DOE loan financing for AI data centers

In short

The U.S. Department of Energy runs two main loan programs that can fund energy projects supporting AI data centers. The first is Section 1703, for innovative energy technologies. The second and more active one is Section 1706, now called Energy Dominance Financing. It has $250 billion in total loan authority. Pub. L. 119-21, § 50403, 90 FR 48705 Section 1706 loans can pay for power generation, transmission, and grid upgrades that let utilities serve large loads like AI data centers. In February 2026, DOE closed a $26.5 billion loan package for Southern Company subsidiaries, the largest in the agency’s history. It finances over 16 gigawatts of generation and over 1,300 miles of transmission. DOE announcement, DOE press release, Southern Company press release, Southern Company press release, DOE EDF project page, Power Magazine AI data center developers usually do not borrow directly. Instead, utilities or power producers take the loans and sign power purchase agreements with AI data center operators.

What DOE loan programs are available for AI data center energy projects?

Two programs under Title XVII of the Energy Policy Act of 2005 can finance the energy infrastructure that AI data centers need. The first is Section 1703, designed for new or significantly improved clean energy technologies. The second is Section 1706, which in 2025 was renamed Energy Dominance Financing. Section 1706 is the primary tool for projects that serve data center load because it does not require innovative technology. Both programs offer loan guarantees, and in some cases direct loans, for eligible energy projects. The maximum guarantee is 80 percent of eligible project costs, though most deals land between 40 and 60 percent based on cash flow and credit. 42 U.S.C. § 16512(c), DOE Title 17 Energy Financing Program Guidance

What is the Section 1703 innovative energy loan program?

Section 1703 lets DOE guarantee loans for projects that use a new or significantly improved energy technology that is not in general commercial use in the United States. The project must also avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases. 42 U.S.C. § 16513 To be clear, the technology cannot be something that most developers could buy off the shelf today. It must be first of a kind. However, projects supported by a State Energy Financing Institution do not need to meet the innovation requirement. Eligible categories include advanced nuclear, advanced fossil energy with carbon capture, renewable energy, efficient end-use, and critical minerals processing. The Inflation Reduction Act gave this program $40 billion in new loan authority.

Section 1703 in practice

DOE’s loan programs made possible some of the earliest utility scale solar farms in the country, with $4.6 billion in total guarantees for the first five projects over 100 megawatts each. Bipartisan Policy Center The ATVM loan program backed Tesla’s first large factory with a $465 million loan, and the Title XVII Section 1703 program provided roughly $12 billion in guarantees for the Vogtle Units 3 and 4 nuclear plant in Georgia. DOE Tesla page, DOE Vogtle page, Latitude Media Because Section 1703 requires a technology that is not yet commercial, it is not the usual route for a project that builds conventional gas turbines to serve a data center. But it could still apply to a novel small modular reactor or a first of a kind carbon capture retrofit at a power plant.

What is the Section 1706 Energy Dominance Financing program?

Section 1706 started in 2022 as the Energy Infrastructure Reinvestment program. The One Big Beautiful Bill Act of 2025 replaced it with Energy Dominance Financing. The new program removed the earlier requirement to reduce greenhouse gas emissions. It also does not require innovative technology. That makes it the program that best fits the AI data center power build out. The total loan authority stands at $250 billion, and the deadline to issue loan guarantees is September 30, 2028. 90 FR 48705

Three ways a project can qualify under Section 1706

A project must fall into one of these categories. 42 U.S.C. § 16517

• Retool, repower, repurpose, or replace energy infrastructure that has ceased operations.
• Enable operating energy infrastructure to increase its capacity or output.
• Support the provision of electric supply that is needed to maintain or enhance grid reliability or other system adequacy needs.

The definition of energy infrastructure is broad. It covers a facility, and associated equipment, used for enabling the identification, leasing, development, production, processing, transportation, transmission, refining, and generation needed for energy and critical minerals. 10 C.F.R. § 609.2

That means a project can qualify if it builds new natural gas plants to handle load growth from data centers (category two or three), reopens a closed nuclear plant (category one), or upgrades thousands of miles of transmission lines to keep the grid stable (category three).

