Feeds:
Posts
Comments

Posts Tagged ‘credit crunch’

Not enough green in stimulus bill

Posted in alternative energy, electric cars, energy, energy efficiency, green policy, investment tax credit, OptiSolar, renewable energy, solar energy, solar power plants, Suntech, tagged , , , , on January 16, 2009| 9 Comments »

stirling-dishes

photo: Todd Woody

Fifty-four billion dollars is nothing to sneeze at, of course. That’s the amount in the $825 billion economic stimulus package –  introduced by House Democrats Thursday – set aside for renewable energy, electric car batteries, energy efficiency and other green projects.

It’s a start, but that’s less than 7% of the entire stimulus package (or, about enough to pay for the Iraq war for five months, or somewhat more than what the federal government is spending to bail out Bank of America). The lion’s share of the cash is devoted to smart grid technology and transmission lines, with a second big chunk going toward energy efficiency retrofits of public housing and weatherization of low-income homes.

That’s good news for a host of startups developing smart grid technology. But the the bill does not address the most pressing issue facing renewable energy companies today: the credit crunch has dried up financing just as billions are needed to fund factories and the construction of solar power plants and wind farms that will be connected to smart grids and new transmission lines. In recent weeks, layoffs have hit the solar industry. OptiSolar – a Bay Area thin-film solar startup that’s building a 550-megawatt photovoltaic power plant to supply electricity to utility PG&E (PCG) – reported to have furloughed half its workforce. And according to The Oregonian newspaper,  SpectraWatt, a solar cell maker spun off from chip giant Intel (INTC) last year, has shelved plans for a factory in Hillsboro, Ore.  Friday morning, Kate Galbraith at The New York Times’ Green Inc. blog reported that layoffs have now hit the wind industry.

The retrenchment comes as utilities are counting on solar power plants and wind farms to come online in the next two years to help them meet mandates to obtain a growing percentage of the electricity they sell from renewable sources. In California, for instance, PG&E, Southern California Edison (EIX) and San Diego Gas & Electric (SRE) have signed more than four gigawatts’ worth of contracts for electricity to be produced by large-scale solar power stations that will cost billions to build.

Solar startups rely on a provision that allows them to take a 30% tax credit on the cost of building a power plant. Now most of these companies are startups and have no way to use those tax credits as they’re not profitable. Instead, a solar company must essentially trade the tax credits to a firm that can use them in exchange for cash to finance construction. But investors in these deals have all but disappeared as the financial crisis takes its toll. Which is why solar and wind lobbyists are pushing Congress to make the tax credits “refundable” – meaning those companies that don’t have tax liabilities can trade the credits for cash that can be used to finance power plants. “Due to the recession, projects are now being put on hold, factories are closing and workers face potential layoffs unless Congress refines the tax credits now so they work as originally intended,” said Solar Energy Industries Association CEO Rhone Resch in a statement.

The stimulus package unveiled Thursday undoubtedly will be subject to change, but as written it will boost efforts to modernize and digitize the United States’ aging analog power grid. The bill includes:

  • $11 billion for smart grid research and development, pilot projects and the construction of new transmission lines to connect green energy power plants to the power grid. The government will fund 50% of the cost of utilities’ smart grid investments.
  • $8 billion in loan guarantees for renewable energy transmission projects.
  • $6.9 billion in grants to state and local governments for energy efficiency and carbon reduction programs.
  • $6.7 billion for renovation of federal buildings, of which $6 billion must be used for energy efficiency retrofits.
  • $6.2 billion for home weatherization programs for low-income families.
  • $2.5 billion for energy efficiency retrofits of public housing.
  • $2.4 billion for carbon sequestration – so-called clean coal – demonstration projects.
  • $2 billion for energy efficiency and renewable energy research (which includes $800 million for biomass and $400 million for geothermal research).
  • $2 billion in loan guarantees and grants for advanced vehicle battery research.

The smart grid billions will be a boon to companies like Silver Spring Networks, Gridpoint and eMeter that develop software to allow utilities to monitor and manage electricity use in real-time and provide that data to their customers.  “We think 2009 is going to be a good year for us,” eMeter president Larsh M. Johnson told Green Wombat last month. “We’ve seen continued demand from utilities for our services.”

But the billions for the smart grid can be considered a down payment: According to an estimate by research firm New Energy Finance, the price tag for modernizing the power grid over the next 15 years will be $450 billion.

Read Full Post »

Credit crunch darkens solar’s prospects

Posted in alternative energy, Ausra, BrightSource Energy, climate change, energy, enviro startups, environment, GE Energy Financial Services, global warming, green startups, investment tax credit, PG&E, renewable energy, solar energy, solar power plants, tagged , , , , , , on October 24, 2008| 7 Comments »

photo: Ausra

The promise and peril of large-scale renewable energy was on display Thursday as California’s first solar power plant of the 21st century went online near Bakersfield. Under blue skies, Governor Arnold Schwarzenegger and other politicians heralded the five-megawatt Ausra solar station as the vanguard of a new era of alternative energy that would combat the effects of climate change while building a green economy.

