State of the Renewable Energy Finance Markets

Post-stimulus Financing: Will Renewable Growth Continue?

FULL CREDIT TO Renewable Energy World, Elisa Wood

Original News Source >

Will private lenders and investors pick up where government leaves off in a post-stimulus world?

LONDON – Money is flowing worldwide for many forms of renewable energy, as the industry presses forward with dramatic growth. CleanEdge reported US$188.1 billion in global revenue for biofuels, solar and wind energy in 2010, a 35.2% surge over 2009. Bloomberg New Energy Finance (BNEF) found that clean energy investment worldwide reached $243 billion in 2010, nearly double the sector investment just four years earlier. And venture capital investment for clean technology in the US rose 54% in the first quarter of 2011 compared with the same period one year earlier, in a trend led by solar energy companies, according to Ernst & Young.

What has buoyed the market? Many in the renewable energy sector thank stimulus funds infused into the industry by governments throughout the world. But will the growth continue as stimulus funding winds down? Will private lenders and investors pick up where government leaves off in a post-stimulus world?

Several deal makers describe the state of today’s finance markets and provide their outlook into 2012 and beyond, including how hard – or easy – it is to attract private tax equity, project finance, venture capital and other types of loans and investments. Even as the world economy continues to struggle, renewable energy fares far better than many sectors.

REVIVAL OF U.S. TAX EQUITY?
Jonathon Gross, a principal with US accounting firm Reznick Group and head of the firm’s alternative energy practice in North Carolina, helps match renewable energy project developers with investors. He specialises in tax equity investments, where the investor, in effect, buys a project’s tax benefits to offset tax liability. Goldman Sachs was one of the more notable tax equity investors before the financial collapse. But when profits dropped after the crash, so did tax liabilities. As a result, tax credits had little value and investors fled.

In response, the US government created a cash grant to help renewable energy projects during this phase. The grant differed from a traditional tax credit in that developers received money up front, rather than after the project was built or operating. This helped renewable energy developers secure project financing when tax equity investors vanished. The grant, however, is being phased out beginning in 2012.

Fortunately, tax investors are returning to the market, said Gross. But, he added, “I don’t know if it will be fast enough for the developers who are getting the grant.” Gross predicts a dip in US project development in early 2012 when the federal cash grant expires for projects that do not meet certain predevelopment requirements.

Meanwhile, a player known as the tax equity syndicator is increasingly moving into energy. Syndicators, such as Stonehenge Capital Company and Red Stone, connect private equity investors with developers. They more commonly work in low-income housing investment, but syndicators lately have been attracted to state renewable energy credits, Gross said.

Flat Water Wind Farm, a 60-MW Nebraska project, was a recent beneficiary of a tax equity deal. Completed in April 2011, the deal was arranged between U.S. Bancorp (USB), Gestamp Wind North America, Spanish Banco Santander and other lenders. USB has committed more than $400 million of renewable energy tax equity to finance over $800 million of renewable energy projects in the US, primarily in the solar and wind energy markets.

INNOVATIONS, CREDITS AND PROJECT FINANCING
In Europe, it’s unclear where the renewable energy sector will find the capital to build enough projects to meet 2020 renewable energy targets. Assuming it will cost about €350 billion to achieve the goals, each of Europe’s 40 banks that are active in the sector would need to loan €750 million annually for the next 10 years, according to Ernst & Young’s paper, Funding Renewable Energy in a Capital-Constrained World.

What will those sources be? European utilities might fill in some of the gap, but renewable energy will still need alternative pools of equity and debt to finance projects. One source might be industrials, especially those that act as supply chain co-sponsors in the project development phase, said Ernst & Young.

In the US, renewable energy credits are gaining importance in helping developers secure financing. Banks are apt to take an applicant more seriously if it has a long-term contract to sell its RECs to a utility or other credit-worthy buyer (as opposed to selling RECs on the spot market or under short-term deals).

Solar renewable energy credits (SRECs), only available in certain states, are created by solar energy projects. One MWh generated by a solar installation equals one SREC. Utilities and retail suppliers buy the credits from projects and use them to meet state government requirements that a certain amount of the electricity they sell comes from solar.

But there was much talk in Spring 2011 about the collapse of the famed New Jersey SREC market. New Jersey is a crucial market for solar developers in the US, the second largest to California, with an exceptionally mature SREC market, according to the Solar Energy Industries Association’s US Solar Market Insight: First Quarter 2011.

New Jersey’s SREC was a victim of its own success. The state’s high SREC prices attracted so much solar development that the market became oversupplied with SRECS and trading prices plummeted for the credits. SEIA predicts an end to New Jersey’s market growth in late 2011/early 2012 as a result of the overheated SREC market.

However, Kent Rowey, head of Freshfields’ Americas Energy and Infrastructure practice, says that stories are overblown about the death of New Jersey’s SREC market. “Smart traders think that the market has mispriced the SREC, that the forward curve is incorrect,” he said.

Why? Too often analysts forecast SREC supply based on the project applications that are before regulatory bodies, and not on the actual projects being built, according to Rowey. This creates an overly high forecast for solar development. In reality, a good number of the projects that are proposed will never be built. Rather than counting applications, savvy financiers conduct their due diligence “the old-fashioned way” – they count rooftops from helicopters to determine what’s really being installed. What they are finding is that fewer projects are being built than expected, and therefore fewer SRECs will be available in the future than is now believed. Therefore, the New Jersey SREC market may not be as overheated as some believe.

Beyond SRECs, Rowey sees the overall debt market for renewable energy as buoyant. “If there is any kind of limiting factor, it is probably that there is an inverse relationship between the size of the deal and the work that goes into it,” he said. Big banks prefer large loans because it takes just as much work to administer a large loan as a small loan, but the returns are lower.

