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.

Update on California's Upcoming Utility-Scale Solar Projects from The Desert Sun



Laura Abram of First Solar holds a photograph with a simulated image
of what the terrain near Desert Center will look like after solar panels
are placed in the area behind her.  Omar Ornelas, The Desert Sun

Solar: California's new gold rush
Green energy offers the prospect of an economic boon, but some worry the environmental, cultural cost is too high

The Desert Sun - Keith Matheny 

It's been called California's second gold rush: the clamor by large solar companies to stake a claim in southern California's open deserts and capture one of its most abundant resources — sunlight.

While many cheer the cleaner energy and economic possibilities utility-scale solar development may bring to a job-starved region, some environmentalists, Native Americans and others are critical of the process, saying it's running roughshod over threatened plant and animal species and culturally sensitive areas.

The California Energy Commission and federal Department of the Interior have approved eight major solar projects in Southern California since last year, including seven projects in the deserts north and east of the Coachella Valley. All but two of the approved plans utilize largely undeveloped public land managed by the federal Bureau of Land Management. The projects are expected to generate:

• Nearly 3,600 megawatts of non-carbon-emitting electricity, enough to power almost 1.8 million homes.

• Some 5,500 jobs during construction of the projects, and nearly 1,000 long-term operational jobs.

• More than $15.2 million in annual property taxes, and hundreds of millions more in sales taxes as the projects are built.

Another eight utility-scale solar projects are also in the permitting pipeline for Riverside and Imperial counties, promising an additional 2,173 megawatts of renewable energy generation. And long-range plans are in the works that could open up millions more public acres to solar development in six western states, with the largest proposed solar energy zone in Riverside County.

“California is the national leader in clean energy, and our great state is poised to become the world leader in renewable energy generation,” Gov.Jerry Brown said Monday.

Brown earlier this month signed a bipartisan bill to further increase California's renewable energy portfolio standard, now requiring that utilities get one-third of their electricity from renewable sources by 2020, up from 20percent.

Critics contend the politically driven fast track to approving projects on tens of thousands of acres of public lands will cause irreparable damage to threatened plant and animal species, as well as to historic, prehistoric and culturally important sites.

“The irony is, in the name of saving the planet, we're casting aside 30 or 40 years of environmental law. It's really a type of frenzy,” said Christine Hersey, a solar analyst at Wedbush Securities who closely follows environmental concerns associated with solar projects.

It's an issue that pits green against green, environmentalists prioritizing the reduction of atmospheric emissions that contribute to climate change versus those most interested in threatened species and the near-pristine desert ecosystem.

“When you take a look at the political climate, the economy, and you add that to the recent media notoriety of the climate crisis — which I'm not a skeptic of at all — you've got a rather vicious cocktail where environmental groups don't really know how to handle this,” said Kevin Emmerich, a former park ranger turned biological consultant who lives in the Mojave Desert in Beatty, Nev., just across the border from California.

“A lot of them are thinking, ‘The climate's changing; the desert is disappearing anyway; we may have to sacrifice some in order to save the rest.' That support has helped expedite this process.”

The state of California and federal government are spurring the desert solar development, offering billions of dollars in federal loan guarantees, cash grants and tax breaks. On Monday, U.S. Energy Secretary Steven Chu announced $2.1 billion in federal loan guarantees for one project, a 1000-megawatt proposal near Blythe.

Another solar plant in development, Ivanpah in eastern San Bernardino County, received $1.37 billion in federal loan guarantees in February.

Janine Blaeloch, executive director of the nonprofit Western Lands Project, questioned the huge taxpayer commitment to the solar projects.

Blaeloch is a member of Solar Done Right, a coalition of public land activists, solar power and electrical engineering experts, biologists and renewable energy advocates critical of placing large solar projects on relatively unspoiled public land. She co-authored a report released earlier this month on governmental push for solar in the open desert, entitled “Wrong from the Start.”

She noted that corporate investors in companies developing solar projects in the California desert include Chevron, BP, Morgan Stanley and Goldman Sachs.

“It's big money and big oil,” she said. “It's the same people who have driven us into the hole we're in now trying to get us into another one.”

NextEra Energy's Solar Electric Generating Systems facility near Kramer Junction,
which is near Barstow, in San Bernardino County. The company is planning a similar
solar thermal plant to be located on federal land east of the Coachella Valley.
 - NextEra Energy

Gold mine in the desert

Perhaps ironically to some, the modern push for large-scale desert solar, it can be argued, started under former President George W. Bush and California Republican Gov. Arnold Schwarzenegger.

