On February 8, the U.S. Department of Energy (DOE) released draft guidance (Draft Guidance) on the Infrastructure Investment and Jobs Act (Act) (known as the Bipartisan Infrastructure Law) Section 247 incentive, one of the key hydroelectric provisions offered by the legislative package. The Act, which President Biden signed in November 2021, provides $553.6 million in total funding to the Section 247 program for “capital improvement” projects that maintain and enhance existing hydroelectric facilities to ensure generators continue to provide clean electricity, while integrating renewable energy resources such as wind and solar, improving dam safety, and reducing environmental impacts. The Draft Guidance focuses on the Section 247 application process and how DOE will rate and select incentive recipients. DOE will accept comments on the Draft Guidance until February 28th, which provides hydropower licensees an opportunity to help shape the final guidance, and alert DOE to any potential obstacles that could prevent licensees from successfully participating in the Section 247 program.
Background: Section 247 Program
The Act added a new Section 247 to the Energy Policy Act of 2005, which allows DOE to make direct payments to hydropower operators for capital improvements within the following categories: (1) directly related to improving grid resilience (including the addition of energy storage such as reservoir capacity, pumped storage hydropower, and batteries); (2) for the purpose of improving dam safety; and (3) related to environmental improvements. The Act contains two limitations for the incentive payments: first, payments can be at most 30% of the costs of the applicable capital improvement(s); and each project can receive up to $5,000,000 .
Draft Guidance Programmatic Considerations
The Draft Guidance provides some important programmatic considerations, which are summarized below.
- Who can apply?: DOE’s guidance provides that it may grant incentive awards to a “qualified hydroelectric facility,” meaning: (a) a FERC-licensed hydroelectric project or exempted project; (b) that was placed into service before November 15, 2021; and (c) is in compliance with all applicable Federal, State, and Tribal requirements, or would be brought into compliance with all applicable Federal, State, and Tribal requirements as a result of the capital improvements funded by the incentive payment.
- What projects can qualify?: DOE’s guidance states that capital improvements will qualify for the Section 247 program if they have already received all Federal, State, and/or Tribal authorizations and completed any required federal environmental review processes under the National Environmental Policy Act of 1969 (NEPA). For projects determined by DOE to need additional NEPA review, the recipient must be prepared to complete the NEPA review process and any similar reviews (e.g., biological evaluations, reviews under the National Historic Preservation Act, environmental assessments), and may be required to prepare certain records needed to undertake that review. These related costs may be considered part of the project cost.
- Can an applicant apply for multiple hydropower projects?: Applicants may submit one or more applications for funding, including for multiple hydropower projects; however, the total available funding per eligible hydropower project is $5,000,000.
Capital Improvement Sub-Categories
Section 247 provides that capital improvements in three sub-categories—resiliency, dam safety, environmental improvements—are eligible for incentives. The Draft Guidance provided additional detail on the types of improvements that will fall into each category. In its discussion of each sub-category, the Draft Guidance also discusses how projects will be selected in the event that the Section 247 program is over-subscribed (meaning the amount of incentives requested in eligible applications exceeds the funding appropriated).
First, the Draft Guidance explains that resiliency improvements are those that would allow a project operator to (1) adapt more quickly to changing grid conditions; (2) provide ancillary services (including black-start capabilities, voltage support, and spinning reserves); (3) integrate other variable sources of electricity generation (i.e., wind and solar); and (4) managing accumulated reservoir sediments. In the event of oversubscription, the Draft Guidance explains that scoring will be weighted toward maximizing operational flexibility, firm capacity, and ancillary services, and provides alternatives to reservoir dredging.
Next, it provides that dam safety improvements are those that would enable a project operator to (1) maintain or upgrade spillways or other appurtenant structures; (2) make dam stability improvements, including erosion repair and enhanced seepage controls; and (3) upgrade or replace floodgates or perform natural infrastructure restoration or protection to improve flood risk reduction. In the event of oversubscription, the Draft Guidance explained that scoring will be weighted toward high-hazard dams in poor or unsatisfactory condition to minimize threats to public safety.
Finally, the Draft Guidance explains that environmental improvements are those that would involve (1) adding or improving safe and effective fish passage, including new or upgraded turbine technology, fish ladders, fishways, and all other associated technology, equipment, or other fish passage technology to a qualified hydroelectric facility; (2) improving the quality of the water retained or released by a qualified hydroelectric facility; (3) promoting downstream sediment transport processes and habitat maintenance; and (4) improving recreational access to the project vicinity including roads, trails, boat ingress and egress, flows to improve recreation, and infrastructure that improves river recreation opportunities. Additionally, the Draft Guidance provided that a FERC license condition should be satisfied by the capital improvement, and that scoring will be weighted toward new fish passage, new improvements to water quality, improving downstream aquatic habitat, and providing new recreational access.
Payment of Incentives
DOE in the Draft Guidance stated that it proposes to make up to two separate payments to eligible applicant, subject to available funds. For eligible projects that have not reached completion, DOE stated that it will make an initial incentive payment, upon DOE project approval, of a predetermined amount, determined on a case-by-case basis, not to exceed 10% of the total project costs. Additionally, the guidance provides that DOE may set milestones for completion of the capital improvement(s) based upon a review of the milestones.
Other Guidance Considerations
- DOE may allocate up to 25% of the overall available funding for “small” projects (projects under 10 megawatts (MW)).
- DOE seeks eligible projects that not only contribute to the country’s energy technology and climate goals, but also promote the following goals: (1) create good paying, high quality, local jobs; (2) advance diversity, equity, inclusion, and accessibility for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality, (3) support meaningful community and labor engagement; and (4) contribute to the goal that 40% of the overall benefits from certain federal investments flow to disadvantaged communities (the Justice40 Initiative).
- DOE intends to expend all available funds for eligible projects through at least one solicitation.
- Note that there are Buy America requirements, and projects that procure materials and equipment without reviewing this requirement may encounter challenges and may require waivers.
Next Steps at DOE
DOE will host a public meeting on February 16th, and comments are due February 28th. The solicitation inviting hydroelectric projects to apply for the incentive is expected to be released shortly thereafter.
DOE also anticipates that it will release draft guidance on its Section 243 program in the coming months, which provides $75 million in incentive payments for the Hydroelectric Efficiency Improvement Incentives Program. Under Section 243, owners or operators of existing hydroelectric facilities, including pumped storage hydropower, may apply for funding to make capital improvements that can improve their efficiency by at least 3%.