What Does the Development Finance Corporation Reauthorization Mean for Energy

Critical Questions by Ray Cai

Published December 12, 2025

After months of negotiations, congressional lawmakers have released the final draft of the FY 2026 National Defense Authorization Act (NDAA), which includes language to reauthorize the U.S. International Development Finance Corporation (DFC) through 2031. Congress established the DFC through the bipartisan BUILD Act under the first Trump administration; since then, the DFC has taken on a distinctive role in the United States' evolving international development and strategic engagement agenda-including facilitating nearly $10 billion in energy-related investments worldwide. Yet policymakers and practitioners broadly agree that the DFC can be improved to better keep pace with rapidly evolving global challenges. With the NDAA expected to soon pass with minimal changes, this analysis examines key elements of the reauthorization and their implications for U.S. energy policy at large.

Q1: Does the reauthorization expand the DFC's capacity?

A1: The reauthorization strengthens the DFC's balance sheet and operational capacity to engage across a wider range of projects and markets. By raising the agency's contingent liability ceiling from $60 billion to $205 billion, Congress provides the DFC greater room for larger and more complex transactions. This expansion aligns with the White House's FY 2026 budget request, which proposes $3.8 billion in discretionary funding for the agency-a 280 percent increase from FY 2025-and reflects bipartisan support for a more robust and ambitious DFC.

The NDAA also authorizes a $5 billion equity revolving fund at the Department of the Treasury, which provides a dedicated capital stream for equity investment-an especially important tool in markets with inadequate access to debt financing. The fund is intended to address the budget scoring constraint, which has hampered DFC's equity program since its inception by writing off its investments as loss-making grant expenditures. Additional authorities-such as the potential for subordinate debt, up to 100 percent loan guarantees, and more latitude to engage state-owned enterprises and sovereign wealth funds-all broaden the agency's ability to tailor its approach to market needs.

Aside from financial enhancements, the reauthorization also introduces institutional upgrades intended to improve the DFC's ability to execute deals. Expanded hiring authorities, higher compensation bands, and new training and internship pathways-including a dedicated program at the Foreign Service Institute-could help grow the talent pool and attract industry expertise that has been difficult to source. By tasking the chief risk officer to develop an agency-wide risk framework, Congress also signals intent for the DFC to adopt a more strategic and transparent approach to risk by moving beyond narrow, deal-by-deal assessments toward holistic, portfolio-level decisionmaking.

These reforms could be particularly consequential for capital-intensive sectors like energy. Energy investments-especially nuclear and other major infrastructure projects-often require large, blended financing packages and a tolerance for long construction timelines and complex political and regulatory environments. A more capable and risk-tolerant DFC will be better positioned to work across these value chains and throughout the project life cycle.

Q2: How does the reauthorization address the DFC's strategic role?

A2: The reauthorization introduces new mechanisms to better align the DFC with U.S. strategic priorities. The establishment of a chief strategic officer reflects congressional interest in ensuring that the agency's investments are coherent with U.S. foreign policy, economic competitiveness, and national security goals. In addition, the requirement for the DFC CEO to produce a five-year Strategic Priorities Plan-based on guidance from a new advisory council that includes members of key congressional committees-adds a formal process to orient the agency's work toward priority regions, sectors, and partnerships.

Energy value chains lie at the intersection of strategic priorities ranging from developing export markets for U.S. products to building climate resilience. A more strategically guided DFC could be better positioned to support energy investments that advance multiple objectives at once, whether by strengthening supply chains for key technologies, supporting the deployment of emerging energy systems, or enabling projects that reduce dependence on adversarial suppliers. As such, energy fits naturally within this broader strategic push and aligns closely with the priorities recommended by Congress for the two-year period beginning October 1, 2025: securing supply chains for critical minerals, supporting telecommunications investments, and establishing regional offices abroad.

Q3: Can the DFC retain its development focus?