“The gold rush really started after George W. Bush signed the Energy Policy Act of 2005,” which provided tax incentives and loan guarantees for California desert solar development, Hersey said. “That's what really started the speculators.”

Under Democratic Gov. Gray Davis, California in 2002 passed a renewable energy portfolio standard calling for 20 percent of California's electricity to come from renewable sources by 2017. Schwarzenegger in 2006 moved the 20 percent target up to 2010.

Interest in solar development on federal land in the Southern California desert jumped from 20 applications in 2006 to about 150 the following year, said Greg Miller, BLM renewable energy program manager for the California Desert District.

“We had what we called a land rush,” he said.

BLM had previously approved use of federal desert lands for things such as power line corridors — never anything of the size of solar energy projects, Miller said.

“We were kind of learning as we were going,” he said.

In 2008, Schwarzenegger signed Executive Order S-14-08, streamlining renewable energy permitting and collaborating with federal agencies to develop the Desert Renewable Energy Conservation Plan, to facilitate desert energy development while maintaining natural resources conservation.

The push for solar has continued and expanded under Democratic President Barack Obama, whose administration has made green energy a priority, Hersey said.

“They can't do it fast enough,” she said.

Schwarzenegger and U.S. Interior Secretary Ken Salazar in October 2009 signed a memorandum of understanding between the state and Department of Interior that, among other things, developed a fast-track permit approval process allowing as many large-scale solar projects that could to begin construction by Dec. 1, 2010, making them eligible for American Recovery and Reinvestment Act, or federal stimulus, funding.

The fast-tracking “demonstrates how separate government processes can be coordinated without cutting corners or skipping any environmental checks and balances in the projects,” Salazar said Oct. 25 as he announced approval of the Blythe solar project.

BLM Director Bob Abbey in October acknowledged what was at stake.

“With something as momentous as the introduction of large-scale solar development on the public lands, we have one chance to do things right,” he said. “That's why we did complete environmental analyses on these projects with expanded opportunities for public participation.”

But Blaeloch questions that assertion.

“They are not saying to the public, ‘We want to know how you feel about this;' They're saying, ‘We're going to do this and you can comment on it if you want,'” she said.

“These solar plants will introduce a huge amount of damage to our public land and habitat. The sites will be turned into permanent industrial zones. Even if the plants are dismantled after their life is expired, you cannot restore the desert to what it was.”

Solar Done Right's report contends government officials could take advantage of already disturbed lands such as brownfield sites and former agricultural fields. The U.S. Environmental Protection Agency identified hundreds of thousands of acres of such sites, with the potential to generate 920,000 megawatts of solar electricity, the report notes. Distributed generation on rooftops is another option, Blaeloch said.

“I think those are really good questions to ask,” said Amy Fesnock, BLM's chief wildlife biologist in California.

“BLM doesn't have the ability to say, ‘Go build this on private land.' We don't have authority on private land. We can only assess the projects that are presented to us, on lands over which we have authority.”

BLM stands to bring in more than $10.2 million a year in rental fees from the solar companies permitted or nearing approval to locate in the desert, along with more than $25 million in additional megawatt capacity fees.

Hashing out the details

Though projects are approved with thick, multi-volume environmental impact statements, many details aren't yet resolved and are being worked out on the fly as work commences, including final plans on what will ultimately happen with endangered desert tortoise found on solar project sites.

Preliminary plans include moving the tortoise to other habitats, known as translocation — a controversial practice that top tortoise biologists say leads to high mortality rates.

A panel of independent scientists in October prepared a report for officials working on the Desert Renewable Energy Conservation Plan, that concluded: “In general, moving organisms from one area to another ... is not a successful conservation action and may do more harm than good to conserved populations by spreading diseases, stressing resident animals, increasing mortality, and decreasing reproduction and genetic diversity.

“Transplantation or translocations should be considered a last recourse for unavoidable impacts, (and) should never be considered full mitigation for the impact.”

In approving Ivanpah, California Energy Commissioners stated, “We assume that a substantial number of translocated tortoise may perish.”

But commissioners concluded the proposed mitigation efforts will make the impacts acceptable.

“Whether to approve this project or not is a policy decision to be made by the Energy Commission, after considering all the relevant factors, including scientific opinion,” they stated. “Input from the Advisory Panel is informative but we are not bound by any policy recommendations it makes.”