How data center demand fits the grid reliability path

AI data centers pull large, steady loads. When a utility sees a sudden jump in electricity demand, adding generation and transmission is exactly the kind of system adequacy need that the third category covers. That category is the legal hook behind the Southern Company deal and the Three Mile Island restart.

What did the One Big Beautiful Bill Act change for DOE loans?

The One Big Beautiful Bill Act, signed July 4, 2025, made several important changes to the Title XVII loan program. 90 FR 48705

• It repealed the Energy Infrastructure Reinvestment program and created Energy Dominance Financing under Section 1706.
• It removed the requirement that Section 1706 projects reduce greenhouse gas emissions.
• It eliminated a required community engagement and impacts analysis for Section 1706 applicants.
• It extended the deadline to issue loan guarantees to September 30, 2028.
• It appropriated $1 billion in new credit subsidy funding for the program.
• It rescinded roughly $9.6 billion in unobligated credit subsidy appropriations that remained from the Inflation Reduction Act across several DOE loan programs. GAO-25-106631
• It renamed the DOE Loan Programs Office to the Office of Energy Dominance Financing.

After the law passed, the office stated it was restructuring, substantially revising, or eliminating 80 percent of the portfolio it inherited from the prior administration, with $29.9 billion in loans and conditional commitments being de obligated. Latitude Media

How did the Southern Company deal work?

The Southern Company loan package is the largest in DOE history and the clearest example of how the program can support AI data center demand. In February 2026, DOE closed $26.5 billion in loans to Georgia Power and Alabama Power, both Southern Company subsidiaries. DOE announcement, Southern Company release

What the money builds

The loans finance over 16 gigawatts of new and upgraded generation, plus more than 1,300 miles of new transmission lines. The generation mix includes 5 gigawatts of new natural gas plants, 6 gigawatts of nuclear uprates and license renewals, hydropower modernizations, and battery storage. DOE announcement

The AI data center connection

Southern Company holds 26 fully executed large load service agreements totaling 10 gigawatts, almost all already under construction. POWER Magazine The customers include Google, Meta, Microsoft, and Compass Datacenters. These signed contracts gave DOE assurance that the new generation had long term demand. The company’s total pipeline of prospective large-load demand is 75 gigawatts. Latitude Media

Ratepayer protections

State regulators in Alabama and Georgia approved rate freezes. Alabama froze rates through 2027, Georgia through 2028. EUCI DOE estimates the lower cost federal financing will save customers more than $7 billion over the roughly 30 year loan term and cut annual interest expenses by more than $300 million. DOE press release

The Southern Company deal shows the basic structure. An electric utility sees AI data center demand. It signs long-term power contracts. It applies for a DOE loan guarantee under Section 1706, using the load commitments to support the credit. The lower-cost federal debt lets it build more capacity faster while protecting other ratepayers from the cost.

What other deals are noteworthy?

Several other recent DOE loans and commitments illustrate the scope of the program.

S.A. Southern Company project page, AP News, CNBC, Tax alert, Latitude Media

The Palisades loan guarantee started disbursing funds in early 2025, the first major U.S. nuclear plant to restart. The PG&E guarantee, finalized on the last day of the prior administration, aimed to save ratepayers over $100 million per year. PG&E told investors early last year that uncertainty over the fate of its DOE loan guarantee will increase ratepayer costs. Latitude Media

How do you apply for a DOE loan guarantee?

The application process has several steps. No application fee is charged. A facility fee of about 0.6 percent of the guaranteed principal is due at closing. DOE Title 17 Applicant Fees and Costs

Step by step

1. Pre-application consultation (no fee). A potential applicant talks with DOE staff about the project and its eligibility.
2. Part I application. The applicant submits an eligibility and readiness review. DOE aims to complete the Part I technical eligibility review within 60 days. DOE budget request
3. Part II application. If Part I passes, the applicant files a detailed technical, financial, and environmental application.
4. Due diligence and term sheet negotiation. DOE conducts a deep review, often taking up to a year.
5. Conditional commitment. DOE issues a conditional commitment letter, valid for up to two years. The credit subsidy cost is calculated and must be paid at this point. DOE Credit Subsidy, 10 C.F.R. 609.6(d)
6. Financial close. Once all conditions are met, including NEPA review and final agreements, the loan or guarantee closes.