German commercial banks are leaders in providing debt capital for project finance. Rowey also sees more US banks eyeing renewable energy projects; some are teaming up with pension funds.
“There still is liquidity in the debt market for renewable projects. It is one of the sectors in the infrastructure market that hasn’t really been hit as hard,” he said. Even though underwriting standards are more stringent since the market crash of 2008, “for the right project and right sponsor, renewable energy is a space where traditional financing is available.”

WHAT FINANCIERS LIKE
Michael Lorusso, managing director and group head for US-based CIT Energy, which focuses on project and structured finance, shares this view. He says that if the developer offers a financeable project, the lender will be there. “It is incumbent on the developers to do something that is financeable and not push the market to the point where they are stuck with a project that cannot be financed,” Lorusso said.

CIT Energy evaluates projects much the way large banks do. The financing and advisory firm prefers proven technologies and shies away from technology risk. Projects should have equipment contracts with established manufacturers, and a solid construction contract, Lorusso said. Applicants for finance also should produce a power purchase agreement with a solid buyer, like a utility or industrial customer, which minimises the project’s price risk in the eyes of the investor. Or the project may use a short-term contract that relies on commodity price hedges with third parties, like Goldman Sachs or Morgan Stanley. All government permits must be in place.

Lorusso likes wind, solar and geothermal energy, as well as hydroelectricity, although he noted that less hydroelectricity is in development than the other three resources. He is skeptical about biomass because he sees its fuel source as less reliable, or at least harder to quantify through statistical analysis than wind, solar and geothermal. He receives many inquiries for new technologies that use fuel cells, wave energy, biofuels and gasification, but says often they are unproven, unreliable or uneconomic, and therefore not yet good candidates for financing.

Even though wind energy is high on his list of strong investments, Lorusso sees that market slowing. The sentiment is that “the best sites have been taken, the low hanging fruit has been picked,” so it’s becoming more difficult to develop wind farms, he said. In addition, utilities are less apt to enter into lucrative long-term power sales agreements with wind farms, given today’s low natural gas prices and depressed demand for electricity. Solar energy, on the other hand, appears to be more quickly moving toward grid parity. It also offers the promise of adaptable consumer applications as it becomes integrated into shingles, windows and signs, he said.

Not all solar, however, is created equal when it comes to financing. The industry seems to be developing under what Lorusso described as a bifurcated “barbell effect.” On one side of the barbell is the proliferation of small rooftop solar installations, almost “real estate plays,” he said, that are increasingly aggregated to make them more appealing to financers. On the other side of the barbell are fewer, but massive, utility-scale projects with well-structured deals that attract financial backing. One example is the 392-MW Ivanpah Solar Energy Generating System, being built in California’s Mojave Desert with the help of a $1.6 billion loan guarantee from the US Department of Energy.

While small and large deals make it onto the barbell, mid-sized solar projects often find it hard to secure traditional financing. These $2-3 million installations on commercial roofs lack the economies of scale to attract large banks. As far as the banks are concerned, he said, conducting due diligence on these projects takes too much time for the size of the transaction. Therefore this mid-range solar project often must rely on all equity deals, aggregation, or in some cases small regional banks.
A solar company needs roughly a $20-$50 million pipeline of projects just to catch financiers’ attention, said Scott Wiater, president of Standard Solar, the highest ranking renewable energy company on Inc. magazine’s top 500 fastest growing American companies for 2010. “It’s all about scale, you have to have scale,” he said.

Having a signed power purchase agreement is crucial, Wiater added. “The people that offer tax equity and debt – their mindset is we don’t want to take any pre-development risk.” With a power purchase agreement in hand, a solar company can secure debt financing relatively easily now; tax equity financing less so, he said. “You can find tax equity, but it is expensive.”

Meanwhile, Standard Solar has seen an uptick in the number of commercial enterprises that install solar panels to hedge against future energy rate hikes. Some of these deals are all cash and others operate under power purchase agreements. ‘We are seeing just normal commercial customers installing fairly large systems,’ he said, adding, “If natural gas pricing wasn’t as low as it is, we would have much more business. But with that said, we can still be competitive even with the currently depressed energy prices.”

COMMUNITY BANKS FOR SMALL PROJECTS
For the truly small renewable project, conventional financing can be extremely hard to find. But small specialised or community banks are increasingly filling this niche by lending to ventures that have a hard time accessing conventional capital. Many of these banks function as non-profit institutions that do not have to answer to shareholders, so focus on investments with social impact, such as day care centers or schools. For such projects, “there are a world of government programmes that aren’t going to go anywhere, that are not in danger of being zeroed. We have been looking for how to take those tools and put capital in the green economy,” said Melissa Malkin-Weber, green initiatives manager for Self-Help Credit Union, nonprofit community development lender, real estate developer, and credit union with offices in California, North Carolina, and Washington, D.C.

For example, in the US small renewable energy projects can take advantage of the new markets tax credit, set up in 2000 for real estate construction and renovation in low-income areas. “Renewable energy looks a lot like commercial real estate from an underwriting perspective,” she said.
Renewable energy developers, such as solar installers, can use such credits to attract private capital. The developer can parlay the credit into a below-market interest rate and more flexible loan term. Loans can be as small as $5000, although the sweet spot tends to be $75,000 to $10 million, she said.

YOUNG AND UNSUBSIDISED
New technologies, those just getting off the ground, typically seek out a different kind of investor than those already accepted by commercial markets. Still unproven, and not ready for full-scale commercial deployment, these technologies often look to angel investors, venture capitalists and government funding.

