The U.S. Department of Energy’s Loan Programs Office on Tuesday announced a $1.8 billion conditional loan guarantee to Arizona Public Service for transmission projects, renewable power generation and grid-integrated energy storage systems, including the 4-hour, 150 MW Agave Battery Energy Storage System.
Agave would be the first investment made with loan funds, pairing with an existing solar facility in Maricopa County. The battery system aims to ensure stable and reliable grid operations when integrating renewable energy, providing system peak shaving, and storing excess renewable generation, DOE said.
The proposed loan “is expected to reduce upward pressure on electricity rates for APS ratepayers due to the reduced cost of debt associated with [Loan Programs Office] financing, and APS customers are expected to benefit from approximately $250 million in total savings over the life of the loan guarantee,” DOE said in a statement.
APS, a subsidiary of Pinnacle West Capital, will need to satisfy technical, legal, environmental and financial conditions before the loan can be finalized.
Renewable energy generation financed by the loan guarantee would support APS’ transition away from coal generation in 2031. The utility aims to deliver 100% carbon-free electricity by 2050, with an interim goal of 45% renewables by 2030.
Projects funded by the LPO require a plan to ensure the Biden administration’s goal for 40% of the benefits of certain federal energy and climate investments to occur in disadvantaged communities. APS has already provided community-transition support around its transition away from coal generation, 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, DOE said. APS has also committed to working with the Hopi Tribe and the Navajo Nation to contribute up to $2.5 million toward electrification projects.
In addition, APS has committed $2.5 million per year to the Navajo Nation for transmission line development, with payments to begin when the utility exits the Four Corners coal plant or in 2032, whichever is earlier. Payments end in 2038, for a total of $17.5 million over 7 years.
Electricity demand is rising on the APS system, driven by higher temperatures, an influx of residents and the state’s growing economy, according to the utility.
APS set a new system peak energy demand record of 8,212 MW in August. The utility is planning to join the Southwest Power Pool’s day-ahead and real-time energy market when it launches in 2027.
