At first glance the US EPA’s Water Infrastructure Finance and Innovation Act (WIFIA) and the DOE’s new Carbon Infrastructure Finance and Innovation Act (CIFIA) loan program only have similarly sounding abbreviations. But further inspection shows that carbon infrastructure projects can benefit from precedents from the WIFIA.
The WIFIA loan program was established in 2017 and has been hailed as a massive success. In its six years it has provided 100 loans to the tune of $17 billion for large-scale water infrastructure projects. An additional 82 loans which distributed over $12 billion are currently being finalized.
The loans under WIFIA have an interest rate based on the US Treasury rate and come in below the typical tax-exempt bond yields. But this isn’t the main reason for its success.
“These loans provide security and predictability for these capital-intensive projects. A combination of a long post-construction term, debt service deferral options, no penalty prepayments, and (perhaps most importantly) a single interest rate,” says John Ryan from InRecap LLC, a company focused on financing basic public infrastructure.
That interest rate is fixed at closing and eases the impact of the inevitable drawdowns during the full construction period.
Then we come to CIFIA.
Given away by the name, the US Department of Energy’s new Carbon Infrastructure Finance and Innovation Act (CIFIA) loan program for CO2 transportation projects, has a comparable legal framework to WIFIA’s. It will also offer the same loan features.
“Equally important for CIFIA, however, is the way that WIFIA has interpreted its statutory authority. From the start, WIFIA has been very flexible and innovative in aiming to maximize the potential benefit of loan features for program applicants,” adds John Ryan.
In past years, there have been examples of customizing loan amortization schedules, a flexible view on how projects are defined and routine approval for five-year debt service deferral.
Most importantly, WIFIA has on many occasions agreed to reset the loan rate downward if US Treasury yields go down during the construction cycle. These examples don’t seem to be exceptions and can be viewed as established precedents.
John Ryan’s suggestion on this: “Applicants to the CIFIA program should review WIFIA’s loan feature precedents in some detail – very often they will be as valuable for carbon pipelines as they are for water infrastructure projects. If WIFIA’s track record is any guide, CIFIA’s statutory authority has a lot of potential for successful loan feature development.”