The good news is that an increasing amount of VC money has been flowing to renewables. In the US, investors in new technologies look to renewable energy as the “next major economic transformation frontier,” according to Venture Capital’s Role in the US Renewable Energy Sector, a white paper by the US Partnership for Renewable Energy Finance. Before 2005, renewable energy accounted for two percent of VC investment in the US; by 2010 it had reached 15 percent.
China, too, with its growing appetite for clean energy, can be a rich launching point for new renewable energy technology, according to Stephen Edkins, partner in Diverso, a Shanghai-based venture capitalist firm that specialises in connecting technology innovators with opportunity in China. Diverso’s clients included Ilika, a clean-tech materials company that works in energy storage, and TMO Renewables, the developer of a new process for converting biomass into fuel ethanol. Both are based in the UK.

Direct subsidy is difficult to come by in China, and that’s just fine with Diverso. Much like other VCs, Diverso looks for technology that can stand on its own.

“Technological innovation is about allowing renewable energy to be competitive in the absence of subsidy,” said Edkins. While direct subsidies may be hard to come by in China, the government backs renewable energy in other ways, particularly through favourable terms from its state-owned banks, which “act as a lever,” Edkins said.

Opportunity is great for new technology in China’s hungry energy market, but also daunting. The language barrier alone can stymie outside businesses, according to Diverso.

Brian Kinane, managing director at Yorkville Advisors, also works with junior energy companies, but in Europe, where the challenges are different. “Equity markets are difficult to access for companies at present. Many investors are concerned that there is correction coming in the market. There is a feeling that the market has had quite a high run-up and now there is a greater sense of volatility,” he said.
This slowdown is being spurred by government austerity measures throughout Europe, as well as talk that China’s economy is cooling. The correction is expected to be temporary, with a positive economic trend reasserting itself, but investors “don’t want to be caught up in that correction,” he said.
Longer term, Europe’s renewable energy finance sector is likely to benefit from Germany’s decision to close down its nuclear power stations, he added.

HELP FROM EXPORT BANKS
Meanwhile, government export credit agencies, such as the US’ Export-Import Bank (Ex-Im Bank), Export Development Canada and Germany’s Hermes Cover, have been filling in the financing gaps for equipment suppliers. Export banks are especially well suited for small transactions that hold little interest to conventional lenders.

For example, Ex-Im Bank offers a streamlined application process known as Renewable Express. Solyndra saw its financing processed in just 41 days. The manufacturer used the programme to finance its sale of solar panels to an international supermarket chain in Belgium. The June 2011 deal offered Solynda not only a favourable interest rate, but also a long financing term. The US export bank guaranteed an 18-year €7.7 million loan ($10.3 million) to finance panels for the 3 MW project.

NOT A BUBBLE
Kathleen Marshall, managing director at Green Solar Finance, says that stimulus funding did what it set out to do. Financing is again available for renewable energy. “What we are seeing is tremendous movement on almost all fronts,’ she said. “We’re seeing many more financial entrants coming in – philanthropic investors, insurance and bank lenders.” She credits much of the movement to the cash grant offered in lieu of a tax credit. “It provided a strong initial catalyst to start moving things. I think what it really did is it created scale. It created tremendous scale and success in getting projects done.”
Ultimately, though, for a financing deal to work it takes “tremendous collaboration,” she said. If a subsidy goes away, parties must be willing to be flexible and realistic about yields. And then “a deal will get done,” she said. In any case, whether stimulus money stays or goes, what’s clear to renewable energy investors now is that this industry is “not a bubble – the horses are out of the gate and they are running,” Marshall said.

Clean Energy Spared The Budget Axe - For Now. An Update from Politico

Alternative energy runs into headwind

By DARREN SAMUELSOHN, POLITICO.COM
Clean energy technology champions are scrambling to secure the tax breaks.  Photo by AP Photo

For the renewable energy sector, it’s a wonder either wind or solar power is still standing.

Austere budgets and small government have become Capitol Hill credos, and clean energy technology champions are scrambling to secure the tax breaks and loan guarantees they’ve depended on over the past decade to drive investments.

Cheap natural gas is beating renewables as the lowest-cost option for meeting the nation’s thirst for new electricity.

Scathing media reports have also raised questions about whether the Obama administration favored its green-tinted campaign contributors with federal stimulus dollars and wound up sending upward of three-quarters of the subsidies to companies that are now based overseas.

And when the industry does show signs of life, wildlife advocates and environmentalists have been making it difficult by blocking transmission lines to get the clean energy to urban centers.

Moderating an Import-Export Bank conference panel earlier last month alongside several top energy industry executives, Carol Browner, President Barack Obama’s former top energy adviser, bemoaned the lack of a long-term market signal to help renewables. Without private entrepreneurs, she said, the already small U.S. market could be swamped by foreign competitors.

“This is an industry evolving rapidly, whether it be on the supply or demand side,” Browner said. “From my perspective, on the public policy side, we need to do more to ensure there is demand for the technology. We are in danger of not being at the forefront of the industry. It’s because of people like this we’re at least able to hold on.”

John Denniston, a partner at venture capital firm Kleiner Perkins, sounded off on the disparity, too, ticking through the top 20 renewable energy companies in the world and noting that just four are American.

Exactly what the federal government can do is a question.

Obama promised to put solar panels on the White House roof last year and has continued to talk up renewable energy. During a visit earlier this month to a wind turbine manufacturer in suburban Philadelphia, Obama pledged to keep up the fight to make the renewable industry’s tax credits permanent — rather than leave them exposed to the often last-minute dash for renewal.

“I want to kick-start this industry,” the president said. “I want to make sure it’s got good customers, and I want to make sure the financing is there to meet that demand.”

But several market experts doubt Obama can live up to his promises. While the solar tax credits are secure through 2016, wind will see some of its most cherished benefits expire at the end of 2012, just after the presidential campaign.

“We’ve seen this movie a number of times,” said Rob Gramlich, senior vice president for public policy at the American Wind Energy Association.

