (Conditional commitments come with an expiration date no more than two years after they are issued.)
Speaking during the week of Trump’s inauguration, Lushetsky said that the very best case scenario now for those loans is that they just take longer to be finalized.
But in general, Lushetsky said he’s advising clients who have been selected for federal loans but have not signed final contracts not to bet on them coming through. “Don’t expect things to go quickly,” he said. “And frankly, your award is at risk.”
Finalized loans have clearer legal protection, though those funding unfavored projects still face uncertainty. Whether Sneed and his new LPO team can legally walk back those finalized contracts is still unclear. The attempt would almost certainly have to be resolved in court (read: not anytime soon.)
“With the closed loans, those are final contracts, and if the new Trump administration were to try to cancel those contracts, that would give rise to the potential for a lawsuit for the project to enforce the contract,” Hammond explained.
That said, money for loans is generally disbursed over a period of years, as projects meet certain milestones and requirements, which the administration may have some bandwidth to change around, they added.
As Davidson put it: “If there’s a real desire not to approve those outlays, [the administration] will. The project can just die in Treasury or Office of Management and Budget.”
