The Case for Double Dipping Reform
Back to the capital stack
Congress spends a lot of time talking about nuclear and critical minerals. Nuclear has enjoyed a resurgence of public support in the last decade, and is broadly understood to be a unique source of clean firm power. The critical mineral supply chain, meanwhile, has become an issue of increasing concern as China takes on a near-monopoly over key segments of the sector.
Some of the policy levers for growing the domestic nuclear and critical mineral industries are broadly understood at this point: We need permitting and regulatory reform to speed up development timelines and reduce carry costs, for example, and we need federal debt to help get second and third-of-a-kind projects off the ground.
These ideas are all well and good. But when it comes to brass tacks implementation, federal financing in particular runs into a number of lesser-understood policy barriers that will need to be removed if either industry is going to scale and compete successfully.
One particular issue I’ve been hearing quite a bit about lately is the “double dipping” restriction.
Double dipping refers to the practice of receiving multiple forms of federal financial support for a single project. In the context of DOE loan programs (read: the LPO), the core restriction comes from the Inflation Reduction Act’s “denial of double benefit” rule for projects that also receive certain other forms of federal assistance. Related limitations also appear in appropriations riders in the FY2023 Energy and Water bill, the FY2011 continuing resolution, and elsewhere. Taken together, these provisions are commonly referred to as the “federal support restriction” (FSR).
On its face, such a restriction makes a great deal of sense. Federal dollars are taxpayer dollars, and federal loans thus represent risk to those dollars. Doubling up on that exposure with, say, a loan out of one federal program and a grant out of another feels like an inappropriate concentration of taxpayer risk in a single venture.
Yet at the same time, there are cases where the FSR is too blunt a tool, and ends up impeding high-quality projects on a technicality. These cases fall into three buckets:
Demand Side
The US Department of War (DoW) is one of the largest energy users in the world, and a major offtaker of electricity. Many of its military installations (read: bases) run on microgrids, which in turn require a strong supply of baseload power. This has led the DoW to pursue a number of contracts with geothermal and nuclear developers alike. Such a construct is helpful for meeting DoW’s energy needs, of course, but also for emerging energy industries at large given the DoW’s sizable demand pull.
The problem is that DoW offtake is considered a “dip” for the purposes of double dipping restrictions. This, in turn, means that the LPO is generally barred from supporting, say, SMR or microreactor developers who plan to sell to DoW. Nuclear companies more or less need federal loan support to get up and running – so this creates a near-impossible coordination problem for the industry.
The problem is even more pronounced on the critical mineral side. Critical minerals face immature markets with volatile pricing and uncertain demand profiles. While DoW procurement typically represents only a small portion of a project’s overall output, even this limited federal offtake could trigger FSR restrictions. This creates a situation where a project serving primarily commercial customers might be precluded from accessing federal loans simply because DoW (or NNSA) wants to secure a minor share of production for strategic purposes.
Supply Side
One of the perennial challenges for the nuclear industry is the availability of uranium refining capacity to supply the fuel for our reactor fleet. To remedy this, DOE has stepped in with initiatives like the HALEU Availability Program to purchase or otherwise support the production of high-assay low-enriched uranium (HALEU), while supporting conventional low-enriched uranium (LEU) with other programs.
The problem is that using federally-supported fuel in your nuclear reactor may be interpreted as constituting a “dip”, and could thus preclude accessing an LPO loan for the reactor itself. This theory hasn’t exactly been tested, but it adds uncertainty for developers.
All of this serves to create confusion that ends up bleeding into the third bucket: scoring.
Scoring
The scoring issue isn’t a conventional FSR issue, inasmuch as it has less to do with specific legislative restrictions like the IRA’s denial of double benefit rule and instead involves how OMB interprets risk under the Federal Credit Reform Act (FCRA).
When multiple federal loan guarantees support different phases or components of the same project – say, a long-lead items loan followed by a construction loan – credit agencies face a perverse incentive. If OMB treats the second loan as necessary for repayment of the first loan, the office could theoretically treat up to the entire principal of the second loan as part of the subsidy cost of the first. This conservative scoring approach makes multi-tranche financing appear prohibitively expensive to the government, even when each tranche is independently credit worthy.
What To Do
Congress can fix these three issues in a single, relatively light-touch bill.
First, create targeted carve-outs for federal offtake agreements that represent genuine commercial transactions. If DoW is buying power at market rates for its operational needs, that’s fundamentally different from a subsidy, as the government is acting as a customer rather than a benefactor. A reasonable threshold, like limiting federal offtake to 30-50% of a project’s capacity, could ensure projects still need to prove commercial viability while allowing federal agencies to meet their legitimate procurement needs.
Second, clarify that ancillary federal support for upstream inputs – like federally-supported nuclear fuel – doesn’t trigger FSR restrictions on the downstream project. This is particularly important for nascent supply chains where some federal involvement is inevitable as markets mature.
Third, direct OMB to score multi-tranche loan guarantees based on the actual cash flows and risks attributable to each individual guarantee. When multiple Title XVII guarantees support a single project, each should be scored separately based on its own underwriting, rather than automatically rolling the second loan’s principal into the first loan’s subsidy calculation. Each guarantee should be required to be independently creditworthy and finance costs that are reasonably separable in time, scope, or function – ensuring fiscal discipline while enabling the kind of phased financing that large nuclear and critical mineral projects require.
These common-sense refinements would preserve the spirit of the federal support restriction while eliminating unintended consequences that are holding back critical industries. As China consolidates its grip on global mineral markets and our nuclear industry struggles to compete internationally, these technical restrictions are strategic vulnerabilities we can’t afford.