The Department of Energy’s recent $6 billion funding announcement for decarbonization projects is likely to spur future investment from traditional infrastructure investors in the nascent energy subsector.
The Industrial Demonstrations Program will focus on the highest-emitting industries where decarbonization technologies will have the greatest impact, such as iron and steel, aluminum, cement and concrete, and other energy-intensive industrial processes.
US Secretary of Energy Jennifer Granholm said: “President Biden’s transformational investments in innovation and clean energy are supporting American industries as they create new economic opportunities across the country while leading the world in clean manufacturing technologies.”
The Office of Clean Energy Demonstrations (OCED), in collaboration with the Office of Manufacturing and Energy Supply Chains (MESC) and the Industrial Efficiency and Decarbonization Office (IEDO), manages this program, and will provide up to 50% of the cost of each project.
“The big gap is that new technology needs help before it can be deployed in any kind of scale, and this is a massive scale challenge – overwhelming from a scale standpoint,” Elias Hinckley, partner at energy law firm Baker Botts, tells PFR.
“This is for the industrial heat side of the world the first real foray into the funding piece. From that standpoint this is an exciting opportunity to really be able to fund projects and start the process of getting these products and solutions into the market at scale.”
The desire for decarbonization solutions has been around for a while, but it’s a slowly evolving market. Historically, it’s never been under the umbrella of tax credits, it’s technologically behind electrification, and the integration process is harder than for power projects.
As such, the major obstacle for decarbonization has been that it is expensive to own and operate this infrastructure. So while early-stage investors have helped companies build this technology, they've only done so on select projects as proofs of concept. As yet, typical infrastructure investors have not been willing to fund further expansion, and so paying for the next set of projects has been difficult.
“That’s the place this money can really have an impact in getting some of these solutions into the wider market. It’s more catalyzing dollars than it is an actual solution,” says Hinckley.
A US government stamp of approval is also deemed desirable by investors, and may aid conversations with institutional investors.
“I think it does make it a little easier to have that conversation when you are out in the capital markets. They’re not going to use that to stand as their own diligence, but it does open some doors,” says Hinckley.
In order to take advantage of the funding, concept papers are due by 21 April 2023, and full applications are due by 4 August 2023.