In addition to tortoise, the commission listed numerous other impacts from Ivanpah: loss of multiple-use lands, loss of habitat for the threatened Mojave milkweed and desert pincushion, increased traffic on Interstate 15 and degradation of scenic vistas. However, the commission found, the “project benefits outweigh the significant impacts identified.”

“The project helps address a global climate change problem of paramount importance and responds to state laws requiring a shift to renewable electricity sources,” the energy commission's Ivanpah decision states.

“Overriding concern” citations were used by the energy commission in the approval of other desert solar projects as well, said Jim Andre, a desert botanist with UC-Riverside's Granite Mountains Desert Research Center in eastern San Bernardino County.

“A decision is being made to waive significant impacts and to go forward with these projects as quickly as possible, without even acknowledging the science,” he said.

It's a similar story with cultural resources.

A June Energy Commission staff report on the Genesis solar project looked at cumulative impacts on cultural sites from past, present and likely future solar development.

“This analysis estimates that more than 800 sites within the I-10 corridor, and 17,000 sites within the Southern California Desert Region, will potentially be destroyed,” the report stated. “Mitigation can reduce the impact of this destruction, but not to a less-than-significant level.”

An economic boon

But large-scale desert solar development proponents say use of the BLM-managed lands provides an opportunity to shape projects in ways that minimize negative impacts that other tracts of land might not.

First Solar, a company based in Tempe, Ariz., is nearing final approval of its Desert Sunlight project, a photo-voltaic solar plant planned north of Desert Center, a tiny community about 50 miles east of Indio off Interstate 10.

The project at its inception secured 19,000 acres of BLM land, studied it with biologists and archaeologists, then scaled and modified the project footprint to minimize impacts to biological and cultural resources, First Solar project director Kim Oster said.

Removed were a bighorn sheep movement corridor, a potential desert tortoise corridor, an area of threatened foxtail cactus and “significant prehistoric resources,” she said.

“To combat climate change, changing our energy use has to be part of the solution. It will provide a significant solution to global warming for the future, while providing green jobs now.”

First Solar on Monday informed Desert Center community leaders of plans to provide a $350,000 community development fund for locally identified priorities such as local school and library improvements.

“Everybody around here thinks it's a great project,” said Ken Statler, owner of McGoo's Country Store in Desert Center.

“They're willing to help out the county and the area. There are no jobs available out here.”

The solar construction and ongoing operational jobs will “undoubtedly” help his store, Statler said.

“Where else are they going to get anything?” he said. “We had two other mini-marts out here and they closed down. You can't get gasoline; it's closed down.

“We need some life out here in the desert. That will definitely help us.”

Desert Center resident John Beach earlier this month landed a job in procurement with NextEra's Genesis project.

The currently proposed projects “bring an economic boost to an area that has very high unemployment and not very much in the way of business,” he said.

But community members generally are more apprehensive about what may be coming later, Beach said.

Federal agencies are currently working on an overarching framework for solar development on public lands in six western states, including California, called a solar programmatic environmental impact statement.

The plan calls for creation of 24 federally designated solar energy zones, areas deemed most likely to work for large-scale solar development while minimizing environmental and cultural impacts. The largest of the zones, at 202,000 acres, is in eastern Riverside County's open deserts.

“That's not reasonable,” Beach said.

“We're going to end up having a disproportionate share of all of the projects and having no more open desert. People are saying that doesn't sound right.”

But the federal report recommends opening up even more land to solar development than the 667,384 acres currently under consideration across western states. Another 21.5 million acres of federal land could be considered for renewable energy development, including 1.7 million more acres in California, with 205,000 acres of the total in the deserts surrounding the Coachella Valley.

Though more than a dozen major solar projects have been approved or are nearing approval, the work on considering the cumulative impacts of them all is in many ways only beginning.

The Desert Renewable Energy Conservation Plan is not scheduled for completion until next year.

“The goal of the DRECP is to approach renewable energy in a more organized fashion. The question really is, will that be in place in time to be of benefit to the planning?” said Gail Barton, principle planner for Riverside County and the county's representative on the committee developing the plan.

Solar projects are currently being considered “consistently with the law,” Barton said.

“Is that the best kind of planning? Probably not. With more comprehensive planning, you tend to look more thoughtfully at things.”

In December, after approving seven large desert solar projects, the California Energy Commission solicited applicants to conduct a study examining the “cumulative biological impacts framework for solar energy projects in the California desert.”