Some of the long-term options are also no longer looked at so kindly on Capitol Hill, either.

Former Senate Energy and Natural Resources Committee Chairman Pete Domenici had once floated the idea of establishing a “green bank” that would put financial experts in place in the evaluation of clean energy projects. A similar idea is now a centerpiece of the Democrats’ energy plan, which makes it more likely to fall to partisan sniping.

“The Republicans are calling it a Fannie and Freddie for clean energy, but they don’t mean it in a nice way,” said Kevin Book, managing director of the Washington research firm ClearView Energy Partners.

Renewable advocates insist they long ago gave up on the idea of pricing carbon emissions as a way to get a toehold against their coal, natural gas and nuclear rivals. Now, they’ve put their eggs in another basket: the “clean” energy standard that Obama mentioned in January’s State of the Union speech.

But even here, their preferred policy approach appears to be stuck in congressional low gear.

“I think the door is cracked open and therefore worth pursuing,” Gramlich said.

House Energy and Commerce Committee Chairman Fred Upton may be the biggest barrier to a “clean” energy standard. He opposes federal mandates and has shown no interest in responding to the issue, even if the Senate somehow were to come up with 60 votes on legislation.

In an interview, the Michigan Republican insisted that he wants to expand the nation’s renewable portfolio. But he quickly ticked through a number of the industry’s downsides.

“Solar would be dead without the extension of the tax credits about a year and a half ago,” he said. “So they continue to push out.”

Upton also took issue with local activists and environmentalists who have made it more difficult to get wind energy into the transmission system by challenging various transmission projects.

“That’s the dilemma,” he said. “You’ve got different groups challenging the building to improve the grid. It’s a problem.”

Despite the hurdles, industry officials see themselves in a strong light.

Wind produces about 2 percent of the nation’s electricity. That’s up from less than 1 percent in 2005, with turbines now churning out more than 40,000 megawatts of power — enough to supply electricity to more than 10 million homes.

Solar power is in its own camp. It still hovers below 1 percent of the nation’s energy pie. Its small size makes its growth look even bigger. Investments jumped from $3.6 billion to $6 billion last year. As of 2010, there’s more than 1,000 megawatts of installed capacity, up from 320 megawatts in 2008.

“We’re the fastest-growing industry in the United States, period,” said Rhone Resch, president of the Solar Energy Industry Association.

Indeed, both wind and solar can point to some useful figures as they try to sway political doubters. In 2010, 14 wind manufacturing plants opened, giving the industry 20,000 jobs stretched across 42 states. Fifty-eight new solar panel factories have opened in the past 18 months. Solar officials tout a similar number of jobs spread across 47 states.

Industry observers say wind and solar, while in different camps in terms of recent growth, can at least take heart in the policies they have been able to latch onto.

“It could have been worse,” Book said. “It could have been the case there was no stimulus to spend. It could have been the case that there was no grant program. It could have been the case there was no production tax credit.”

Google Invests in BrightSource's 392 MW Ivanpah Solar Project

Google making big investments in solar energy

By: Chris Meehan, Clean Energy Authority.com

Apr 13, 2011
Is the search giant on its way to becoming a renewable energy giant?

Last week, Google made what sounded like a big investment in solar when it announced that the company bought a 49-percent stake in an 18.4-megawatt photovoltaic farm in Brandenburg, Germany.

But yesterday (April 11), it announced that it was purchasing a $168 million stake (roughly 10 percent) in Brightsource’s 392-megawatt Ivanpah Solar Electric Generating System. In all, the company has now invested more than $250 million in clean energy.

“We have been active in the renewable energy sector for some time, having invested in several innovative companies through Google.org, and more recently, making corporate investments in clean energy projects, like two North Dakota wind farms, an offshore wind transmission line, and these two solar investments over the last week,” said spokesperson Parag Chokshi.

Chokshi could not discuss what type of return on investment the company expected from the projects.
“We're interested in investments that have attractive returns and spur more deployment and development of compelling renewable energy technologies,” he said. “That includes solar photovoltaics in Germany, and power tower technology at Ivanpah here in the U.S.”

“We need smart capital to transform our energy sector and build a clean energy future. This is our largest investment to date,” wrote Rick Needham, Google’s director of green business operations in Google’s official blog. “We’re excited about Ivanpah because our investment will help deploy a compelling solar energy technology that provides reliable clean energy, with the potential to significantly reduce costs on future projects.”

News of Google’s investment in the Ivanpah plant came on the same day that the DOE announced a $1.6 billion loan guarantee to support development of the Ivanpah project. The project is largely being financed NRG.

“We hope that investing in Ivanpah spurs continued development and deployment of this promising technology while encouraging other companies to make similar investments in renewable energy,” Neeham wrote.

Google has plans for further clean energy investments, according to Chokshi.

“We are continuing to look for new ways of advancing clean energy,” he said.
But Google isn’t just buying stakes in clean energy projects, it’s also using it to help power its operations.

“We have a 1.6 MW solar installation at our Mountain View headquarters,” Chokshi said. “It was built in 2007, and was, at the time, the largest corporate solar installation in the U.S.”

RELATED LINKS

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

http://www.eweek.com/c/a/Green-IT/Google-Pumps-168M-into-BrightSource-Solar-Power-Tower-228810/

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

Chadborne & Parke LLP's Project Finance NewsWire January 2011

Click here for Chadborne & Parke's latest Project Finance Newswire, which we consider to be required reading for clean energy project finance participants.

