Navigating uncertainty in government funding for energy projects

What happened to the OCED funding programme?

The U.S. Department of Energy (DOE) recently announced the cancellation of 24 previously awarded Office of Clean Energy Demonstration (OCED) projects, many of which were focused on carbon capture, decarbonization and industrial innovation. The announced projects were all part of OCED, a relatively new division within the DOE focused on scaling and commercializing clean energy technologies.

Despite the additional uncertainty, this OCED funding cancellation will not necessarily prevent promising decarbonization projects from progressing, as Wood is working with clients to reevaluate their project funding options. Projects that are selected for DOE funding have already outlined their project’s technical and community benefits, as well as their business case, complete with proof that the value chain supports the project.

As of December 2024, OCED had awarded about 113 projects across 42 states. Notable OCED awards include multi-billion-dollar investments in clean hydrogen hubs, Direct Air Capture (DAC) hubs, carbon capture demonstrations and industrial decarbonisation initiatives.

Which energy projects have been affected?

Some of the funding cancelled as part of this announcement impacts projects like:

• A carbon capture project at the Calpine Baytown plant in Texas, which will be the first full-scale implementation of carbon capture and storage technology at a natural gas combined cycle power plant in the U.S.
• A carbon capture and storage demonstration at the Basin Electric Power Cooperative’s Dry Fork Station in Wyoming, which is deploying a carbon capture system that could be scaled up for use at coal plants around the world.
• An emissions reduction project, in which Nevada Gold Mines aims to demonstrate a method for the gold mining industry to achieve net-zero operations.
• A clean methanol project in Texas that plans to use captured carbon dioxide from an Ørsted industrial facility to produce e-methanol and reduce greenhouse gas emissions from hard-to-electrify sectors like shipping.
• A clean hydrogen fuel-switching project at the ExxonMobil Baytown Olefins plant in Texas designed to demonstrate the viable of this solution in one of the largest ethylene plants in the U.S.

Why the DOE cancellations matter

To receive federal funding from OCED, companies had to respond to lengthy Funding Opportunities Announcements (FOAs), be selected following a formal review process and negotiate contracts with the federal government. The grants were in the form of cost share, which means that projects had to provide their own funding to qualify. Additionally, money under such grants is only paid out once agreed-upon work has been executed and invoiced per the terms of the contract.

Historically, government funding has been rarely revoked after having been awarded, except at predefined project off-ramps and typically only following formal negotiation. The large-scale cancellation of previously awarded funds introduces a new level of uncertainty for all projects relying on DOE funding or associated tax incentives.

While the DOE funding for these projects has been cancelled, several OCED projects are still going forward, including some critical materials projects. The DOE has indicated that the cuts are not necessarily finished and many more OCED projects are under review. Previously, once awarded (or obligated), federal funding was not cancelled outside of extenuating circumstances or in line with the project contract. Therefore, the uncertainty of the current situation impacts all projects receiving federal funding.

How projects can attract investment despite policy uncertainty

In general, uncertainty makes it harder to win over investors and the market. Based on initial company reactions to the uncertainty around government grants, loans, and incentives, the net impact of the DOE cuts will likely impact more than just clean energy projects. Yet uncertainty does not necessarily make projects uninvestable. Many of the affected projects had already demonstrated technical viability, community benefits and commercial rationale through a rigorous federal selection process. As investors re-evaluate risk, projects that can demonstrate strong business fundamentals, credible execution plans and long-term demand are likely to remain attractive. For developers, this environment increases the importance of funding flexibility, alternative capital sources and investment-ready project planning.

How Wood helps clients assess funding and investment options

For cancelled projects looking for options, experts at Wood can help evaluate potential next steps and position projects for new investment opportunities. The brief provided here outlines the impacted projects from this recent cancellation notice, detailing their scopes, actual award amounts, and the timing of their award announcements for broader context.