FINANCE:

Clean-tech developers fret over witching hour for DOE grants

NEW YORK -- Two and a half years since the bankruptcy of Lehman Brothers Holdings Inc. sent Wall Street into a tailspin, financing for wind, solar and other clean energy projects is still hard to come by, experts say.

Deals are getting done, but not at the rate that the industry would call robust, and many project developers are still dependent on temporary government support measures.

There is growing angst over the pending end to a Department of Energy program that allows projects to claim cash grants in lieu of the tax credits that have been the mainstay of renewable-energy project financing for years. Insiders assume the production tax credits and investment tax credits will return next year, but most also agree the grants will end this Dec. 31. That raises a big question: Can projects shift from grants to credits?

"When that happens, what happens next?" said Jack Jacobs, a managing partner at Cleantech Law Partners, a firm that specializes in arranging funding for clean-tech projects. "That's really the question that a lot of developers I think are asking because there isn't that consistency that we really need from the federal government right now."

Jacobs says the picture is not completely grim. Projects are still being built, and he is especially upbeat about the potential for distributed solar energy programs and wind projects financed partially by community organizations.

But he acknowledges cash grants have so far been the lifeblood of many renewable energy projects. Developers he works with do not quite know if banks have an appetite for continuing their support into next year, by again relying mainly on so-called tax equity financing structures, which allow them to claim tax credits to offset liabilities from more profitable business streams.

There will be plenty of opportunities for developers to gauge bank sentiment in coming weeks as a string of clean energy conferences roll through New York City, starting with tomorrow's Wall Street Green Summit, now in its 10th year. Two other competing events will afford opportunities for alternative energy companies to weigh what their options will be once the cash grant program expires.

Most companies are continuing their push for stronger, more consistent government support beyond the temporary tax incentives that are sometimes extended just days before they are set to expire. Jacobs and others insist a national feed-in tariff would do wonders for domestic clean energy manufacturing and distribution.

The clean-tech industry has long called for a price on the carbon dioxide emitted from fossil fuel combustion, but with talk of comprehensive U.S. climate change legislation now dead, industry officials will have to consider other options during their talks here.

Major financiers are key

But project developers may not have to worry too much if some of the larger, more committed financiers maintain their stated support.

GE Energy Financial Services, one of the largest players in the field, says it met its goal of achieving $6 billion of its investment portfolio locked into renewable energy investments at the end of 2010. But that spending was spread across 14 countries, and 75 percent of domestic spending was focused on states with renewable portfolio standards or laws that mandate a certain percentage of electricity be sourced from renewable sources.

Still, that firm says it is committed to continuing its support for alternative energy in the United States, but only with the federal government shows a similar commitment. "We are calling on Congress to enact long-term, predictable renewable energy policies," said GE Energy Financial Services CEO Alex Urquhart in a press release.

Ann Marie Hauser, a spokewoman at JP Morgan Chase, said her firm's investments in alternative energy projects in the United States totaled $3.2 billion last year. The money went to four geothermal power projects, 67 wind farms and 12 photovoltaic solar power projects.

All those arrangements were tax equity structures, and while Hauser did not specify whether DOE grants were involved in any way, she did say that her firm would likely continue its support so long as Congress keeps tax credits and other incentives in place.

"JP Morgan Chase is one of the largest tax equity investors in wind in the U.S., and the firm plans to continue growing its tax-driven investment activities throughout the renewable and clean energy sectors as opportunities appear," she said.

Globally, 2010 was a record year for alternative energy investment with growth fueled almost entirely by government economic stimulus spending, especially in China.

Some believe that with the return of $100-a-barrel oil prices, this year should see bank spending on renewable energy beating 2010 figures, even as direct government subsidization slips away.

A greater mainstreaming of alternative energy finance led by likes of JP Morgan Chase and others should also see other players coming into the field, experts predict, especially if the economy grows well and bank profitability continues to increase.

Government signal needed

But the industry will still face some significant head winds.

Phil Spector, an attorney with the clean-tech practice of Troutman Sanders LLP, said that even in 2010 many developers still struggled to raise cash during the construction period, which did not enjoy any direct stimulus spending. And the time and resources required to manage a tax equity structure meant that projects had to be large enough to justify those extra costs, leaving out many otherwise worthy projects.

Experts also say stand-alone projects have also lost out to developers who have a greater track record and large pipeline of developments in the works. And banks still favor wind and solar over other innovative alternative energy systems. But Spector said he can see some light at the end of the tunnel.

"As the deals become more standardized and have a track record with major players, more banks and other lenders and investors are likely to enter the market," Spector said.

Still, he agreed that the industry needs a clearer signal of support from the government for banks to get really interested. "One source of angst is the failure of government to act," he said

Cleantech Law Partners' Jacobs and others would like to see the cash grant program extended or at least be replaced by something more robust than just a return to base tax credit support, like a federal feed-in tariff.

"Without that we're just going to stumble along for a long, long time," Jacobs said.

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