July 11, 2017

House Energy and Water Bill Cuts Spending on Energy Efficiency and Renewables in Half

Holland & Knight Government Energy Finance Blog
Taite R. McDonald

Last week, the House Appropriations Subcommittee on Energy and Water released a bill that significantly slashes funding for the Department of Energy (DOE) for Fiscal Year (FY) 2018, especially to key programs that support energy innovation, energy efficiency, and renewable energy. While the bill does not go as far in the proposed cuts as the President’s FY 2018 budget proposal, as we detailed in a prior blog, it would cut federal spending at the DOE in half and eliminate loan guarantees for innovative energy projects and the Advanced Research Projects Agency-Energy (ARPA-E) entirely. While the proposal has already garnered significant pushback from industry and both sides of the isle in the Senate, this measure goes farther than many had predicted the House would go. More than ever, industry must reach out to members of Congress and let them know why support for energy innovation matters.

Specifically, this is how the bill impacts key DOE offices:

  • Office of Energy Efficiency and Renewable Energy – Cut $986 million
  • Office of Electricity Delivery and Energy Reliability – Cut $11.4 million
  • Office of Nuclear Energy – Cut $48 million
  • Office of Fossil Energy – Cut $33 million
  • Loan Programs Office – Rescinds authority to issue loan guarantees after October 1st and eliminates $160 million appropriated to cover credit subsidy costs.
  • Office of Science – No change from FY 2017 omnibus
  • ARPA-E – Eliminates all funding or $306 million

Appropriators lead by Chairman Mike Simpson (R-Idaho) note that the bill was drafted in a tight budget environment and aims to support nuclear safety, national infrastructure, and basic science and early-stage energy R&D. This rationale, however, stands at odds with the proposed elimination of ARPA-E, which exists to solely further early-stage energy R&D that has the potential to disrupt energy technology markets and transform the nation’s energy sector. ARPA-E has a strong track record of success since its creation in 2009 – according to a recent assessment by the National Academy of Sciences – in funding out-of-the-box, transformative research into energy technology. Indeed, the report concludes that “ARPA-E is making progress towards achieving its statutory missions and goals” with “no signs that ARPA-E is failing, or on a path to failing, to deliver on its missions and goals.” The report asserts that there is no need even for reform of ARPA-E, as it has set the standard for energy research across the globe.

Both Democratic and Republican Senators have signed letters prior to the release of the House energy and water bill asserting strong support for the DOE’s energy programs generally and ARPA-E specifically, as a response to the cuts proposed in the President’s FY 2018 budget. Since the release of the House energy and water bill, industry groups – including those representing advanced fossil and nuclear technologies – have sent letters to appropriators arguing for the importance of American innovation in energy and the role that DOE programs play in maintaining economic competitiveness internationally. Some Republican Senators have voiced significant concerns over the House bill including Senate Appropriations Subcommittee Chairman Lamar Alexander (R-Tennessee), who claimed that eliminating ARPA-E is “not what we are going to do.”

Still, there is less organization around protecting the loan guarantee programs, which are more controversial in Congress and less widely understood. For instance, many do not know that the majority of funding authority provided to the Loan Programs Office is specifically for advanced fossil and nuclear technologies as opposed to energy efficient and renewable energy technologies. One could argue that such an office clearly aligns with the Administrations “all of the above” energy strategy, is likely to create significant numbers of jobs, and could be an existing platform for Trump’s infrastructure initiative, which will have difficulty getting funded by Congress in this austere budget climate. Despite some high-profile failures several years ago, the Loan Programs Office has been profitable since 2014.

While there is still much uncertainty surrounding the fate of the House appropriations bill – with the first markup scheduled this week – this development in the Energy and Water Subcommittee marks the most significant threat to date to DOE federal funding opportunities. Many industry analysts including ourselves did not think the House bill would go as far as it did, given the bipartisan support for these programs and the fact that they were created by a Republican President. While some DOE programs will likely survive, especially early-stage R&D programs, the ultimate outcome of these budget negotiations will reflect the degree to which industry stakeholders speak-up and make themselves heard in Congress. We encourage industry stakeholders with near- and long-term program interests to communicate with their representatives and collaborate to protect these integral government programs. For more information on how to efficiently and effectively reach out to members of Congress, please don’t hesitate to reach out to a member of Holland & Knight’s Government Energy Finance Team.

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