A Sierra Club lawsuit against the Calico solar project in San Bernardino county was dismissed by the California Supreme Court April 13. Legal challenges remain on other solar projects, filed by both environmentalists and tribal members who claim they were not properly consulted, and that the projects fail to protect species and cultural sites as required under federal law.

To many in the rest of the country, local concerns about the desert solar projects' impacts aren't the priority.

“Societally, this is the kind of change that helps the whole country, the whole world,” said Kenneth Zweibel, director of the George Washington University Solar Institute in Washington, D.C.

“There's much bigger value in helping the whole society, the whole world, than in the local issues. Something you are trying to protect is being changed, but it's helping so much in terms of climate change, energy self sufficiency and clean energy, it's a sacrifice that's appropriate to take.”

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.”

Chadborne & Parke Project Finance Feb 2010 NewsWire

Chadborne & Parke Project Finance NewsWire contains great up-to-date information on the word of clean energy project finance.

Click here to link to the Newswire in PDF form


Table of Contents
1 The Year Ahead: What to Expect from Washington
11 DOE Moves on Loan Guarantees
17 Treasury Cash Grant Update
22 Update: M&A Market
28 Update: Tax Equity and Debt Markets
35 Islamic Project Finance: Structures and Challenges
40 Cross-Border Renewables — Baja to California
43 Finding Development Capital
48 A New Transmission Superhighway Takes Shape in the West
54 Environmental Update

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.

Production Tax Credit (PTC) Status & History

Production Tax Credit for Renewable Energy

In one of the last measures taken by the 110th Congress, critical tax incentives for promoting the development of renewable energy and energy efficiency were extended. The tax incentives were set to expire on December 31, 2008, but due to the efforts of a very diverse coalition that included UCS, they were extended as part of the Emergency Economic Stabilization Act of 2008 that President Bush signed on October 3, 2008.

Companies that generate wind, geothermal, and “closed-loop” bioenergy (which is powered by dedicated energy crops) are eligible for the production tax credit (PTC), which provides a 1.9-cent per kilowatt-hour (kWh) benefit for the first ten years of a renewable energy facility's operation. Other technologies, such as "open-loop" biomass, incremental hydropower, small irrigation systems, landfill gas, and municipal solid waste (MSW), receive a lesser value tax credit.

The PTC for wind, which as the largest producer of renewable energy has the greatest impact on the budget, was extended for one year, until the end of 2009.

The PTC for incremental hydro, geothermal, and bioenergy was extended for two years, until the end of 2010. Also included in the two-year extension of the PTC are hydropower generated with irrigation water, capacity expansion at existing plants, and with generators added to existing dams. The bill also creates a new PTC for electricity produced by wave and tidal energy.

Businesses and individuals who buy solar energy systems are eligible to receive the solar energy investment tax credit. For residential purchasers, the solar ITC is capped at 30% of the cost of their system; a $2,000 cap on the ITC for residential owners was lifted.

In addition, the bill extended incentives for energy efficiency. Tax deductions for energy-efficient commercial buildings are extended through 2013. Tax deductions for energy-efficient home improvements are re-instated, with a new $300 tax credit for energy-efficient biomass fuel stoves. Tax credits for builders of new energy-efficient homes are extended through 2009 and increases and extends tax credits for manufacturers of energy-efficient appliances through 2010.

This marks just the third time that the PTC was extended by Congress before it had been allowed to expire. At the end of the 109th Congress, the PTC and ITC were extended to the end of 2008 as part of the Tax Relief and Health Care Act of 2006 (H.R. 6408). Previously, in August 2005, a two-year extension of the PTC was included in a large package of tax incentives in the Energy Policy Act of 2005 (H.R. 6); the solar ITC was created in 2005 as part of HR 6. The PTC was set to expire at the end of 2005, and its extension was one of the few bright spots for renewable energy in this energy bill.

From 1999 until 2004, the PTC had expired on three separate occasions. Originally enacted as part of the Energy Policy Act of 1992, the PTC—then targeted to support just wind and certain bioenergy resources—was first allowed to sunset on June 30, 1999. In December of 1999, again due to the efforts of UCS and other organizations, the credit was extended until December 31, 2001. The PTC expired at the end of 2001, and it was not until March 2002 that the credit was extended for another two years. Congress allowed the PTC to expire for the third time at the end of 2003. From late 2003 through most of 2004 attempts to extend and expand the PTC were held hostage to the fossil-fuel dominated comprehensive energy bill that ultimately failed to pass during the 108th Congress. In early October 2004, a one-year extension (retroactive back to January 1, 2004) of the PTC was included in a larger package of 'high priority' tax incentives for businesses signed by President George Bush. A second bill—extending the PTC through 2005 and expanding the list of eligible renewable energy technologies—was enacted just a few weeks later.