IN THIS ISSUE

1 More Subsidies for US EnergybProjects
8 DOE Loan Guarantee Update
12 California Cap-and-Trade Program Takes Shape
15 California Settlement Settles Old Scores and Charts New Paths for Generators
18 Master Financing Facilities for Solar Projects
29 Turkey Moves to Boost Renewable Energy
31 Cellulosic Biofuels: The Future Is When?
38 PPPs in the Middle East
42 Environmental Update

Solar Thermal vs. PV - A Brief History and Update

Are Solar Thermal Power Plants Doomed?

4 comments  |  by: Greentech Media / Seeking Alpha October 18, 2010  | about: ABGOY.PK / AMAT / NRG / SGFRF.PK / SPWRA / TAN / TSRA

 

by Michael Kanellos, Brett Prior
Concentrating Solar Power [CSP] is one of our favorite renewable energy technologies, but it might be in serious trouble. And this time the culprit is not cheap natural gas, the Koch Brothers, nor the desert tortoise advocates.

This time, the adversary is the other half of the solar family.

Just to clarify, CSP includes all concentrating solar thermal (CST) technologies, such as trough, tower, and dish-engine - as well as concentrating PV (CPV) technologies including companies such as Amonix, SolFocus, and Concentrix.

The CSP industry began to flourish in the late 1980s and early 90s in California, with the construction of 354 megawatts of parabolic trough plants in the Mojave Desert.

Then, the state allowed a real estate tax exemption lapse, a change in the law that companies like Solel and Luz warned would kill them. Right after Luz ran out of money, then Governor Pete Wilson signed an extension.

A second wave began around 2004 with the revival of green technology in the state. Luz founder Arnold Goldman rounded up the old team, recruited some new execs and founded BrightSource Energy. Peter Le Lievre and a group of Australians came up with Ausra and built a plant in Las Vegas.

Advocates said that solar thermal plants, if 500 megawatts or larger, could rival natural gas in cost per kilowatt hour. Another lapse in the property tax exemption loomed, but was avoided.

But then the 2008 financial crisis hit. The sudden decline of funding hit the industry particularly hard, considering that a demo plant costs around $25mm and a commercial plant requires somewhere north of $250mm. Ausra and eSolar had to retool their strategies, while BrightSource had to sell part of its first project at Ivanpah to Bechtel.

If that weren’t enough, environmentalists and U.S. Senator Dianne Feinstein pushed to declare a million acres of the Mojave a protected zone. Concerns about desert tortoises forced BrightSource to scale Ivanpah down to 370 megawatts. It was as if 19^th Century coal miners blamed their lot on the gruel purity standards being imposed on mining camp cafeterias.

But the projects have, in recent weeks, begun to get the necessary approvals from the California Energy Commission and the Bureau of Land Management, just in time to qualify for the Treasury Grant program.
So the near term outlook for CSP looks pretty bright, as BrightSource's Ivanpah, Abengoa's (ABGOY.PK) Solana, and Tessera's (TSRA) Imperial all look likely to break ground this year.
So, what could derail CSP's longer term prospects?

PV, that’s what.

The relentless price declines of PV panels allows developers to build PV plants at a lower cost than their CST cousins. This issue is illustrated in the following Capital Cost per watt chart (an excerpt from the upcoming GTM Research "CSP Report"). In 2010, the price to build a CSP park run by Troughs, Power Towers or Dish-Engines will cost between $5.00 and $6.55 per watt (AC). On the other hand, utility-scale PV projects can limbo below $3.50 a watt (DC).

By 2020, the CSP solutions are expected to be in the $2.40-$3.80 per watt (AC) range, but by that time PV plants could be below $2 a watt (DC). Trough & Tower plants are behind PV, and not likely to catch up.

The better comparison is levelized cost of energy (LCOE) - as this corrects for the DC-to-AC conversion that PV needs to deal with, the differences in O&M, and the differing amounts of kWh generated per watt of equipment installed (as yields vary by technology).

This second chart depicts the LCOE on an apples-to-apples basis (same location, same plant size, same financing terms). Again, PV is cheaper today, and expected to widen its edge over the next decade. By 2020, the CSP technologies are expected to be in the $0.10-$0.12/kWh range, whereas PV is forecast between $0.07-$0.08/kWh.

A bleak outlook?
As a sign of the times, NRG Energy (NRG) decided that instead of building CSP plants using eSolar Towers, it would use the sites for PV plants. The company did this both in California (Alpine SunTower), and in New Mexico.

This sort of reversal wasn’t expected in 2006 or 2007, but since then the Chinese have ramped up their solar PV manufacturing, the cost of polysilicon has slid dramatically, and the overall cost of PV modules has declined significantly. Both Solon (SGFRF.PK) and SunPower (SPWRA) now make solar power plants “in a box” that can generate 1 megawatt. They come straight from the factory on big rigs.

If you accept the following 2 premises, the future for CSP looks pretty bleak.

1) PV is now cheaper than CSP on a levelized cost basis, and will reduce its costs faster than CSP going forward

2) When awarding solar power purchase agreements ((PPAs)), utilities will choose the lowest price option

What could prevent this scenario from coming to pass?

One possibilty is that utilities are willing to pay a premium for CSP plants for one of two reasons:

i) CST plants produce more consistent power output (less spikiness). These plants can produce power fairly consistently throughout the day because of the inertia of the turbine and the ability to burn natural gas when clouds roll in. When clouds blanket a PV plant - the output can drop off a cliff. The last time the solar thermal plants in the Mojave experienced an eyebrow-raising drop in power it was because Mt. Pinatubo blew.

ii) CST power plants fit naturally with storage systems and can even continue to produce power at night. For now, if utilities want solar with storage, the only economic option is CST (trough or tower). Perhaps at some point in the future new technologies like sodium batteries and dry cell batteries from Xtreme Power may help PV developers even the storage gap.

