The U.S. Department of Energy’s Loan Programs Office (LPO) has announced a conditional commitment for a loan guarantee of up to $1.81 billion to Arizona Public Service Company (APS).
The loan guarantee is expected to help finance APS’ investments into new or upgraded transmission projects, renewable power generation, and grid-integrated energy storage systems. APS aims to invest in new infrastructure technologies to meet expected demand growth, while lowering its emissions and saving their 1.4 million customers money on their electricity bills.
The project intends to support approximately 960 construction jobs and 20 operations jobs as part of President Biden’s Investing in America agenda to create job opportunities in communities across the country.
The first investment to be supported by the proposed loan is the construction of the Agave BESS Phase 1 project, a 4-hour duration 150-MW (600-MWh) BESS located adjacent to an existing solar PV site. It will offer stable and reliable grid operations when integrating renewable energy, system peak shaving, and storing excess renewable generation.
Future projects funded by the LPO loan are anticipated to include, but are not limited to, additional BESS facilities, new renewable energy generation projects (including solar PV or wind-energy generation), and transmission projects. According to the Grid Deployment Office’s National Transmission Needs Study, additional transmission infrastructure will improve grid operational flexibility, which helps reduce overall grid costs and enhance system reliability (particularly during extreme weather events).
APS’ proposed loan is expected to reduce upward pressure on electricity rates for APS ratepayers due to the reduced cost of debt associated with LPO financing, and APS customers are expected to benefit from approximately $250 million in total savings over the life of the loan guarantee. This transaction aims to support new, clean-energy infrastructure investments, enhance the reliability of energy supply, reduce long-term operational costs, and lower electricity rates upon finalization.
Consistent with APS’ 2023 Integrated Resource Plan and U.S. EPA regulations, the renewable energy generation financed by the loan guarantee is predicted to support replacing generation from the planned retirement of coal-fired generation assets.
The financing opportunity will support APS’ publicly stated goals of delivering affordable 100% clean and carbon-free electricity by 2050. The commitment is supported by interim goals of achieving a resource mix of 65% clean energy, 45% of its generation portfolio coming from renewable energy by 2030, and a plan to exit from coal-fired generation in 2031.
The investment also supports the Biden-Harris Administration’s Justice40 Initiative, which plans to offer 40% of the overall benefits of certain federal investment in climate, clean energy, and other areas flow to disadvantaged communities.
APS has provided community-transition support, including direct financial support of $2.25 million to the Hopi Tribe, $10 million to the Navajo Nation, and $1.6 million to Navajo County Communities with its planned exit from coal-fired generation resources. APS is also working with the Hopi Tribe and the Navajo Nation to contribute up to $2.5 million toward electrification projects on these Tribal lands.
Additionally, APS has committed $2.5 million per year to the Navajo Nation for transmission line development. Payments will start when APS exits the Four Corners plant (or 2032, whichever is earlier) and end in 2038, for a total of $17.5 million over 7 years.
APS will provide job redeployment offers within the APS organization to all APS employees at coal-fired power plants before its exit from coal generation.
APS has also developed a partnership with Arizona State University to provide seed funding for the Indigenous Leadership Academy at the University. APS has partnered with the Salt River Project and Tucson Electric Power Company on the Utility Grant Funding Program, providing financial assistance to communities affected by the exit from and decommissioning of coal-fired generation facilities.