DOE may reject an incomplete application within two years of submission. It also must respond to any status inquiry from an applicant within ten days. 88 FR 34419

What do the loans cost and what are the key terms?

The cost of a DOE loan guarantee has two main parts. The first is the credit subsidy cost. This is the government’s estimate of the net cost of the guarantee over its life, calculated by the Office of Management and Budget. This amount is paid from appropriated funds when available, or by the borrower when appropriations are insufficient, and any borrower payment cannot come from a federal loan or loan guarantee. 42 U.S.C. § 16512(b), 10 C.F.R. § 609.6(d) The exact percentage is not published. For a multi billion dollar loan, the credit subsidy can be hundreds of millions of dollars.

The second is the facility fee, set at roughly 0.6 percent of the guaranteed principal and payable at closing. DOE Title 17 Applicant Fees and Costs There is also an ongoing annual maintenance fee. There is no application fee.

Other key terms

• Loan guarantee cap. DOE may guarantee up to 80 percent of eligible project costs. In practice, lenders and DOE structure deals so the guarantee covers 50 to 70 percent of costs. DOE Title 17 FAQ
• Loan term. Up to 30 years or the useful life of the financed assets. The Southern Company loans extend about 30 years. Southern Company press release
• Credit rating. There is no mandatory credit rating requirement. DOE may ask for one if it believes circumstances call for it. 10 C.F.R. § 609.12
• Prevailing wages and other requirements. Davis-Bacon wage rates, the Cargo Preference Act, and NEPA environmental review apply to all guaranteed projects. DOE Title 17 Governing Documents, DOE Title 17 FAQ
• Utility customer benefits. Electric utility applicants must show that the guarantee benefits will flow to customers or the communities served. 90 FR 48705

What about the DOE land-lease AI data center sites?

DOE has a separate initiative to lease its own land for AI data center and energy projects. In April 2025, the agency issued a request for information about siting AI infrastructure on 16 DOE owned or managed sites. Federal Register RFI Later, it issued formal solicitations for ground leases at four sites, including the Idaho National Laboratory and the Oak Ridge Reservation. Bidders must pay all project costs, including design, construction, and decommissioning, and secure their own utility interconnection agreements. The leases are offered on an as is basis.

Financing for DOE land-lease projects

DOE does not offer grants for these projects. The solicitation documents direct bidders to the Loan Programs Office and the Grid Deployment Office for potential financing. McAllister & Quinn That means a developer could lease federal land, build a power plant and an AI data center, and apply for a Section 1706 loan guarantee for the energy infrastructure portion. There is an open question whether the prohibition on using federal funds for credit subsidy costs creates a problem for projects that rely on federal land. The credit subsidy must come from non-federal sources, which a developer might be able to provide. The question has not been publicly resolved.

What should AI data center developers know about these programs?

For a developer or a lender looking at an AI data center energy project, several practical points stand out.

• Section 1706 Energy Dominance Financing is the main program. It does not require new technology or emissions reductions. A new gas plant or a transmission line can qualify.
• The borrower is almost always a utility or an independent power producer, not the data center operator. The AI data center appears as the offtaker under a long-term PPA.
• Large, signed power purchase agreements are essential. The Southern Company deal worked because it had 10 GW of binding data center contracts. DOE wants to see real demand before it commits.
• The credit subsidy cost is a large upfront expense. It cannot be paid from the loan proceeds. Project sponsors need equity or other private capital to cover it.
• The credit subsidy appropriation is limited. After the $1 billion in the OBBBA, the program’s remaining capacity is unclear. No one knows exactly how much credit subsidy remains after the Southern Company and Three Mile Island deals closed.
• The September 2028 expiration date is real. To get a loan guarantee issued by then, an application should start soon. The due diligence phase can take a year or more.
• State regulatory approvals matter. In the Southern Company deal, rate freezes and utility commission approvals were part of the package. A project without state support could face headwinds.
• The Trump administration’s active restructuring of prior commitments shows that future administrations could also reverse course. Contractual protections and milestones are important.
• The DOE land-lease sites offer a unique chance to co-locate a data center with its own on site generation and tap EDF financing. But the legal and practical hurdles are still emerging.
• The office is staffed with around 400 people, and it evaluates applications for complex energy projects. GAO-25-106631 A well prepared application that matches a clear category has a path to close.

