After a rough year for the renewable energy industry, will investors and developers rebound once stimulus money makes its way to new and current projects? During today's OnPoint, Daniel Simon, a partner in the business and finance department at Ballard Spahr Andrews & Ingersoll LLP, explains what the industry will be able to achieve through stimulus funding and how much more will be needed to meet the president's clean energy goals. Simon also discusses whether states have the infrastructure and staffing to disseminate the stimulus money to local projects.
Monica Trauzzi: Welcome to the show. I'm Monica Trauzzi. With us today is Daniel Simon, partner in the Business and Finance Department at Ballard Spahr. Daniel, thanks coming on the show.
Daniel Simon: Thanks for having me.
Monica Trauzzi: Daniel, renewable energy development is playing a big role in the Obama administration's energy platform and we've also seen a lot of money thrown at this thing in the stimulus, more than $40 billion. If the stimulus measures are successful, what can we expect to see in the U.S. in terms of renewable energy and how far will this money actually take us with these types of projects?
Daniel Simon: Well, hopefully what we'll see are investors who used to be heavily involved in the renewable energy sector get back into the game. A lot of people have been on the sidelines, particularly in light of the current credit crunch and has discouraged them from getting back involved. We used to have roughly maybe a dozen to 14 active, large investors in renewable energy and that's currently cut back down to maybe two to four. And hopefully a lot of those will get back in the game and that will in turn create more renewable energy projects.
Monica Trauzzi: Is there enough money to get all those players back in the game?
Daniel Simon: Well, we'll have to wait and see. It's not clear. It's not clear whether the stimulus package is enough and how much sort of the overriding economic difficulties the country is facing right now is dampening the interest in investing in renewable energy.
Monica Trauzzi: And part of the issue that we've been seeing with developers and investors also is there's this sort of funding logjam and the stimulus will sort of helped free that up as well?
Daniel Simon: Yes, to some extent. Certainly things such as the loosening of the tax credit incentives should help bring some people back into the game, such as extending the production tax credit availability, expanding the applicability of the investment tax credit. These are things that people who otherwise wouldn't benefit from the current tax credits available could now benefit from this wider variety of benefits, and even things such as the new treasury grant program in lieu of the tax credits. People who wouldn't be able to take advantage of a tax credit could now get in the game and get actual grant money.
Monica Trauzzi: There are lots of concerns that the stimulus was picking energy winners and losers. I mean who came out big here? Who are the big winners?
Daniel Simon: Well, I think the traditional and most active renewable energy sectors right now came out big. Certainly the wind farms are a big winner with helping with the expansion of production tax credit. Solar is going to be doing well. And even things such as hydropower which hasn't traditionally gotten incentives in recent years has gotten some new help in incremental hydropower and new cutting edge hydropower technologies.
Monica Trauzzi: So many of the stimulus money is going to be going to states and a lot of the states are going through hard times right now. Does the infrastructure and the staffing exist within these states to spend that money successfully and get it into projects?
Daniel Simon: I think that varies from state to state. There's an organization of states that have already in-place renewable energy programs where they've got the infrastructure more or less in place to take the money and continue the projects they're already working on. And I don't have the exact number, but roughly half the states maybe have these. The others that don't, it probably will be a steeper learning curve and take longer to get up and running with this.
Monica Trauzzi: There is about $11 million in the stimulus for Smart Grid development. It's really seen as just seed money for this type of project. Looking at the renewable energy projects more broadly, are we going to find ourselves in a position where we've started a bunch of projects and then don't have the money to continue them or finish them?
Daniel Simon: That's possible, but I think the stimulus package does a lot in going along way in terms of what's currently available. It's hard to see exactly how much money is really needed because of the overriding economic problem is dampening so much of this.
Monica Trauzzi: How successful do you think the funding in the stimulus will be without some form of a cap and trade or carbon tax?
Daniel Simon: Yeah, the stimulus, basically two of the biggest problems in the renewable energy industry right now is one is a supply of capital to fund projects to get them off the ground and second is to what extent can we increase the demand for renewable energy projects? And certainly a stimulus bill helps prime the pump, so to speak, in getting investors back in the game, investors who might not otherwise be able to take advantage of the current government incentives available. What it doesn't do is necessarily increase the demand for more renewable energy projects. A lot of projects that will benefit from the stimulus package are ones that would have been built or undergone construction but for the current economic crisis. Looking ahead, something like a federal renewable portfolio standard or federal greenhouse gas legislation could really go a long way in increasing the demand for a dramatic increase the number of renewable energy projects built.
Monica Trauzzi: Funding for carbon dioxide storage projects was pretty controversial; the inclusion of that in the stimulus was controversial. Many see the FutureGen project as cost prohibitive and they're concerned that this is going to be wasted money. I mean are we really just throwing money at a variety of projects and seeing what sticks at this point?
Daniel Simon: Well, we do need to invest in whatever we can. I mean looking ahead the energy problems this country faces are enormous. If we really want to be serious about energy security and renewable energy and greenhouse gas legislation we really have to take on as many problems as we can. And certainly R&D is a good thing in any opportunity we have. Ultimately, what works is hard to see, but some of it's a gamble and we have to sometimes hedge our bets.
Monica Trauzzi: Final question here. Where does this all leave us in terms of the next energy package we might see most likely this summer come out of Congress?
Daniel Simon: Well, already being circulated are several versions of renewable portfolio standards on the federal level. And hopefully those will move through Congress quickly. There's also of course greenhouse gas legislation that's starting to be considered and hopefully will be taken up in the spring or later this year.
Monica Trauzzi: All right, we'll end it right there. Thanks for coming on the show.
Daniel Simon: Thank you.
Monica Trauzzi: And thanks for watching. We'll see you back here tomorrow.
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