Combined with a growing number of states that have adopted renewable electricity standards, the PTC has been a major driver of wind power development over the past six years. Unfortunately, the "on-again/off-again" status that has historically been associated with the PTC contributes to a boom-bust cycle of development that plagues the wind industry (see Figure below). The cycle begins with the wind industry experiencing strong growth in development around the country during the years leading up to the PTC's expiration. Lapses in the PTC then cause a dramatic slow down in the implementation of planned wind projects. When the PTC is restored, the wind power industry takes time to regain its footing, and then experiences strong growth until the tax credits expire. And so on.

The last lapse in the PTC—at the end of 2003—came on the heels of a strong year in U.S. wind energy capacity growth. In 2003, the wind power industry added 1,687 megawatts (MW) of capacity—a 36 percent annual increase. With no PTC in place for most of 2004, U.S. wind development decreased dramatically to less than 400 MW—a five-year low. With the PTC re-instated, 2005 marked the best year ever for U.S. wind energy development with 2,431 MW of capacity installed—a 43 percent increase over the previous record year established in 2001. With the PTC firmly in place, 2006 was another near record year in the U.S. wind industry. Wind power capacity grew by 2,454 MW—a 27 percent increase. The American Wind Energy Association tallied 5,244 MW of capacity installed in 2007 and expects 2008 to be another record year.

However, without changes to the PTC and ITC, renewable energy deployment is expected to slow considerably in 2009. The economic downturn of late 2008 has left many renewable energy developers with dwindling profits. As their profits slump, renewable developers have less “appetite” for tax credits, As a result, the declining value of the PTC and ITC is expected to slow investments in renewable energy facilities. In the next congress, UCS, our allies and renewable energy developers will be working to revise the PTC and ITC to make them refundable. Refundable credits will ensure that renewable energy development will continue even when the economy slows—the very time sustained growth in renewable energy is needed most to create jobs and income.

Short term extensions of the PTC will allow the wind industry to continue building on previous years' momentum, but it is insufficient for sustaining the long-term growth of renewable energy. The planning and permitting process for new wind facilities can take up to two years or longer to complete. As a result, many renewable energy developers that depend on the PTC to improve a facility's cost effectiveness may hesitate to start a new project due to the uncertainty that the credit will still be available to them when the project is completed.

UCS is continuing to work with our coalition partners to extend and revise tax incentives for renewable energy that help boost development of clean renewable electricity, not polluting energy sources.

Last Revised: 11/14/08

ACORE - American Counsel on Renewable Energy - 2009 Stimulus Plan Summary

Overview

Renewable Energy Provisions

American Recovery and Reinvestment Act of 2009

The Congress has passed and the President has signed the American Recovery and Reinvestment Act of 2009 into law. This massive $800 billion spending bill, being truly unprecedented in modern times, will drive new national strategies in renewable energy, smart grid, transmission, advanced vehicles, energy efficiency, and many other aspects of energy, environment, climate and sustainability that were at the heart of the 2008 Presidential election. This memorandum provides ACORE members with a summary of the new program.

The full text of the tax provisions in the stimulus package can be found here.

http://thomas.loc.gov/home/h1/Recovery_Bill_Div_B.pdf

The full text of the appropriation provisions in the stimulus package can be found here.

http://thomas.loc.gov/home/h1/Recovery_Bill_Div_A.pdf

Tax Incentives

Three-Year Extension of PTC: The bill provides a three-year extension of the Production Tax Credit (PTC) for electricity derived from wind facilities placed in service by December 31, 2012, as well as for geothermal, biomass, hydropower, landfill gas, waste-to-energy and marine facilities placed in service by December 31, 2013.

Investment Tax Credit (ITC) Accessible to All Renewable Energy: The bill provides project developers of wind, geothermal, biomass and other technologies eligible for the PTC, the option of instead utilizing the 30% ITC that previously only applied to solar and other clean technology projects.

