The financial crisis has opened a void in financing for renewable-energy projects as troubled investment banks have pulled back.
The situation has left developers scrambling for funds and eyeing new ideas to fix the broken system.
Some banks, funds and utilities are expected to step up their investment in renewable-energy projects, which had been dominated by big participants like Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS). But money hasn't come fast enough for many developers of wind, solar and other clean-energy projects.
Lending was fluid when the banks had large balance sheets and could make use of a 30% renewable energy investment tax credit. The banks would invest in clean-energy projects in exchange for the developing company's tax credit and a related tax write-off called accelerated depreciation. But as losses have mounted, the big investment banks still standing have cut back on their tax-equity financing.
"There have been no unconventional additions to the tax-equity market," said Nick Allen, an equities analyst at Morgan Stanley (MS) in San Francisco. "No one has stepped in and provided funding yet. We hope something will change."
This has left many renewable-energy companies struggling and prompted market participants to pitch new ideas to the federal government to fix the system, even as the Obama administration promises a flood of money in the hope of kick-starting investment in a sector seen key to rejuvenating the economy and weaning the country off fossil fuels.
Tough Choices For Developers; Fixes Pitched
The strains from the collapse of the tax-equity market are starting to show.
Privately held thin-film solar panel maker OptiSolar this week sold its entire portfolio of planned solar power plants, about 1,850 megawatts, to leading thin-film solar panel maker and developer First Solar Inc. (FSLR) for $400 million in stock.
In a similar move, eSolar last month sold off its pipeline of solar-thermal power plants to independent power producer NRG Energy Inc. (NRG) for a $10 million equity investment and a promise by NRG to develop the plants.
Meanwhile, eSolar competitor Ausra, also privately held, said in late January it was abandoning plans to develop and own large-scale solar plants to focus instead on selling its technology to others.
To spur repairs to the system and jump-start investment, market participants like brokerage Meridian Investments Inc., which pegs the value of the renewable energy tax-credit market at $6.5 billion to $9 billion a year, are pitching proposed fixes to the federal government.
Meridian is shopping a tax-credit financing proposal in Washington that the firm says could attract as much as $3 billion in renewable energy investments from Fortune 500 companies this year.
Under the proposal, an investing company would borrow money directly from the Treasury Department at a 10-year Treasury note rate. The company wouldn't make any payments for the first five years, and would pay off the note in the second five years, when the note would fully amortize, said Jack Casey, the firm's vice chairman in Washington.
"We think this is the best way to do it," said Casey, whose firm has placed about $15 billion in tax-credit equity financing over the last 28 years. "It's no handout, it's just timing and credit."
Meridian's investor-note financing proposal would boost the yield on such transactions from about 8% currently, to as much as 14%, Casey said, adding several large companies, including utilities and non-energy firms, have expressed interest in the plan. The firm hopes to speak with Treasury Secretary Timothy Geithner this month about the proposal, which would include tax credits for investments in low-income housing and historical restoration projects.
Opportunities Emerging?
The pullback by the big investment banking houses also may be creating opportunities for regional banks to expand their role in renewable-energy investment. Banks with experience in affordable-housing tax credits and new-markets tax credits for developing retail and other commercial operations in low-income areas may be especially well placed.
"There's a lot of talk about who's going to fill the void," said Russ Landon, managing director of investment banking at Canaccord Adams in Boston, which helps put financing deals together and provides research on public companies. "I think you'll see some of the regional (banks) come in and do it if they have money."
Minneapolis-based U.S. Bancorp (USB) has invested in about a dozen renewable energy projects over the last year by providing tax-equity financing, and the company said it will likely expand its investing in renewables, drawn in part by government incentives in the economic-stimulus bill passed last month.
"We're interested in growing our presence in that space, from the project finance side and the tax-equity side," said Zack Boyers, chairman and chief executive of U.S. Bancorp's Community Development Corporation in St. Louis, the unit that makes the investments. He added that the bank has received numerous inquiries from renewable-energy developers in recent weeks.
Meanwhile, California's Union Bank just closed on $20 million in project financing for SunEdison, a Beltsville, Md.-based solar-panel installer backed by Goldman Sachs Group Inc. (GS), Allco Finance Group Ltd. and other investors. The bank has invested in about 17 projects over the last five years, with about nine of those deals done in the last six months, said Lance Markowitz, senior vice president at Union Bank.
"Given the impetus from the government, there are a lot of people working on a lot of projects," Markowitz said. "We're hoping to do more."
(Cassandra Sweet covers power, natural gas, renewable energy and carbon markets for Dow Jones Newswires.)
Copyright (c) 2009 Dow Jones & Company, Inc.
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