Key takeaways

• Section 1706 Energy Dominance Financing is the primary federal loan program for power projects serving AI data centers. It has $250 billion in authority and does not require innovation or emissions reductions.
• The $26.5 billion Southern Company deal shows the template. A utility borrows from DOE, backed by signed data center loads, to build generation and transmission.
• Data center operators are not direct borrowers. They benefit through power purchase agreements that support the utility’s loan application.
• The credit subsidy cost is a large upfront payment the borrower must cover from non-federal sources. It is not publicly disclosed.
• The application process can take a year or more. There is no application fee, but a facility fee of about 0.6 percent applies at closing.
• The program’s deadline is September 30, 2028. Early action matters because the due diligence timeline is long and remaining credit subsidy is limited.
• Bidders on DOE’s own land-lease AI data center sites are directed to EDF for project financing, creating a potential new structure that is still untested.
• Political risk is real. The 2025 law allowed mass cancellations of predecessor deals, and some are in court.

Frequently asked questions

Q:Can an AI data center company apply for a DOE loan directly?

A:Yes, a project developer can apply, but the project must be an eligible energy infrastructure project, not an AI data center building. In practice, all large loans to date have gone to utilities and energy producers. The AI data center is the power customer, not the borrower. Latitude Media The agency has not publicly disclosed any direct loan to a hyperscaler for an AI data center.

Q:What is the difference between a loan guarantee and a direct loan?

A:A loan guarantee means DOE promises a private lender that it will repay the loan if the borrower defaults. A direct loan means DOE lends its own money to the borrower. Both are authorized under the statute, and some deals, including Southern Company’s, include both types.

Q:How much money can DOE lend or guarantee for one project?

A:There is no per-project cap in the law. The total amount must stay within the program’s aggregate loan authority ($250 billion for Section 1706) and cannot exceed 80 percent of eligible project costs. The Southern Company package reached $26.5 billion.

Q:What is a credit subsidy cost?

A:It is the estimated net cost to the government of providing the loan guarantee, calculated under a federal credit reform model. The borrower must pay this cost up front, from non-federal sources. The amount is negotiated and not published. For large loans, it can run to hundreds of millions of dollars. DOE FY 2024 Congressional Budget Justification, Loan Programs Office

Q:Does the project need to use a new technology?

A:Under Section 1703, yes. The technology must be new or significantly improved and not in general commercial use. Under Section 1706, no. That is why nearly all AI data center-related loans fall under Section 1706.

Q:How long does it take to get a loan?

A:The entire process, from pre-application to financial close, often takes 12 to 18 months. The due diligence phase alone can take a year. If a project has its credit subsidy, environmental review, and off take contracts in place, it can move faster.

Q:Are there any application fees?

A:No. The application fee was eliminated in 2023. A non-refundable facility fee of roughly 0.6 percent of the guaranteed amount is payable at closing. 10 C.F.R. § 609.13, DOE Title 17 Program Guidance

Q:What happened to the loans approved under the prior administration?

A:Many were restructured or canceled. The Office of Energy Dominance Financing stated it is restructuring, substantially revising, or eliminating over 80 percent of the inherited portfolio and that $29.9 billion in loans and conditional commitments are being de-obligated. Latitude Media Some cancellations are being challenged in court.

Q:Can a project on DOE-owned land get an EDF loan?

A:Yes, in principle. The DOE land-lease solicitations direct bidders to the program. But the credit subsidy cost must come from non-federal funds. There is an open question whether the circularity of using federal land and a federal guarantee creates a substantive problem. It has not been tested.

Q:What is the credit rating requirement?

A:There is no mandatory credit rating requirement for the borrower. DOE may require one where conditions justify, in the sole discretion of the Secretary. 10 C.F.R. § 609.12

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.