Repeals Subsidized Energy Financing Limitation on ITC: The bill would allow businesses and individuals to qualify for the full amount of the ITC, even if their property is financed with industrial development bonds or other subsidized energy financing.

Grant Program in Lieu of Tax Credits: The bill allows project developers to apply for a grant from the Treasury Department in lieu of the ITC. The grant will be equal to 30% of the cost of eligible projects that start construction in 2009 or 2010. It will be issued within sixty days of the facility being placed in service or, if later, within sixty days of receiving a grant application.

Increases Credit for Alternative Fuel Pumps: The bill increases the size of credits for

installing alternative fuel pumps at gas stations from 30 to 50% ($30,000 to $50,000) for taxable years 2009-2010.

Advanced Energy Manufacturing Credits: The bill provides $2 billion worth of energy related manufacturing investment credits at a 30% rate. These credits apply to projects creating or retooling manufacturing facilities to make components used to generate renewable energy, storage systems for use in electric or hybrid-electric cars, power grid components supporting addition of renewable sources, and equipment for carbon capture and storage (CCS).

Plug-in Electric Drive Vehicle Credit: The bill increases the tax credit for qualified plug-in electric drive vehicles for the first 200,000 placed in service. The base amount of the credit is $2500. Batteries with at least 5 kilowatt hours of capacity have a credit of $2917. The credit is further increased by $417 for every kilowatt hour in excess of 5 kilowatt hours, but cannot exceed $5000. The credit is allowed to be taken against the alternative minimum tax (AMT).

Five Year Carry-Back Provision for Operating Losses of Small Businesses: The bill would extend the carry-back period for net operating losses (NOL) from two to five years for tax years 2008 and 2009. An eligible NOL includes the NOL for any taxable year ending in 2008 or if the taxpayer chooses, any taxable year beginning in 2008. An election under this provision may only be taken for one taxable year.

Extends Bonus Depreciation: The bill extends, through 2009, the temporary increase of bonus depreciation to 50% that Congress enacted last year. These write offs can be applied to capital expenditures ranging from $250,000 to a newly increased threshold of $800,000.

Direct Spending Total Direct Spending for Renewable Energy and Energy Efficiency: The bill provides $16.8 billion in direct spending for renewable energy and energy efficiency programs over the next ten years.

Grid Development: The bill provides $11 billion to modernize the nation's electricity grid with smart grid technology. This includes $4.5 billion for the DOE Office of Electricity Delivery and Energy Reliability for activities to modernize the nation's electrical grid, integrate demand response equipment and implement smart grid technologies. In addition, $6.5 billion is provided for two federal power marketing administrations to assist with financing the construction, acquisition, and replacement of their transmission systems. The bill also increases federal matching grants for the Smart Grid Investment Program from 20% to 50%.

R&D, Demonstration Projects: The bill provides $2.5 billion for renewable energy and energy efficiency R&D, demonstration and deployment activities.

Advanced Battery Grants: The bill provides $2 billion for grants for the manufacturing of advanced batteries and components. This includes the manufacturing of advanced lithium ion batteries, hybrid electrical systems, component manufacturers, and soft-ware designers.

Defense Energy and Efficiency Programs: The bill provides $300 million to the DOD for the purpose of research, testing and evaluation of projects to energy generation, transmission and efficiency. The bill provides an additional $100 million for Navy and Marine Corps facilities to fund energy efficiency and alternative energy projects.

Study of Electric Transmission Congestion: The bill requires the Secretary of Energy to include a study of the transmission issues facing renewable energy in the pending study of electric transmission congestion that is due to be issued in August 2009.

Bond and Loan Programs

Clean Energy Renewable Bonds (CREBs): The bill provides $1.6 billion of new clean energy renewable bonds to finance wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, hydropower, landfill gas, marine renewable, and trash combustion facilities. One third of the authorized funding will be available for qualifying projects of state/local/tribal governments, one-third for public power providers and one-third for electric cooperatives.

Renewable Energy Loan Guarantee Program: The bill provides $6 billion for a temporary loan guarantee program for renewable energy power generation and transmission projects that begin construction by September 30, 2011. Up to $500 million of the overall $6 billion can be used for the development of leading edge biofuels that have been demonstrated and have commercial promise to substantially reduce greenhouse gas emissions.

Energy and The Environment - White House Policy Post

ENERGY AND THE ENVIRONMENT

The energy challenges our country faces are severe and have gone unaddressed for far too long. Our addiction to foreign oil doesn't just undermine our national security and wreak havoc on our environment -- it cripples our economy and strains the budgets of working families all across America. President Obama and Vice President Biden have a comprehensive plan to invest in alternative and renewable energy, end our addiction to foreign oil, address the global climate crisis and create millions of new jobs.

