French Insider Podcast Ep. 9
What Foreign Energy Companies Need to Know about the $1.2 Trillion Infrastructure Bill
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Listen to the original podcast released December 16, 2021 here: https://www.sheppardmullin.com/multimedia-367
On November 15, 2021, President Biden signed the highly anticipated $1.2 trillion infrastructure bill. Among other infrastructure-related incentives, the bill includes billions in funding to help fight climate change and support clean energy technologies. In this episode, we speak with Tony Toranto and Bill Rappolt and they help us dive into some of those initiatives and what these changes will mean for energy companies looking to invest in the U.S. market.
Guests:
Tony is the team leader of the firm’s Energy, Infrastructure and Project Finance Team as well as a partner in the Real Estate, Corporate and Finance Practice Groups in the firm’s Del Mar and San Francisco offices, specializing on conventional and renewable projects.
Bill is a partner in the firm’s Washington, D.C. office, and a member of the Energy Industry Team, Renewable Estate, Land Use and Environmental Practice Group. He represents clients in the natural gas, electric and oil/liquids industries in commercial transactions and before federal agencies, including the Federal Energy Regulatory Commission (FERC), state utility commissions and appellate courts.
Transcript:
Sarah Ben-Moussa:
On this month's episode of French insider, we will be discussing the recently signed $1.2 trillion infrastructure bill and its clean energy components. It's my pleasure to have on the show today, our two guests, Tony Toranto and Bill Rappolt. Tony is the team leader of the firm's energy infrastructure and project finance team, as well as a partner in the real estate, corporate, and finance practice groups in the firm's Delmar and San Francisco offices, specializing on conventional and renewable projects. Bill is a partner in the firm's CC office, member of the energy industry team, renewable estate, land use, and environmental practice group, representing clients in the natural gas, electric, and oil liquids industries in commercial transactions and before federal agencies, including the federal energy regulatory commission, or FERC, state utility commissions, and appellate courts.
Sarah Ben-Moussa:
Bill and Tony, welcome to the show!
Bill Rappolt:
Thanks for having us, Sarah.
Tony Toranto:
Thank you, Sarah.
Sarah Ben-Moussa:
All right. I want to start off generally by talking about the $1.2 trillion infrastructure bill that was passed last month. It covers a lot of different initiatives. Can you break down for our listeners some of the main components that have been devoted to climate change and clean energy technologies?
Bill Rappolt:
I'd be happy, Sarah. This is a huge bill. $1.2 trillion bill, as you were saying, and over $500 billion of it is new spending above recent baseline levels. So, it has incredible breadth across many industries, and we're going to focus today on the energy and climate associated programs. And what it does is it expands programs for a lot of old programs and it also develops new programs that are going to have to be implemented by the Department of Energy and at the state and local level. So, just to get into some of the details here, a lot of it is focused on infrastructure, especially electric transmission. There's $65 billion for the development of this power infrastructure and specifically about half of that is associated with bolstering the electric transmission grid. Also, there's a focus on resilience of the electric grid. So, both in the sense of protecting the electric grid from cyberattacks and also in building resilience against climate issues that could be developing, whether that's the impact of extreme weather, wildfires, or natural disasters.
Bill Rappolt:
There's also funding in there for new EV charging to build out that infrastructure, to allow for more electric vehicles to be used across the United States. There's a new innovative program for DOE to start a revolving loan fund, to help serve and develop transmission, where it can be an anchor tenant and provide the funding necessary to get transmission projects that might not otherwise be able to get off the ground, to get the funding that they need to get built. There's also funding there for clean hydrogen for making it more commercial, realizing its development and helping get that industry further off the ground. One interesting aspect of this is it gives more backstop authority for FERC to get transmission projects approved, where they get stalled in state and local commission processes. So, that's kind of the 40,000 foot overview of what's going on here. There's some other interesting developments with batteries and carbon storage, but again, the breadth here is far, but it's a lot of funding and it's going to be implemented over many years.
Sarah Ben-Moussa:
So, safe to say it's a very ambitious bill.
Bill Rappolt:
Absolutely, definitely ambitious. And it's going to have an effect over the next five to ten years.
Sarah Ben-Moussa:
All right. So, you mentioned the power infrastructure aspects of the bill. I guess I wanted to get a little more into that. Can you talk about what that means for companies in regards to power infrastructure, but specifically in terms of the electric grid, what are they looking to do here?
