State Strategies for Funding and Financing Energy Projects Effectively

This document explores several state initiatives highlighting successful funding approaches for energy projects. It discusses the integration of private, state, and federal funding to enhance investment and offers strategies for Governors to speed up project implementation to achieve their energy objectives.

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Introduction

Governors aiming to advance their energy agendas can benefit from innovative funding approaches at the state level. By utilizing federal initiatives, tapping into private sector investment, and forming state energy financing entities, Governors can drive the investment needed to modernize energy systems, ensure reliability, and achieve cost efficiencies. It’s important to distinguish between "funding" and "financing":

• Funding: The source of revenue for a project, which can include federal grants, state taxes, utility rates, etc.
• Financing: Allows for managing costs versus revenue timing, using tools like bonds, loans, and tax credits, often in partnerships with the private sector. Both funding and financing can be layered to support large infrastructure and technological advancements.

This brief includes state examples of how funding and financing mechanisms are effectively combined to boost investment, alongside strategies for swift project execution to meet energy targets.

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State Leadership Case Studies

Virginia's Strategy on Advanced Nuclear Generation

As electricity demand rises from expanding data centers and manufacturing, Virginia, under Governor Glenn Youngkin, is pushing forward with innovative energy initiatives. The 2022 State Energy Plan emphasizes a diverse energy strategy, aiming for the state to host the first commercial small modular reactor (SMR) in the next decade. Given the nascent stage and cost hurdles of SMR technology, Virginia passed legislation in 2024 to aid SMR development, allowing utilities to recover costs for project evaluations and site preparation.

Following this legislation, Dominion Energy Virginia and Appalachian Power Company announced SMR projects. Dominion Energy also partnered with Amazon to explore using SMRs for powering data centers. This legislative move not only supports power generation development but also aims to foster job growth in Virginia's energy sector.

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Massachusetts' Federal Funding Leverage

Governor Maura Healey of Massachusetts has prioritized leveraging federal funds for infrastructure. Establishing the Federal Funds and Infrastructure Office (FFIO), Healey introduced a systematic approach to federal opportunity pursuits. The FFIO, part of the Executive Office for Administration and Finance, coordinates a taskforce and centralizes federal funding information for Massachusetts entities.

In 2024, legislation was enacted to empower the FFIO, enabling it to use state funds for matching federal grants, including those from the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. Funded through the Commonwealth Stabilization Fund's interest, the FFIO supports a $750 million matching pool, $12 million for technical assistance, and $50 million for state grants and loans, thereby aiding entities across Massachusetts in securing federal funds.

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Virginia's Clean Energy Innovation Bank

State Energy Financing Institutions (SEFIs) and green banks are instrumental in encouraging private investment in energy solutions. Virginia's 2022 State Energy Plan seeks to enhance the state's economy and energy sector, anticipating a 100% energy demand increase by 2035 due to data centers and manufacturing growth. The Virginia Clean Energy Innovation Bank (VCEIB), launched in 2024, aims for SEFI designation to attract federal and private investments, addressing financing gaps in clean energy projects.

With an initial $10 million from the state budget, VCEIB offers loans and explores co-investment and securitization options. Administering grants like those from the U.S. DOE's Grid Resilience programs, VCEIB supports projects including hydrogen production and carbon storage, contributing to Virginia’s diverse energy strategy.

Significant projects include a $1 million grant for siting costs of a commercial fusion power plant, intended to generate 400 megawatts of electricity, highlighting Virginia's commitment to innovative energy solutions.

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Pennsylvania's Solar for Schools Initiative

Pennsylvania, historically an energy leader, is advancing its strategy under Governor Josh Shapiro. The 2024 Solar for Schools Program allocates $25 million to support solar installations on school properties, covering up to 50% of project costs. Schools can leverage both state and federal incentives, including elective pay tax credits from the Inflation Reduction Act, to reduce energy costs and enhance resilience.

The Pennsylvania Energy Development Authority (PEDA) is also seeking $100 million in federal DOE financing to establish a revolving loan program for school solar projects, further reducing financial barriers for educational institutions.

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Leadership through North Dakota's Industrial Commission

The North Dakota Industrial Commission, established in 1911, oversees numerous programs, including the Bank of North Dakota and the Clean Sustainable Energy Authority (CSEA). Funded by taxes from the state's energy extraction industries, the Commission reinvests in North Dakota's energy sector. Governors, as Chairmen, leverage these programs to meet energy goals, appointing advisory boards to guide funding decisions.

In 2021, the CSEA received $25 million for projects in sustainable technology, with a $250 million credit line from the Bank for risky ventures. Recent initiatives include forgivable loans for hydrogen production and substantial grants and loans for carbon projects. These efforts ensure North Dakota remains an energy leader.

Governor Kelly Armstrong, the current Chairman, has advocated for expanding the state's transmission infrastructure to support economic growth, demonstrating the Commission's ongoing impact on state energy policy.

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Relevant Resources

NGA Resources

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External Resources

• S2 Strategies
• Rocky Mountain Institute
• Center for Development Finance Agencies
• Coalition for Green Capital

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This paper was prepared by Fiona Forrester, Policy Analyst for Energy, National Governors Association, with support from Dan Lauf, Program Director for Energy, National Governors Association. The authors of this paper would like to thank the following state policy advisors who were interviewed for this paper and/or provided valuable insights for the highlighted case studies:

• Abbey Cadden, Infrastructure Coordinator, Office of Pennsylvania Governor Josh Shapiro, Critical Investments
• Glenn Davis, Director, Virginia Department of Energy
• Quentin Palfrey, Director, Massachusetts Office of Federal Funds and Infrastructure
• Reice Haase, Director, North Dakota Department of Water Resources (former Deputy Executive Director, North Dakota Industrial Commission)

This material is based upon work supported by the Department of Energy, Office of Electricity, under Award Number DE-OE0000927.

This report was prepared as an account of work sponsored by an agency of the United States Government. Neither the United States Government nor any agency thereof, nor any of their employees, makes any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of any information, apparatus, product, or process disclosed, or represents that its use would not infringe privately owned rights. Reference herein to any specific commercial product, process, or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation, or favoring by the United States Government or any agency thereof. The views and opinions of authors expressed herein do not necessarily state or reflect those of the United States Government or any agency thereof.