A3: The NDAA generally maintains the DFC's core development mandate while allowing targeted flexibility where strategic needs require it. It instructs the DFC to continue prioritizing less-developed countries, while permitting operations in advancing-income and high-income countries with CEO certification and congressional reporting. Restrictions on working in wealthier markets-including a 25 percent cap on the share of total project cost the DFC can support, a 10 percent ceiling on any high-income country within the agency's overall exposure, and ethics oversight rules-could serve as guardrails as the agency navigates an expanding strategic remit. At the same time, the reauthorization preserves and expands key institutional features that anchor the DFC's development role. The chief development officer role remains in place, as do the Impact Quotient evaluation system, reporting and transparency requirements, and language reaffirming DFC's international focus. A new Development Finance Advisory Council could further institutionalize civil-society and development-sector input to ensure that the agency's activities remain grounded in development impact even as strategic pressures grow.

Recognizing that developmental and strategic objectives can reinforce one another is crucial for advancing energy priorities. Many emerging markets face structural barriers ranging from sovereign and currency risks, shallow capital markets, to gaps in physical infrastructure, institutional capacity, and human capital. The preserved development mandate enables the DFC to continue addressing these constraints and creating enabling conditions for productive investment that help increase energy access and market development in developing economies, a stated priority of the administration. It could also help the DFC to partially assume some, but not all, functions traditionally provided by the U.S. Agency for International Development (USAID) including technical assistance and in-country presence. At the same time, measured flexibility to operate in higher-income markets allows the agency to support select projects or sectors that are strategically important but geographically concentrated, which include energy and critical minerals.

Q4: What questions remain as the DFC moves into implementation?

A4: Even with significant new authorities, important uncertainties remain that will determine how transformative the reauthorization ultimately proves. The equity scoring issue, for instance, is only partially addressed. While the revolving fund could provide a workable bridge solution, its catalytic potential depends on self-sustaining investment returns that could take years to realize. Experts argue that deeper reform of the Federal Credit Reform Act is still necessary to make the DFC's equity tools comparable to those of peer institutions; such reform would require additional legislative action, which may prove difficult to secure. Similar questions apply to the DFC's ability to build the talent and on-the-ground presence at the necessary scale; while expanded hiring authorities and new recruitment pathways are promising, the DFC will be recovering from a recent reduction in force that cut its staff from about 700 down to 500.

Uncertainty also persists around whether the DFC will be able to meaningfully increase its risk tolerance, source deals, or deploy a broader set of financial instruments-ranging from guarantees to political risk insurance-tailored to varied market conditions. Past experience suggests that internal restraint has often constrained the agency's ambition more than statutory limits; whether the new risk framework translates into better dealmaking will only become clear as more transactions move forward. Likewise, operational reforms-such as reducing procedural hurdles, improving reporting and Congressional notification (the threshold for which was moderately increased from $10 to $20 million) protocols, and streamlining origination processes-are still needed for the DFC to move efficiently enough to compete with its more agile peers, including Chinese policy banks; these improvements are also necessary for the DFC to partner more effectively with commercial, sovereign, or multilateral financial institutions. To this end, it is also crucial that well-intentioned safeguards do not inadvertently create additional bureaucratic burden.

Interagency coordination remains another critical challenge. Developing robust energy and infrastructure project pipelines often depends on complementary capabilities across institutions, including the Department of Energy, U.S. Export-Import Bank, the U.S. Trade and Development Agency, as well as collaboration with the private sector, civil society, other development banks, and partner-country counterparts. Without a more structured, whole-of-government approach that aligns commercial diplomacy, technical assistance, and strategic finance tools, the DFC alone will not be able to support turnkey project development as envisioned. These coordination issues also intersect with broader directional questions, most notably whether the DFC can allocate its now expanded resources in a way that veritably serves both its developmental and strategic mandates. In many ways, the renewed DFC is better-equipped but faces heightened expectations-particularly as the retrenchment of USAID and other development and finance authorities leaves growing gaps in the U.S. international energy engagement apparatus, which the agency may increasingly be called upon to help fill.

Ray Cai is an associate fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

The author would like to thank the experts who shared their insights in CSIS interviews and convenings related to this topic.

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