Bill Rappolt:
The problem currently in the United States with getting clean energy and renewable energy built and having that energy on the grid is making sure it has access to the transmission it needs to get from where it's most cost effective for the energy to be produced, to where it's going to be actually used. So, that involves developing transmission infrastructure from either the Midwest wind corridors or the areas where we have a lot of solar resources, and making sure it gets to the cities where it can be used. So, a lot of the funding here is addressing that issue. It's developing this transmission infrastructure, it's giving DOE the ability to support projects to make sure that they get off the ground so that later, renewable generators come online, it's available for them there. And then they can support the transmission lines at that time and make sure that these larger projects that take a lot of commitment and a lot of dollars are able to be conventionally developed and make sure that these renewable projects get built and have access to every transmission.
Tony Toranto:
If I can add something to what Bill just described, I think part of your question, Sarah, in terms of what to see for power infrastructure comes from understanding that the definition of what infrastructure means under this bill is very broad. So, there will be opportunities for companies that are looking, trying to understand what changes are afoot or what opportunities there are. There will be opportunities for companies that can provide resources in cybersecurity, for example, or in other types of ways that are infrastructure related, but not necessarily hard assets with steel in the ground, could be in other sorts of different types of technologies. On the one hand, on the other hand, you can actually see, in other cases it will actually be steel in the ground with respect to the development of, for example, it could be transmission infrastructure and there will be transmission infrastructure.
Tony Toranto:
There will be transmission facilities, and there will be other types of distribution facilities, including electric charging facilities that do not exist today that will exist because they're financed with the proceeds from this bill. In addition to that, there will be power plants, renewable energy, and other new technology power plants that will be advanced and financed because of this. So, there will be infrastructure of various different types that we will see developed. And we'll see it developed because again, of the broad definition of what infrastructure means, because of that, there'll be a lot of different types of companies that can contribute and participate in the build out of what this new important infrastructure law envisions.
Bill Rappolt:
What's interesting about this bill is there is that broad support across a lot of different types of infrastructure. And a lot of those, whether it's hydrogen, batteries, or just the transmission, is to ensure that there's kind of a baseline in place that the grid can reach 100% clean energy or renewable energy in the future and addressing some of those challenges, whether it's long term storage, short term storage, or make sure we have the transmission in place to reach the goals that the country has.
Sarah Ben-Moussa:
Right. And that's sort of what's been fascinating about this process is this kind of push and pull as to what infrastructure means to people. And it's been great to see the sort of broadness and the way in which different aspects of the bill tackle different challenges currently present in the United States. And so, we've been talking about transmission projects and I think a particular interest to people would be some of the points you mentioned regarding the credit facility. So, I just wanted to touch upon the role that the Department of Energy is going to play in financing some of these projects and what that's going to mean for companies.
Tony Toranto:
I'll take that and address it maybe a couple different ways. The first thing is that the bill itself addresses not only, kind of, large scale projects, and it certainly addresses those, but it also has opportunities for the study, testing, and development of new technologies and new ways of doing things. So, I think the Department of Energy will be playing a role in some of those efforts, which again, will go out over time, where there's the opportunity for new technologies and the opportunities for there to be participation in some of the smaller, kind of, pilot type programs or studies. But then looking at it from another perspective and talking about the credit line, and again, there's the opportunity for this to be part of prior programs and there's the opportunity for some financing to be under new programs.
Tony Toranto:
But when you think about it from a private party perspective, if private industry is looking at developing infrastructure, private industry is typically going to be looking at putting capital into that, when it has real visibility on the revenue and the income that will come from that investment. How will those private parties that are putting that capital in, get a return on that investment?
Tony Toranto:
This bill envisions some infrastructure for which the path to ultimate commercial viability has a period of risk on the front end, where that opportunity's not yet fully developed. And this financing capability from the Department of Energy helps to bridge that gap and help finance projects and get them built, where there might not yet be enough certainty around a revenue stream to try and put those in place. But this can help get them to the point that then there is, then they would expect and would have commercial viability for the purposes of where private parties could step in and have the financing from that point forward. So, it'll be interesting to see how the program and financing program develops, but it is important, we're trying to make some big improvements. And sometimes that can mean putting infrastructure in places where it doesn't exist today and there's a social priority, an important priority, for getting grid infrastructure or power infrastructure into certain places.
Tony Toranto:
Well, if that hasn't happened to date, there might be some commercial reasons why that hasn't happened and the government can play a role in helping to bridge that. It can also be because it's a new technology, maybe something that isn't quite as well-tested. And so, the government's support in helping to get that off the ground can help launch and then ultimately for the benefit of companies and the benefit of the public, create in some cases, whole new industries where those technologies are launched and enabled. So, I think we're going to see a lot of wonderful things come from that.
Sarah Ben-Moussa:
Yeah. And we've spoken about this, but it's really an exciting time just because I think this particular financing support has the potential to be really transformative, like you mentioned.