The Obama-Biden comprehensive New Energy for America plan will:

* Help create five million new jobs by strategically investing $150 billion over the next ten years to catalyze private efforts to build a clean energy future.
* Within 10 years save more oil than we currently import from the Middle East and Venezuela combined.
* Put 1 million Plug-In Hybrid cars -- cars that can get up to 150 miles per gallon -- on the road by 2015, cars that we will work to make sure are built here in America.
* Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025.
* Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.

Energy Plan Overview

Provide Short-term Relief to American Families

* Crack Down on Excessive Energy Speculation.
* Swap Oil from the Strategic Petroleum Reserve to Cut Prices.

Eliminate Our Current Imports from the Middle East and Venezuela within 10 Years

* Increase Fuel Economy Standards.
* Get 1 Million Plug-In Hybrid Cars on the Road by 2015.
* Create a New $7,000 Tax Credit for Purchasing Advanced Vehicles.
* Establish a National Low Carbon Fuel Standard.
* A “Use it or Lose It” Approach to Existing Oil and Gas Leases.
* Promote the Responsible Domestic Production of Oil and Natural Gas.

Create Millions of New Green Jobs

* Ensure 10 percent of Our Electricity Comes from Renewable Sources by 2012, and 25 percent by 2025.
* Deploy the Cheapest, Cleanest, Fastest Energy Source – Energy Efficiency.
* Weatherize One Million Homes Annually.
* Develop and Deploy Clean Coal Technology.
* Prioritize the Construction of the Alaska Natural Gas Pipeline.

Reduce our Greenhouse Gas Emissions 80 Percent by 2050

* Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050.
* Make the U.S. a Leader on Climate Change.

Energy Department Scrambling to Spend Stimulus Funds

Energy Department Scrambling to Spend Stimulus Funds

Posted using ShareThis

Energy Secretary Steven Chu on Thursday announced plans to expedited the disbursement of loans and grants to inject stimulus funding into the economy as quickly as possible.

“The Department of Energy now has $32.7 billion in grants authority and $130 billion in loan authority to speed up this recovery, and we intend to make those investments efficiently, effectively and responsibly,” Chu said during a roundtable discussion with reporters at the Washington offices of Platts, a commodities information division of McGraw-Hill Cos.

The bulk of the funding will be invested in energy efficiency and renewable energy projects; research in biofuels, fossil fuels, nuclear physics and fusion energy; technologies to modernize and expand energy transmission; as well as loans and grants to develop advanced batteries. But the urgency he described coincides with a looming personnel shortage in the Office of the Chief Financial Officer, which has responsibility for handling the funding applications.

Hours before Chu made his remarks, Energy’s Inspector General Gregory Friedman released a report on the department’s loan guarantee program for innovative energy technologies that found serious shortcomings in the program, especially related to the implementation of effective control measures. The program was established by the 2005 Energy Policy Act to guarantee loans for new or significantly improved energy production technologies that avoid, reduce or sequester greenhouse gases. The IG acknowledged that pressure to spend the stimulus funds would likely amplify dramatically in the coming months.

In addition to announing the reforms to the loan guarantee program, Chu said he had tapped Matt Rogers to serve as his senior adviser responsible for overseeing the program’s reforms and stimulus spending. Rogers, formerly a senior partner with McKinsey & Co., served on the Obama transition team and has been working closely with Energy’s CFO office.Chu said he spent much of his first three weeks on the job examining the way the agency makes loans and loan guarantees. Rogers plans to streamline the cumbersome administrative processes currently needed to disperse funding for energy projects in the hopes of shorting the length and time needed to complete the process.

The planned reforms will simplify loan application forms and accelerate the loan underwriting process by using outside partners. Essentially this would require applicants to get backing from commercial banks. The idea is if a commercial lender deems an investment viable through its due diligence process, then Energy would accept that assessment as sufficient for its own investment decision. Amortize loan application fees over the course of the loan so as to not deter companies for whom those costs may be prohibitive. Chu also said the department would create a Web site to help companies navigate the application process and answer their questions.

“The goal is to begin these investments in months, and not years,” he said. The department expects to begin offering loan guarantees by early summer and would like to make 70 percent of the investments by the end of 2010.