Are utilities willing to take quality or storage into account? Apparently not at the moment.
“Utilities aren’t willing to pay for consistency and storage,” said Brad Friesen, Vice President of the Renewables business line at Fluor, one of the largest EPC (engineering, procurement, & construction) firms in the world. Most of the utilities are concerned about meeting their renewable portfolio requirements, he said. Five years from now utilities might question their thinking, he added, but right now, these considerations are not given much weight.

And price is not the only area where CST plants are disadvantaged.

Lack of Modularity

Trough and tower plants require large turbines to operate - and the economics for steam turbines only work with 50 MW+ plants. So modularity is not an option for CST plants.

Developers have figured out that it is much easier (and faster) to site, permit and get transmission arranged for a sub-20 MW plant than it is for a larger project. That effectively rules out trough and tower - but allows for traditional flat-plate PV, CPV, and potentially Dish-Engine options.

Restricted geography

The economics of CST require that they be located in a more constrained geographic band.

Conclusion?

Solar thermal still has a lot of appeal. Some of the newer technologies (towers & dish-engines) are just coming out and may surprise us in their ability to lower costs. Other technologies like SolarReserve’s cycling salt could further wring out inefficiencies. (Friesen is a fan of SolarReserve). When quality and storage are required, solar thermal comes out cheaper than nuclear. The capital for nuclear plants cost $6,000 a kilowatt, or $6 a watt, or more, not including waste storage, and often rise higher than expected. Thermal plants may not run all night, but they provide consistent power in the day when needed. The question is whether the CST industry can survive until its competitive advantages are truly valued by the utilities.

"There is a role for solar thermal. If it is North Africa, that is fantastic," said Travis Bradford, founder of the Prometheus Institute and a professor at the University of Chicago. "But the difference (in the amount of total energy that will be produced by utility solar parks) between solar thermal and PV will be at least an order of magnitude. Maybe two." That is to say that if PV will see annual installations of 20,000 MW per year in the middle of this decade, perhaps CST will be more in the realm of 200-2,000 MW per year. Not a particularly rosy outlook.

It's like that old, painful axiom in semiconductors.

Don’t bet against silicon.

Disclosure: No positions
 

Solar Power International '09 Kicks off - Coverage by Venturebeat.com

Emboldened by momentum, solar industry asserts rights

October 28, 2009 | Camille Ricketts | Comments |

Solar Power International, the major industry event of the year, is taking place in Anaheim this week and has drawn record attendance — about 25,000 solar entrepreneurs, investors and executives have gathered to showcase new technology, make deals and chart out the future of what may be the fastest growing renewable energy sector in the U.S., if not the world.
Despite the slugging economy, 2009 has been a great launchpad year for many solar companies. The new White House’s support for solar, paired with stimulus package funding and revamped interest from venture capitalists, has diversified the market, and made several large-scale capital projects possible. At the same time, solar now accounts for 13 percent of power purchase deals with utilities, up from 6 percent last year at this time.
All of this momentum has apparently emboldened solar leaders, who yesterday laid down a “Solar Bill of Rights” emphasizing consumers’ right to choice when it comes to their energy mix, and the solar industry’s right to compete on equal footing with traditional energy generators like coal and natural gas. The list of rights was delivered by Solar Energy Industries Association CEO Rhone Resch during the opening session of the SPI conference.
“We declare these rights not on behalf of our companies, but on behalf of our customers and our country,” he said. “We seek no more than the freedom to compete on equal terms and no more than the liberty for consumers to choose the energy source they think best.” Here are the eight rights, as announced:
1. The right for homeowners and businesses to install rooftop solar panels without having to cut through excessive red tape, like permitting and zoning regulations, unnecessary inspections, and additional fees — all tactics the industry believes are being used to keep average citizens from going solar (especially since so many companies like Solar City and SunRun are making it easier than ever to have panels installed and maintained).
2. The right for those who have installed these systems to plug into established electrical grids. In order for solar to catch on, connecting panels can be no more difficult than turning on a phone line, broadband or installing an appliance. There should only be one standard for how to do this so that average consumers don’t have to jump hurdles to begin harnessing the sun’s power.
3. The right for customers who generate extra power with their rooftop solar systems to be compensated for the energy they contribute back to the grid by their local utilities. If people are compensated at retail electricity rates, they will have even more incentive to transition to solar.
4. The right for the solar sector to compete in a fair environment with heavily-subsidized fossil fuel companies. (This will probably take some convincing, as Congress has very clearly leaned toward supporting traditional coal operations in discussions of the climate bill).
5. The right for the solar industry to access and use public lands — at least equivalent to the rights given to the oil and natural gas companies using millions of acres of public land to drill.
6. The right to build new transmission lines to carry solar-generated industry across distances and grid interconnections. Because most large solar arrays need to be built in remote locales, like the southwestern desert, it is important that they be hooked into existing grids with distance load-bearing lines. This is the only way solar will grow as a primary source of energy.
7. The right for average consumers to buy solar electricity from their utilities. As is, some utilities in the U.S. simply don’t offer the option of using solar energy, and there’s nothing their customers can do about it. The industry believes that every consumer, regardless of their location, should be able to opt in to solar energy use.
8. The right for consumers to get the most ethical treatment possible from the solar companies they interact with. This right is different than the others. It’s not asking for acceptance from the establishment, rather, it’s advising itself to deliver on all the promises inherent in solar’s potential. Consumers who take the initiative to use solar energy should be able to rely on the fact that it is better for the environment, reliable and being charged for fairly.
Look for more news from Solar Power International as the week progresses.

Stimulus and the Effects on Renewable Energy Finance

March 20, 2009

Stimulus seen sowing seeds for renewable energy's revival

By NATHANIAL GRONEWOLD, Greenwire (New York Times)

NEW YORK -- There are signs that the federal stimulus might be pumping a little life into the alternative-energy industry.