Then the CEO of one of the nation’s largest utilities stepped up to the podium and delivered a reality check. “As we all know the capital markets are in disarray,” said PG&E chief Peter Darbee, whose utility has a contract to buy 177 megawatts of electricity from Ausra. “They’re down 40%. The capital markets are going to distinguish between high-risk projects and low-risk projects and the high-risk projects are not going to get financed in the future.”

But he added, “PG&E stands ready to take on the challenge of financing renewables.”

The utility may just have to.

At the solar industry’s big annual conference in San Diego last week, renewable energy executives were euphoric over Congress’ 11th-hour passage this month of an eight-year investment tax credit that would allow big solar power plants to get up and running, eventually allowing for economies of scale crucial to driving down the price of green electricity. Then a dark clouded drifted over the sun-splashed proceedings in the form of three somber-suited men bearing ominous PowerPoint presentations.

The message from Wall Street: The credit crunch will wallop big solar plant projects that need billions of dollars in financing to get built.

Here’s why. It gets a bit arcane but bear with the wombat. The renewable energy legislation passed as part of the financial bailout package allows solar companies to take a 30% tax credit on the cost of building a power plant. Now most of these companies are startups and have no way to monetize, as they say on the Street and in Silicon Valley, those tax credits as they’re not profitable. Instead, a solar company must essentially trade the tax credits to a firm that can use them in exchange for cash to finance construction.

So investors form something called a tax equity partnership, in which they agree to finance, say, a solar power plant in exchange for the tax credits generated by the project. The problem, according Tim Howell, managing director of renewable energy for GE (GE) Energy Financial Services, is that investors’ appetite for tax equity partnerships has taken a nose dive just as the market will be flooded with solar tax credits from a growing number of projects currently being licensed. For instance, he said, 1,000 megawatts of solar projects would generate $1.5 billion in tax credits.

That means there has to be enough investment dollars – or “capacity” in Wall Street lingo – available to buy those tax credits from the solar power companies.  “Competition for tax capacity, which is a scarce resource in tough financial times, is a problem we have to solve,” Howell told a packed ballroom in San Diego.

John Eber, managing director of JPMorgan Capital (JPM), flashed a PowerPoint that showed the total value of the tax equity market at $15 billion last year with 40% going to renewable energy projects, mainly wind. Now that investment banks-which put together the partnerships and sometimes invested their own capital-are all but an extinct species on Wall Street, only an estimated $875 million will be available for all solar projects in 2008. In contrast, he noted, just the solar power plant projects already announced  would need between $6 billion and $8.5 billion in tax equity funding.

“Tax equity is becoming increasingly hard to raise for renewable energy projects,” said Keith Martin, a project finance attorney at the Washington firm Chadbourne & Parke. “Several large institutional investors who put money into renewable energy deals in the last three years have dropped out of the market.”

That, they said, means untried technologies from startups will face higher hurdles to attract investors.

In conversations Green Wombat has had with solar power plant executives over the past couple of weeks, they acknowledge that financing will be much harder to come by but they’re hardly ready to throw in the towel.

“There’s probably a gigawatt of press releases and 200 megawatt of plants that acutally will go live in 2010,” says John Woolard, CEO of Oakland-based BrightSource Energy, which has a contract with PG&E to deliver up to 900 megawatts of electricity.

His point: Despite gigawatts of signed utility deals, only a few power plants will actually be built in the next couple of years when financing is expected to be the toughest to obtain. “In 2011, it’s reasonable that 500 to 600 megawatts could happen,” he says. “Those aren’t big numbers for the tax equity market, but if you believe everything that’s been announced is going to be built, then it is a big market.”

California utilities, however, are counting on that big market to meet a state mandate to obtain 20% of their electricity from renewable sources by 2010 with a 33% target for 2020. PG&E (PCG), for instance, has signed 20-year power purchase agreements for more than 2.5 gigawatts of solar electricity.

When Congress extended the solar investment tax credit it also lifted a ban on utilities claiming the tax subsidy. Hence PG&E chief Peter Darbee’s statement Thursday that his utility would be willing to make sure its projects get funded by using the company’s considerable capital clout.

“We certainly could look at potentially funding or investing in renewable projects,” PG&E senior vice president Greg Pruett told Green Wombat Thursday. While he said PG&E has no specific projects in mind, it might consider financing construction of solar power plants through a tax equity partnership or a direct investment.

