The loan guarantee to Holtec Palisades, LLC (“Holtec”)—a subsidiary of Holtec International—is for “general restoration and maintenance activities” to support the potential resumption of power operations at its Palisades Nuclear Plant (“Palisades”) in Michigan, which closed in May 2022. Holtec plans to have Palisades generating power again by October 2025, a feat that would be the first of its kind in the United States for a plant that had been permanently shut down.
Background on LPO
The LPO is a product of the Energy Policy Act of 2005, which permitted DOE to guarantee loans for projects that reduce carbon emissions or employ innovative technology. Additional laws have expanded that authority—and funding—so that today, LPO administers four programs and manages a portfolio of over $30 billion in loans for clean energy, advanced transportation, and tribal energy projects across the United States.
The Palisades loan guarantee is an Energy Infrastructure Reinvestment, a type of project under the Title 17 Clean Energy Financing Program that provides financing for repowering, repurposing, or replacing energy infrastructure that has ceased operations. This project category is new, having been created by the Inflation Reduction Act of 2022, and the Palisades loan guarantee is a natural recipient to kick it off.
A Palisades loan is a logical match for LPO advantages
All sources of project funding come with advantages and disadvantages. Restarting a nuclear plant after permanent shutdown can leverage many of the advantages from an LPO loan guarantee.
An LPO loan guarantee makes the most sense when there is significant technical risk—it is meant to provide initial funding for innovative or unprecedented technology that traditional financing may view as too high-risk. While restarting Palisades does not, strictly speaking, use new technology, it involves technical challenges in repairing, refurbishing, or replacing components that were not maintained for some time, or making needed modifications that were deferred due to the pending shutdown. This kind of innovative technical effort is what the LPO programs were created to fund.
On the other hand, the LPO has a low tolerance of financial risk—that is, the risk of default. LPO will not make a loan guarantee unless there is a “reasonable prospect of repayment” of the principal and interest. When deciding whether to make a loan guarantee, this issue is one of LPO’s main considerations and consequentially a frequent holdup because DOE applies the “reasonable prospect of repayment” standard quite stringently. Here, too, Palisades is a natural candidate: two power cooperatives, Wolverine Power Cooperative and Hoosier Energy, signed a decades-long power purchase agreement in September 2023 to purchase, collectively, all of Palisades’ 800 MW electricity generation. A long-term power purchase agreement is a strong marker of financial viability because it provides that the borrower, in this case Holtec, will have a steady income stream over the life of the project. That income stream means a high likelihood of repayment and a safer bet for DOE.
Another advantage is that LPO can offer a lot of money at a low cost. LPO offers lower interest rates on its loan guarantees than traditional financial institutions, as the rates are based on U.S. Treasury Rates. The LPO loan guarantee is for up to $1.52 billion, providing a substantial infusion to pay for refurbishment and upgrades necessary to restart.
The disadvantages are uniquely manageable for a nuclear restart
Equally as important as capitalizing on advantages, the disadvantages of using an LPO loan guarantee do not materially add to Holtec’s existing burdens in trying to restart Palisades.
One of the primary disadvantages of using an LPO loan guarantee is the added cost of federal oversight. Loan applicants must pay LPO’s review and oversight costs, which can quickly become expensive. The cumulative costs of LPO oversight mean that many loan recipients end up refinancing with a traditional lender once the technical challenges are largely in the rear-view mirror despite the low interest rates LPO offers. Recipients of LPO loan guarantees have regularly refinanced twenty-five year loans in less than ten years and as soon as three years—the added cost is just that expensive. While the cost of oversight is a disadvantage, it is not new for the nuclear industry, which is used to accommodating robust oversight.
Another disadvantage is the cost of following added federal requirements. Because the federal government finances an LPO loan, a loan applicant must follow additional laws applicable to federal projects, such as prevailing wage requirements; cargo preference; Build America, Buy America; and most notably, the National Environmental Policy Act (“NEPA”). For a project that has no federal connection, these new requirements can add significant costs. Nuclear reactors have to undergo NEPA review at various times regardless, meaning that requirement, at least, doesn’t add significantly to costs.
A final disadvantage for an LPO loan guarantee is the time it can take to obtain one. In this case, Holtec applied to the LPO in early 2023, received a conditional commitment in March 2024, and was issued the loan guarantee in August 2024. Restart is a multi-year process, though, and Holtec was able to apply for funding simultaneously with applying to the U.S. Nuclear Regulatory Commission for regulatory approval to restart—and infusions from the 2023 and 2024 Michigan state budgets provided a stop-gap.
In sum, a loan guarantee to help fund the restart of Palisades is a natural fit for both the nuclear plant and the LPO. Potential applicants with existing regulatory burdens or similar financial profiles may want to consider the Energy Infrastructure Reinvestment category of loans for their projects as well.
For more information, please contact Mary Anne Sullivan, Senior Counsel; Amy Roma, Partner; Daniel Stenger, Partner; or Cameron Tarry Hughes, Associate.