Financiers and law firms specializing in renewable energy say they see growing interest in reviving moribund projects and breaking ground on new deals. And while big banks that have braced the industry's backbone are still on the fence, some hedge funds and private equity and venture capital firms are cautiously looking to take advantage of stimulus provisions that temporarily eliminate the need for tax equity financing, which has long been a mainstay for renewable energy projects.

"Whether it's the stimulus package or the return of the banks, there is early evidence of a growing appetite for the types of small- to medium-sized projects that they sponsor," said Tucker Twitmyer, managing partner at the venture capital firm EnerTech Capital.

The stock markets are still no place to raise cash, but if activity from many nontraditional sources of financing lifts the cleantech sector faster, as many experts predict, that may encourage banks to ease their strict lending requirements and again lift renewable energy finance if credit markets start to normalize.

"I'd say it's a little bit like March in your garden," said John Gulliver, a specialist in renewable energy financing at the law firm Pierce Atwood. "There are some shoots of green coming up out of the frozen ground in the snow, but they're not ready to harvest yet."

There is some dispute among insiders as to which sectors are seeing the most benefits. Some are confident that solar energy companies are enjoying a big lift from the stimulus, while others observe signs that wind power is seeing more gains. Most assume that energy efficiency provisions in the law will see home and building weatherization fill up much of the activity, but analysts see opportunities for photovoltaic companies here, too.

But what is clear is that parts of the American Reinvestment and Recovery Act that replace the need for tax credits are giving the industry its biggest boost.

Prior to the financial crash felt in the second half of 2008, most alternative energy projects owed their life to federal investment tax credits and production tax credits that allowed banks backing projects to offset tax liabilities against their investments in wind farms and solar plants.

The structure worked as long as the banks pulled profits, but with most financial institutions expected to post steep losses for 2009, tax credit finance has become all but obsolete.

According to figures from the private equity firm Hudson Clean Energy Partners, about 25 of the largest financial firms were active in tax equity financing for alternatives in 2007, the year most analysts see as the historic height of the cleantech market.

At least 16 of those firms left the field last year, including the permanent departures of Lehman Brothers, Wachovia, Merrill Lynch and American International Group (AIG). For 2009, Hudson Clean Energy counts six bank investors, although 12 could return if the tough financial climate stabilizes.

Congress getting credit

Signs of life in cleantech are mostly due to Congress allowing companies to opt for Treasury grants in lieu of investment tax credits, experts say.

Biomass, geothermal, solar and wind power project developers can now elect to use the investment tax credit to get a federal rebate for the amount of the tax equity money that would have backed their projects.

The advantage, Hudson Clean Energy managing partner Neil Auerbach says, is that the new structure is much simpler and more affordable than the old periodic tax credit schemes favored by Congress in the past. The Treasury grants significantly lower the cost of financing, an important component given the high cost of capital in today's economy.

"Instead of accessing the currency traders in the financial institutional community that charge tremendous transaction costs to access their tax capacity, instead you go to the federal government, specifically the Department of Treasury, and you hand in your tax credit and you get 100 cents on the dollar supposedly within 60 days of a satisfactory application," Auerbach explained in a conference call hosted by the American Council on Renewable Energy (ACORE) on Wednesday.

Aside from the tax credit fix, new and better federal loan guarantees have considerably reduced the cost and risk of financing projects and are helping to lure jittery investors back into renewable energy.

Analysts expect that some of the $6 billion appropriated for loan guarantees will provide the foundation for at least $60 billion in new lending for clean energy projects over the next two years. The financial community is taking notice.

"I'm not saying they've jumped in, but we've gotten more phone calls, and there seems to be a greater degree of interest on the part of nontraditional equity investors, in which I would include things like hedge funds, private equity money, etc.," said Phillip Spector, an attorney specializing in energy and renewables at Troutman Sanders.

A possible stabilization of the fossil-fuel energy markets could also boost optimism and encourage even more firms to take advantage of the new government carrots.

Crude oil prices are now hovering around $50 a barrel. While the market may still see some price swings, many energy analysts theorize that oil prices have probably found a floor and will either stabilize at the $40 to $50 range or steadily rise over that mark in the coming months.

"There may be a perception that oil has bottomed out, and I think that will help if people get confident that they're not going to be competing in a $20 a barrel oil market but one that's $40 to $50 or $60," Gulliver said. "That changes the economics quite a bit."

Anticipating a renewable mandate

Cleantech watchers are also crediting the stimulus for funding several previously authorized measures to lift renewable energy in the United States, in particular programs managed under the Department of Energy that have existed for years but never received funding when Republicans dominated Washington.

But most DOE projects have yet to take effect as stimulus money gets pumped into the economy in pulses. Analysts say it is too soon to tell what impact those appropriations will have on the now stirring alternative energy and clean technology industries.

Insiders also report that, while signs of fresh activity are promising, investors with the most money to spend on cleantech are holding out for indications that forthcoming energy and transportation bills will provide more solid regulatory support for the industry.

While the stimulus is helping to prime the marketplace, there is much hope and anticipation that the federal government will establish a national renewable portfolio standard, or RPS, a mandate that the country generate a specific proportion of its energy needs from wind, solar, geothermal and other such sources. That, along with rules that place a price on a ton of carbon dioxide and other greenhouse gas emissions, will do far more to stimulate cleantech than the law passed last month.

"Everybody is waiting for the next piece, which is the national RPS," said Peter Fusaro, founder of Global Change Associates and organizer of the upcoming Wall Street Green Trading Summit. "The market is going to track legislation. And we're going to get all that next month, hopefully."

Fusaro also expects the industry to get another big lift should Washington adopt a national utility earnings "decoupling" program along the lines of a successful California initiative. Decoupling eliminates the paradox whereby utilities that promote greater energy efficiency see profits fall as demand for their power decreases, establishing structures that guarantee that energy generators can retain their expected earnings.

