Together, America Prospers 

Distributed Generation Energy Project Financing
 

What does this 

program do? 

The RUS Electric Program can 

provide loans and loan guarantees 

to energy project developers for 

distributed energy projects including 

renewables that provide wholesale 

or retail electricity to existing Electric 

Program borrowers or to rural 

communities served by other utilities. 

Electric Program project financing 

loans follow the same regulatory 

requirements and processes as do 

our traditional electric infrastructure 

loans and loan guarantees (also 

known as system loans or loans for 

rural electrification). 

Distributed generation projects 

including generation from renewable 

resources are providing more power 

supply options for rural communities. 

There is growing interest among 

electric cooperatives to enter 

into power purchase agreements 

(PPAs) with project developers or to 

interconnect distributed generation 

projects directly into their systems. 

Who may apply 

for this program? 

• Energy project developers for 

distributed energy projects 

• Electric Program borrowers or 

other utilities that serve rural areas 

How may funds be used? 

For project loans, there are three 

typical situations: 

• Existing borrower (cooperative) 

owns and operates the project. 

• A project developer builds and 

operates the project that has PPAs to 

serve rural customers such as existing 

RUS borrowers and/or other off-takers. 

• A wholly-owned subsidiary of an 

existing RUS borrower owns and 

operates the project and has a PPA 

with the RUS borrower to take the 

entire output. 

Existing borrower (cooperative) 

owns and operates the project 

This situation is treated just like a 

traditional system loan where the 

cooperative owns the project and it is 

an addition to its utility plant. 

A project developer builds and 

operates the project that has a PPA 

to serve rural customers such as an 

existing RUS borrower and/or other 

off-takers. 

In this scenario, the project developer/ 

owner is the RUS borrower and 

the loan underwriting and security 

requirements include, but are not 

limited, to the following: 

• Equity: RUS requires a minimum 

of 25% cash equity at the start of 

the project. We want the equity to 

remain at 25 to 30% through the 

life of the project (over the 10 year 

LRFF). The maximum RUS loan 

amount may be up to 75% of the 

total project costs. 

• Rurality/PPAs: The project needs 

a PPA(s) showing that its output is 

100% subscribed and that (all) off 

takers are rural (places less than 

20,000 population by census). If 

less than 75% of the offtake power is 

going to rural beneficiaries, then the 

RUS loan amount will be limited to 

that rural percentage. The borrower 

will then need more equity or other 

financing or grants. 

• Technology: RUS does not take 

technology risk. We finance 

commercial technology. 

• Environment (NEPA): The 

construction timeline needs 

to accommodate the National 

Environmental Policy Act (NEPA) 

review process. No construction 

is permitted before the project is 

cleared via the NEPA process. 

• Security: The Electric Program 

requires risk mitigation measures 

such as: O&M reserve fund, 

warranties, guarantees, insurance, 

RUS debt servicing sinking fund, 

etc. (in lieu of parent company 

guarantee, if possible). 

• Long-Term Financing: RUS does 

not provide construction lending. 

An RUS project loan is permanent 

financing that takes out short-term 

construction financing. 

• Financial Performance 

Thresholds: In each year in the 

long range financial forecast (LRFF) 

(10 years) and during operation, 

the project is required to meet the 

following minimum financial ratios, 

TIER of 1.05 and DSC of 1.0. 
Distributed Generation Energy Project Financing
 

• Operation/Performance 

Conditions: Borrower can advance 

on an approved and obligated RUS 

project loan after satisfying a 30 day 

operational shake-down period 

and commissioning that proves its 

performance. Other loan conditions 

may need to be satisfied as well. 

• Typical loan tenure: 20 years for 

solar and interest rates are low 

(about Treasury+ 1/8). 

There may be additional conditions 

placed on the loan and loan advances 

depending on the actual specific details 

regarding the borrower and the project. 

A wholly-owned subsidiary of an 

existing RUS borrower owns and 

operates the project and has a PPA 

with the RUS borrower to take the 

entire output. 

In this scenario, a subsidiary of 

an RUS borrower is the owner and 

new RUS borrower. The project loan 

requirements in this case are the same 

as in the project developer scenario 

presented in the previous section 

with the exceptions of no equity 

requirements and that the loan will be 

guaranteed by the cooperative. 

NOTE: Because citations and other information may be subject to change, 

please always consult the program instructions listed in the section above 

titled “What Governs This Program?” You may also contact your local office for 

assistance. You will find additional forms, resources, and program information at 

rd.usda.gov. USDA is an equal opportunity provider, employer, and lender. 

Last Updated December 2019