Feb 27 (Reuters) - The U.S. Energy Department on Monday said it will lend Li-Cycle Holdings Corp (LICY.N) $375 million as it builds a battery recycling facility in New York set to become one of the country's largest sources of lithium by next year.

The loan is the latest move by Washington to spur development of a domestic electric vehicle supply chain, with greater battery recycling capacity seen as crucial to meeting President Joe Biden's goal for half of new U.S. vehicles to be electric by 2030.

"One of the benefits of recycling is it can bring metals to market more confidently than some of the mining companies that take a bit longer to go from the identification of the resource to full production," Jigar Shah, head of the Energy Department's Loan Programs Office, told Reuters.

The loan, which was in review for more than a year, will have a 12-year term and an interest rate matching the 10-year U.S. Treasury rate when funds are issued, expected by July. U.S. Senator Chuck Schumer, a New York Democrat who serves as Senate majority leader, had long advocated for Li-Cycle to receive the funding.

Li-Cycle's Rochester, New York, processing facility is slated to open later this year at a cost of roughly $485 million. Li-Cycle, which counts mining giant Glencore Plc (GLEN.L) as one of its largest shareholders, has the funds to pay for the Rochester facility, so the loan will help the company expand elsewhere.

"What this does for us, is further accelerate our work and open up optionality to do other things," said Ajay Kochhar, Li-Cycle's chief executive.

The company has developed a network of facilities in Arizona, Alabama and Ontario that produce black mass, which is essentially shredded battery parts. The Rochester facility will break down that black mass into lithium and other metals.

Li-Cycle aims to produce 8,500 tonnes of lithium carbonate per year from the facility as it ramps up in 2024, in what would make it one of the largest U.S. sources of the battery metal.

The Energy Department in the past month has agreed to lend $2 billion to Li-Cycle peer Redwood Materials and $700 million to ioneer Ltd's (INR.AX) Rhyolite Ridge lithium mining project.