Ultimately, banks are key

But experts say the renewable energy industry will only return to its heyday once the major banks final loosen up credit and re-enter the fray.

While an important part of the picture, venture capital and private equity investors have nowhere near the amount of capital needed to fuel the industry on the scale that the new leadership in Washington is hoping.

For the Obama administration to meet its goal of doubling renewable energy generation by 2011, Hudson Clean Energy estimates that about $134 billion in new capital investments will be required by then. To reach a 10 percent penetration of renewables in the nation's energy mix by 2012, as President Obama has proposed, about $217 billion will be needed.

The most important remaining impediment to cleantech investing "is the banks not lending," Fusaro said. "We need the capital markets moving again."

The large-scale wind and solar projects of the sort that moved along before the economic crash can get a lift from nontraditional sources of finance, but they almost all still need heavy debt financing to help see them to completion.

While the renewed interest in renewables is promising, the industry won't experience a real breath of life until the banks relax and open up their tight wallets again.

"It's too early to call it spring with the daffodils and tulips up," finance specialist Gulliver said, "but I think you can see signs of green poking up underneath the earth, so that's good."

Copyright 2009 E&E Publishing. All Rights Reserved.

For more news on energy and the environment, visit www.greenwire.com.

Update on Tax-equity Markets

Renewable Energy Developers Eye Tax-equity Revival

by Cassandra Sweet Dow Jones Newswires

Wednesday, March 04, 2009

SAN FRANCISCO (Dow Jones)

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.

Report from the Renewable Energy World Conference

March 16, 2009

Optimism Abounds Throughout Renewable Energy Industry

Las Vegas, United States [RenewableEnergyWorld.com]

Last week the editors at RenewableEnergyWorld.com and Renewable Energy World magazine traveled to Las Vegas to attend the 6th annual Renewable Energy World North America (REWNA) Conference and Expo. With almost twice the attendance of last year's event and more than double the exhibitors, the show's exponential growth in spite of a dismal economy is a testament to the strength of the renewable energy industry.

The problems for companies created by the recession are apparent. But the enthusiasm and recognition of the incredible prospects for renewables dominated the discussion.

We captured video interviews with dozens of experts in the renewable energy field on topics including energy storage and the smart grid, the American Recovery and Reinvestment Act, Hydropower, CPV, algae and much, much more. Taken together, the videos show an upbeat, enthusiastic renewable energy industry despite all of the economic turmoil surrounding it — truly the glimmer of hope that is needed today.

The editors started the week with a tour of the El Dorado thin-film solar facility (see lead photo). The 10-MW project is the largest thin-film installation in North America, covering 88 acres with 167,400 First Solar Cadmium Telluride panels.

When the conference started, editors roamed the conference floor gathering a range of video interviews with analysts and business executives on new technologies and policy developments.

Interested in tracking what's happening in the broader clean tech space? Check out our conversation with RenewableEnergyWorld.com contributing writer Clint Wilder on Clean Edge's Clean Energy Trends 2009 Report, which includes the 5 key technologies to watch in clean tech as well as Wilder's comments on the state of the industry.

One of the most popular energies in the space is algae. While there weren't many algae companies at the conference, there was still a lot of talk about what role this prolific organism will play in the fuel market. Editor Jennifer Runyon spoke with Mark Braly about what experts are saying about this burgeoning industry.

Of course, finance is a big issue in the renewable energy space. Braly and Runyon also sat down to talk about the lack of project finance and what types of projects are actually getting the capital to move forward. Braly talked about utility PV projects as well, which are rapidly gaining ground. According to the Solar Electric Power Association, there are now 2,200 MW of projects being pushed forward by 10 utilities around the U.S. This made utility involvement in the solar industry a hot topic at the conference.

While interest in traditional PV is still growing, new solar technologies are sprouting up everywhere, increasing the amount of attention the industry is getting. Stephen Lacey spoke with one of the oldest players in the Concentrating PV space, Amonix, about what the increased competition means for well-established players.

Darren Kimura, CEO of Sopogy, also spoke with Lacey about the company's micro-CSP parabolic trough collectors, which are extending the solar thermal industry to a variety of meet on-site generation needs.

Sopogy is currently working on a major project in Spain — one of many solar projects being developed for the country's very hot solar market. But the 2009 cap on installations will certainly dampen the Spanish industry's growth this year, which may provide more incentive for Spain-based companies to branch out into other markets. Brian Gaylord, a market analyst for the Spanish Trade Commission, talked with Lacey about the growing international presence of Spanish companies.

This trend is certainly being felt here in the U.S. wind industry as companies from Spain and other European countries buy up and develop American wind assets. News Editor Graham Jesmer spoke with the new CEO of the American Wind Energy Association, Denise Bode, about the incredible growth in foreign and U.S. wind businesses, which put around 8,300 MW of capacity online last year.

Wind is a great resource to harvest, but there is also a need to harvest more stable forms of baseload renewables. The answer is geothermal, said Geothermal Energy Association Executive Director Karl Gawell in an interview with Jesmer.

We may see a slowdown in wind and other renewables well into this year, but the recent stimulus package, which sets aside $67 billion for clean energy, energy efficiency and smart-grid technologies may reverse that downward trend. Jesmer caught up with John McKinsey of the law firm Stoel Rives to talk about when the stimulus may have an impact. He also talked with Piper Jaffray's Chris Flannery about the details of the program and the need to create more project finance opportunities for the industry.

All in all, the conference was a great success. The problems for companies created by the recession are apparent. But the enthusiasm and recognition of the incredible prospects for renewables dominated the discussion. We hope you enjoy the interviews. We'll see you next year in Austin, Texas.

Photo Credit: David Wagman