“Among those remaining, some of them aren’t willing to take the risks associated with renewable energy projects,” he adds. “Others don’t want to loan to renewable energy projects because it’s not their typical portfolio. Instead of reaching into their pockets and making a direct loan of their money, they’re standing in a position of being a trustee in the bonds. The project company will issue its corporate bonds to an accredited investor, somebody with at least $1 million net worth. The bonds themselves, but for the loan guarantee, would likely be not investment grade. With the loan guarantee on top of them, they become triple A.”

Reidy, along with colleagues at Stern Brothers, Mintz Levin, and Kreig DeVault, developed the following solution.

1. The lender steps outside of its traditional role of lending its funds to an eligible borrower.

2. Instead, the lender (the team confirmed that it expects to use a commercial/investment bank and have “a top 5 major commercial bank working with us”) acts as a trustee.

3. In this role, the project company issues taxable corporate bonds (placed by Stern Brothers) to accredited investors (but $1 million net worth investors–under SEC rules– would represent the floor, while generally the bonds will be placed/sold to institutional investors).

4. The investors place the purchase/sales proceeds into an account with the trustee bank. The trustee bank then on-lends the bond proceeds into the project.

5. The USDA and/or DOE, as part of the financing, places the loan guarantee(s) over the bonds.

6. Thus, the generally low-rated bonds essentially would become AAA-rated under the full faith and credit of the US government.

7. The trustee bank would hold legal title to each of the bonds, mortgages and other required project security during the entire term of the bonds and loan guarantee(s).

8. The bond holders similarly would hold beneficial title to the bonds during the same periods.

9. The bonds approximately would have up to a 2% lower interest rate than the 7% plus currently available as commercial lending rates.

10. They would have maturities of 15-25 years, instead of the 1-7 year tenures which banks currently are forcing renewable energy projects generally to accept (and which shorter tenures will not permit the proper amortization of such projects).

11. Only the Treasury’s Federal Finance Bank offers better terms, at interest rates of 22-75 basis points over Treasuries (or approximately 4%) and tenures of 20-30 years, available solely for the DOE Section 1703 Loan Guarantee Program (for certain new and unique technologies) and only when DOE agrees to 100% coverage of up to 80% of total project costs.

12. The program is designed to work under the USDA’s section 9003 program, or the DOE’s 1703 program under many circumstances, the DOE’s 1705 program, or the USDA’s B&I or REAP programs. A good comparative for all these programs is this comprehensive presentation from Mark Riedy of Mintz Levin.

These projects will promote investment in clean energy infrastructure that will create jobs, help communities provide long-term renewable energy and save consumers money. They will also serve as models for other local governments, campuses or small utilities to replicate, allowing other communities to design projects that fit their individual size and energy demands.

“Smaller, more localized renewable energy systems need to play a role in our comprehensive energy portfolio,” said Secretary Chu. “These projects will help create jobs, expand our clean energy economy, and help us cut carbon pollution at the local level.”

The selected projects will be leveraged with approximately $167 million in local government and private industry funding.  DOE estimates that these projects will provide enough clean, renewable energy to displace the emissions of approximately 10,700 homes.

Projects selected for awards include:

City of Montpelier (Montpelier, VT)

This project will further Montpelier’s energy goals by supporting installation of a 41 MMBtu combined heat and power district energy system fueled with locally-sourced renewable and sustainably-harvested wood chips. The CHP system will be sized to provide heating to the Vermont Capitol Complex, city owned schools, the City Hall Complex, and up to 156 buildings in the community’s designated downtown district for a total of 176 buildings and 1.8 million square feet served. By providing 1.8 million KWh of power to the grid, the system will maximize its operating efficiency and reduce thermal costs for users in the community. Montpelier will conduct outreach to encourage replication regionally and nationally through its project partners, the Biomass Energy Resource Center, the Vermont Energy Investment Corporation, and Veolia Energy North America.  DOE share: $8,000,000

Forest County Potawatomi Tribe (Forest County, WI)

The Forest County Potowatomi Tribe proposes to implement an integrated renewable energy deployment plan that will provide heating, cooling and electricity for the Tribe’s governmental buildings, displacing natural gas and propane. The renewable energy installations will include: a 1.25 MW biomass combined heat and power facility that will provide heating, cooling and electricity; a biogas digester and 150 kW generation facility; three 100 kW wind turbines (788,400 kWh/year); and three dual-axis 2.88 kW solar PV panels (14,000 kWh/yr) located at the Tribe’s Governmental Center. DOE share: $2,500,000

University of California at Davis (Davis, CA)

UC Davis’ proposed Waste-to-Renewable Energy (WTRE) system is one component of a campus oriented mixed housing and commercial development venture. The system would generate power from a renewable biogas fed fuel cell.  The organic waste will enter a receiving station in which it can be collected and prepared for digestion.  Once the appropriate mix has been created in buffer tanks, the waste will flow to the reactor where methanogenic bacteria will generate methane and carbon dioxide, hydrogen sulfide, etc. These gases will flow to the Bio-methane Upgrade System for hydrogen sulfide and carbon dioxide removal, so that cleanup is to a level appropriate for use in a fuel cell system, and the cleaned gas is stored. Housed alongside the WTRE system within the Community Energy Park will be an advanced storage battery and a 300kW fuel cell that will be fueled by the on-site biogas and provides electric power to West Village end-users.  DOE share: $2,500,000