“Say we have a solar thermal company and they have a proven technology and they have done a demonstration plant, but because of the markets they can’t get financing,” says Pruett. “We might consider investing so they can build the plant and get it online.”

He says it’s less likely that PG&E would get into the solar construction business itself.

While it’s anyone’s guess how the markets will shake out by the time solar companies start making the rounds in New York, it’s clear that a shakeup in the nascent solar power plant business is in the offing.

Read Full Post »

A green credit crunch?

Posted in climate change, electric cars, enviro startups, environment, eSolar, geothermal, global warming, Google, green financing, green startups, green tech, renewable energy, solar energy, solar power plants, Southern California Edison, Uncategorized, wind power, tagged , , , , , on September 25, 2008| 2 Comments »

photo: eSolar

If Wall Street’s implosion can feel remote on the West Coast, where green tech startups largely rely on Silicon Valley venture capital, there may be no escaping the fallout from the credit crunch.

Still, even those renewable energy companies tapping East Coast cash have powered ahead amid the chaos on the Street. Take SolarReserve, a Santa Monica, Calif.-based solar power plant developer. A day after Lehman Brothers filed for bankruptcy last week, the stealth startup announced a $140 million round of funding from investors that included Citigroup (C) and Credit Suisse (CS).

Lehman does hold small stakes in wind turbine maker Clipper Windpower of Carpinteria, Calif., and Ormat Technologies, a Reno, Nev., geothermal developer. “Lehman’s exit from wind is not good news, but it’s not the end of the world,” says Ethan Zindler, head of North American research for New Energy Finance, a London-based research firm. And while Lehman holds stock lent to it from solar cell companies like SunPower (SPWR) and Evergreen Solar – potentially diluting their earnings per share if the stock is not returned – Lehman is not a big player in solar.

That’s not the case with Goldman Sachs (GS) and Morgan Stanley (MS). Both are major solar and wind investors and both were forced this week to reorganize themselves into bank holding companies to stave off shotgun marriages with other institutions. Spokespeople for Goldman and Morgan Stanley told Green Wombat that the firms’ transformation into more conventional commercial banks – at least a two-year process- will not change their green investing strategies.

But if there appears to be little immediate collateral damage from the financial crisis for green tech startups, there are longer-term consequences. Solar power plants, wind farms and other large-scale renewable energy projects require billions of dollars in bank financing.

“Credit is just going to get more expensive,” says Zindler. “We’ve already seen some pull-back for some big solar and wind deals. Bigger developers who have solid balance sheets will be OK but the smaller guys could be in trouble.”

Says Bill Gross, chairman of solar power plant developer eSolar: “I think if you’re going to get project financing, you’re just going to have to show higher returns to get people to take the money out of the mattress.”

But Gross, the founder of Pasadena, Calif.-based startup incubator Idealab, argues that given soaring electricity demand and fossil fuel prices, large-scale renewable energy projects will be an attractive investment, paricularly since utilities typically sign 20-year contracts for the power they produce. eSolar, which is backed by Google and other investors, has a long-term contract to supply Southern California Edison with 245 megawatts of green electricity. Gross says eSolar has a pipeline of other projects and interest in the company remains high, particularly overseas.

“If you can make projects that can compete with fossil fuels on a parity basis, those projects are going to be financed,” he says, “because they’re safe returns for 20 years and I think money is going to flow to them.”

Rob Lamkin, CEO of solar power plant startup Cool Earth, echoed that sentiment. “The credit crisis does give me pause,” says Lamkin, whose Livermore, Calif.-company has raised $21 million in venture funding and is developing “solar balloons” that use air pressure to concentrate sunlight on solar cells. “But the energy problem is so big that I don’t see problems raising project financing.”

The key for developers of utility-scale projects – particularly solar power plants – will be keeping their costs under control; not an easy thing when deploying new technologies amid a commodities boom.

Dita Bronicki, CEO of geothermal power plant developer Ormat Technologies (ORA), does not anticipate trouble obtaining project financing. “I think the cost of money is going to go up, but a company like Ormat with an operating fleet and operating cash flow will not be as affected,” Bronicki says. “Small companies will find that lenders will be more picky in what they will invest.”

Green entrepreneurs tend to be an optimistic bunch, so it’s not surprising they still think the future looks bright. But they had reason to be sunny this week – amid Wall Street’s meltdown, the U.S. Senate on Tuesday passed, at long last,  extensions of crucial renewable energy investment tax credits and other goodies to goose green tech, such as a tax credit worth up to $7,500 for buyers of plug-in electric cars. The Senate action now must be reconciled with similar legislation in the House of Representatives.

Solar projects, for instance, would qualify for a 30% investment tax credit through 2016.

“That is one thing that will help project finance,” says Gross. “So many people are sitting on the sidelines right now and if the investment tax credit passes that will help get these projects financed.”

Read Full Post »