As oil and gas prices continue to decline and investors tighten purse strings, will the momentum behind renewable energy investment slow? During today's OnPoint, Ethan Zindler, an analyst and head of North American research for New Energy Finance, discusses the prospects for renewable energy project investments as a result of the financial crisis. He addresses the key questions facing clean energy investors and analyzes the worldwide trends for renewable energy projects. Zindler also discusses the current status of clean energy shares and the outlook for investment and growth.

Transcript

Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Ethan Zindler, an analyst and head of North American Research for New Energy Finance. Ethan, thanks for coming on the show.

Ethan Zindler: Thanks for having me.

Monica Trauzzi: Ethan, there really seems to be two tracks of thinking in terms of what's next for renewable energy investments as a result of the financial crisis. There are those who believe that clean energy can sort of help us get out of this financial mess and there are other people who think that renewable energy projects are going to suffer majorly devastating impacts as a result of the financial crisis. Is it a little bit of both or is it sort of too soon to tell what the future is? What is your read on the situation?

Ethan Zindler: I think it's too soon to tell. I mean certainly in the short term we're seeing a pinch. There's no question that projects that need project financing are going to have trouble. Some of the smaller players, in the industry in particular, are going to face difficulty. We may see a good deal of consolidation over the next six to 12 months. I think to some degree, in the U.S. in particular, it depends on what we see out of Washington. And there is talk of a new stimulus package and depending on how bad economic conditions get, there is certainly the possibility of major federal investment in an attempt to gin up the economy. And if that comes along and if it's with a Democratic Congress and perhaps a Democratic president, there's certainly the possibility that clean energy would be actually very well-positioned to benefit from that as an infrastructure play essentially for the federal government. So, I think the jury is definitely still out, but there's no question that in the short-run right now our industry is being affected just like any other, which is a lack of access to capital which is a problem.

Monica Trauzzi: New Energy Finance provides assistance and research to investors who are interested in clean energy. What are some of the big questions and concerns that you've been hearing from your clients in the last month or so?

Ethan Zindler: We certainly field some calls from clients who are seeking some sort of reassurance that this stuff does have a future despite the short-term problems. And I think that what we been able to say to them is that, look, there are some things about the changing circumstances that are actually okay. The first is that a slow in the U.S. and the global economy could mean and already has actually meant a decline in commodities prices. So, for instance, steel prices have come down a bit and could fall a lot more. Steel prices have been a key driver for increasing the price of wind turbines, for instance, over the last couple of years. So, that's one potentially hopeful sign. The other thing that we regularly point out to them is in the U.S. there are now 30 states that have renewable portfolio standards on the books. And so those are policies that, while certainly they could be eliminated at some later date, it would take some time to do that. So that's a good sort of long-term policy driver that's in place. And then, obviously, at the federal level, or maybe not so obviously at the federal level, recently Congress passed the Economic Stabilization Act, which includes extensions of some key credits for the industry and so that's good news as well going forward.

Monica Trauzzi: What about those extensions that were only given for a year? Is that maybe going to be an uphill battle next year because of the focus on the economy? Are those industries at risk?

Ethan Zindler: Well, the main industry we're talking about is wind and that is the biggest in terms of the number of megawatts installed in the U.S. And they only got one year extension of the Production Tax Credit.

Monica Trauzzi: Right.

Ethan Zindler: The other technologies got two and solar got a very generous eight years. So really, it is up for wind and I think every year we sort of see the same song and dance as the Congress struggles and struggles to extend the PTC and then eventually does, even sometimes retroactively. Next year will clearly be, you know, the budget squeeze is going to be worse than ever, but I guess we're very heartened by the rhetoric that we hear on the campaign trail from both candidates, that there's a very strong commitment to clean energy and two green jobs. And in terms of being labor-intensive and providing blue-collar jobs it really is the wind sector that is the one that would be most likely to provide those. So there are obviously countervailing forces here, but we think that the industry is fairly well positioned politically to have that extension renewed again next year. And if there is a big stimulus package, we feel fairly confident that a PTC extension will be in that as well.