Tony Toranto:
Yeah, I think it does. And it actually creates a lot of opportunities, particularly I know for this, for many different companies, certainly many U.S. companies and there is wonderful opportunity. And of course, there is an opportunity for U.S. companies here to benefit from this investment in the development of U.S. infrastructure. Of course, with this audience, there's also the opportunity for foreign companies that have technologies that can be brought to bear here in the United States to come and participate in the process.
Tony Toranto:
These investments will be made over a long period of time. And so I think entrants that get involved earlier in the process, in many cases, will stand to benefit as those different programs develop and investments are made over a longer period of time. I think that there's probably some benefit to those, it's fair to say, for those folks who enter early and start participating. But I think it's also important for foreign companies coming in to also get advice as it relates to Buy America provisions and such. I know we're going to have a follow-on podcast relating to that with some of our experts that deal with that. There are some mentions of Buy America provisions in this bill, and as it relates to that. That's kind of, again, a topic for a different day, but I know an important one for the listeners here to this podcast today.
Sarah Ben-Moussa:
Yeah, and we're very excited to also delve into some of the Buy America provisions as well. And going back just to the developmental clean energy technologies that we were discussing. I think one thing, especially in France, clean hydrogen has been sort of a key initiative as of late and it's really on the move. And so, I think what our listeners are sort of curious about is what the administration has been discussing in terms of particularly clean energy, but also other clean energy technologies that the administration might be considering, the passage of this bill and beyond.
Bill Rappolt:
So, in this bill specifically, there's a lot of funding for clean hydrogen. Specifically 8 billion for developing regional clean hydrogen hubs, which the administration hopes will help get the industry started, providing opportunities for players in the industry to be able to produce and trade the clean hydrogen to users through these hubs. There's also a billion dollars for, it's a development program for decreasing the cost of clean hydrogen production from electrolyzers, helping to make that industry more commercially viable. Our view of clean hydrogen is that it's a significant opportunity for long term storage. And there could be a lot of opportunities there in the energy industry. And we think that it has a real opportunity to participate in the electric market in the United States by filling a need. So that states like California and others that are pushing towards 100% clean energy can reach their goals.
Bill Rappolt:
Along with hydrogen, there's support in the bill for battery storage. There's a couple different programs in there for both battery material processing grants and battery manufacturing and recycling. There's also $2.5 billion for a carbon storage validation and testing program. Carbon sequestration could be also very important for being able to meet these goals of making sure that you can have either long term storage or have facilities available quickly to meet the grid needs once you get a higher penetration of renewables on the grid. So, there's some exciting opportunities in those spaces for sure, that involve emerging technologies.
Sarah Ben-Moussa:
It's really exciting. Yeah, so I think one thing that would be really helpful for our listeners is that we probably see on the news that the bill may come to the floor, here's what's happening with the timing, the sort of back and forth politics. But if we could just give our listeners a kind of high level view of where we're at with reconciliation and maybe some additional programs they haven't heard of that may or may not be on the horizon.
Bill Rappolt:
Yeah, sure. So the reconciliation bill passed the house and it was a total of $1.75 trillion. It's currently before the Senate. And we don't have any insight into exactly what's going on with those negotiations, but it's probably going to look a little bit different than the house bill, but we can give you kind of a high level summary of what's in the house bill.
Bill Rappolt:
There's a lot of funding, climate related funding to help reduce emissions through state and local programs, and providing incentives for private sector investment. So, what that means is there's extensions of the production tax credit and the investment tax credit, both for projects eligibility for when those projects begin, and also what projects would qualify for those credits. There's also a new fee on methane emissions, that's included in the reconciliation bill. There's incentives to reduce emissions from industrial and manufacturing facilities. There's reforms to oil and gas activities on public lands. And there's also fundings for grants to states, localities, and tribes to reduce their greenhouse gas emissions. So, unlike the infrastructure bill, it's more focused on providing incentives for the private industry. And it's a little bit more aggressive with the funding that's available for that, combined with the infrastructure bill, it's really a pretty fascinating change in policy or extension of the current policy for supporting these initiatives.
Sarah Ben-Moussa:
Yeah, it'll be interesting to see at the end, just because of the breadth incentives they're looking into, what we end up with. And I know our listeners are going to be tuned in, but as of now it has been wonderful discussing the bill with you. I feel like our listeners have a much better scope of what exactly is in this bill. And I'm looking forward to additional discussions as this develops. So, thank you both for being on the show.
Bill Rappolt:
Sarah, thanks for having us.
Tony Toranto:
Thank you so much for your time, Sarah. We really appreciate it.
Sarah Ben-Moussa:
As mentioned on the episode today, there are a few Buy American provisions that are currently being considered in the infrastructure bill. One of our topics in the next coming episodes will be a deep dive into these provisions. So, keep a lookout for the next episode of French Insider. Thank you again for listening.
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