Monica Trauzzi: Are their renewable energy projects that are being halted at this point because of the economic uncertainty and the inability to get loans?

Ethan Zindler: Yeah, we know of one for certain at this point that's sort of publicly been announced. Inevitably there will probably be some others. Let's talk for a second about wind. The problem with the wind sector and how the PTC works is that there was only really about a dozen and a half players, maybe two dozen at tops, more like a dozen and a half actually financing wind projects in terms of tax equity investors, in other words, those that were using the Production Tax Credit to invest in projects. That number has really, dramatically shrunk down to maybe a half a dozen and some obvious players have really left the playing field completely, Lehman Brothers, Wachovia, AIG. And we hear the GE is not as aggressively investing as they were and they were a really big player in this area. So, there's less capital available for funding for wind projects right now. That means two things; one, the funding that developers do get is more expensive and, two, some developers will not get funding potentially. Although, we feel that the extension of the PTC into next year gives everybody a bit more breathing room that they would not otherwise have had. So you may have some projects that take longer to lock in the financing than they would have otherwise. But there will certainly probably be a few projects that will get sort of shoved aside for now and maybe revisited later.

Monica Trauzzi: Oil and gas prices are on the decline. Does that mean that there is going to be less of an urgency to fund and go after these renewable energy projects? Is the general public not going to feel as much urgency?

Ethan Zindler: That's certainly the potential. Although, I would argue that if you look out on the campaign trail, the argument that's most being made is about energy security. And that really is not going to change too dramatically with oil at 60 versus at 140. And the second thing is $60 oil prices, by historical standards, are still quite high. And natural gas prices have come down, but they're not what you would call low by any means. So, I think we have to put this in context. Three years ago these would have seemed like enormously high prices and so I think that most of the technologies that we track are still price competitive at this point. If we get down to $20 or $10 a barrel it might be a different story.

Monica Trauzzi: What's the current status of clean energy shares as a whole and what's the outlook on investment for the next year or so?

Ethan Zindler: You mean publicly traded companies?

Monica Trauzzi: Yeah.

Ethan Zindler: Well, this has been a very difficult year on Wall Street for everybody obviously, but, in particular, for clean energy stocks. We run an index called the Global Innovation Index, New Energy Finance Global Innovation Index, and that's a basket of about 85 stocks worldwide. As of the couple of weeks ago, it was off 60 percent on the year and it's now down over 40 percent on the year. That's been significantly worse than the S&P 500. Inevitably, these stocks are more volatile than the market as a whole. Clean energy is somewhat of a riskier bet for some investors and, therefore, we see the stocks do this a fair amount. But it's not good news for the industry. The lack of share value makes it more difficult for them to acquire other companies. And we've found that many companies have found it very difficult to raise money on the public markets. So, an initial public offering or a secondary offering of stock this year has been very, very challenging. So that's the bad news. On the flip side, the good news is there's actually a lot of money available from private investors, private equity funds and venture capital funds. A lot of them came into the year with a lot of cash on hand and they've been spending it through much of the year. So, some companies that might have looked to the stock markets to raise money instead have been looking to private investors and have done fairly well.

Monica Trauzzi: Those private investors were there this year, are they going to be there next year at all?

Ethan Zindler: That's a good question. Last year and the year before there was so much excitement about clean energy that there was a lot of money that poured in to clean energy's specific funds. But this year the fundraising is quite difficult. So, looking out into next year, it could be challenging at the venture capital and private equity level.

Monica Trauzzi: Final question here, how are things looking abroad? Are they facing similar issues as we are here in terms of renewable energy investments?

Ethan Zindler: Yeah, absolutely. I mean we've seen the cost of capital and the price of debt for financing a project over in the E.U. has gone up dramatically and a good deal of pullback as well. I mean it's very much of the global market, so inevitably we've seen a number of the same impacts over there as we've seen here.

Monica Trauzzi: OK, we'll end it right there. Thanks for coming on the show.

Ethan Zindler: Thank you.

Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.

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