The World's #1 Renewable Energy Network for News, Information, and Companies.

Project Finance in a Post-stimulus World

In the aftermath of the financial crisis in 2008, the United States and other countries took historic measures to promote investment and financing across chosen sectors of the economy. In the United States, the renewable energy industry was delighted to receive the benefit of several federal programs designed specifically to restore financing to the sector — these included the Treasury 1603 cash grant program and revitalized loan guarantee programs administered by the Department of Energy and the Department of Agriculture. The renewable energy industry also benefitted from the significant efforts made globally to restore confidence in financial institutions, including direct and indirect funding of banks by host governments.

How did the stimulus programs affect the renewable energy industry so significantly? Renewable energy businesses in the United States are oriented to the development, financing and operation of projects — special purpose entities combining equipment and contracts perfect for utilization of long-term debt and equity financing.  In the aftermath of the financial crisis, the project financing market was at death’s door.  Banks that had provided the bulk of debt financing were in disarray, having loaded up on toxic structured finance deals.  The tax equity market in the United States, the province of tax paying financial institutions before the crisis, had shrunk to a handful of still profitable players. 

The stimulus program resurrected both the debt and tax equity markets. On the debt side, governments flooded the banks with capital to lend.  The loan guarantee program became a principal means of financing projects that were too large for the markets to handle as well as those projects with technology considered too new by the banks to finance.  In the world of tax equity, the 1603 cash grant supplemented the regime of the investment tax credit and the production tax credit.  The result?  Project financing of renewable energy projects hit historic volume levels in 2011, and the tax equity market tripled from 2009 to 2011 — with over half of the tax equity being based on financing of the Treasury cash grants.

We are now at the precipice of a new age.  The stimulus programs have run their course.  The 1603 grant program requires commencement of construction (or at least the achievement of a “safe harbor” proxy for the same) by the end of 2011.  The DOE Section 1705 loan guarantee program required projects to have closed financing by September 30, 2011. In the wake of the debacle over the Solyndra and Range Fuels loan guarantees, and general Republican angst over a ballooning federal role in propping up the economy, stimulus related programs are unlikely to be renewed.  Another potential adverse change in the tax equity financing market is the pending expiration of the production tax credit at the end of 2012.

While the 2009 stimulus programs helped revitalize financial institutions globally, such support did not prevent (and indeed may have facilitated) the European debt crisis in 2011.  European banks laden with sovereign debt of the weaker EC members are shedding assets to survive.  A number of the prominent project finance banks have closed their doors to further transactions, and have put their portfolios up for sale.  The effect on the U.S. project finance market has been predictable — less, volume, higher prices and shorter tenors.

So what is the way forward for project financing in 2012?  At a minimum, we should expect the following:

The tax equity market may be chaotic as it deals with several competing influences.  Several tax equity investors have already indicated that they will not be open for business in 2012 if there is not a grant program.  What is not fully known at this point is the volume of projects that will qualify for the Treasury grant through the safe harbor mechanism.  The Treasury Department continues to fine-tune the safe harbor rules, potentially limiting the number of safe harbor qualifications.  In addition, demand for tax equity will be growing from at least three sectors.  Developers in the wind industry are pushing projects forward in 2012 to hedge against the expiration of the PTC at year-end.  Adding to the demand will be several large solar projects currently in construction and still seeking tax equity investors.  Finally, the rapidly declining price for PV solar panels is fueling a jump in distributed generation installations. All of those wind and solar projects undoubtedly will push up demand for tax equity.  While new investors are expected to emerge in 2012, demand may still exceed supply of tax equity, resulting in less favorable terms and pricing for developers. 

The debt market will continue to feel the effect of the European debt crisis, with tenors shortened and pricing increased over the terms in early 2011.  What remains to be seen is whether the remaining cadre of project finance lenders will increase the volume of loans.  Separate from the traditional bank lender market, the capital markets may be taking a greater share of the project finance market — as investment banks seek to connect the superb risk adjusted returns of project loans to a market of investors hungry for yield.  And, of course, if the loan guarantee programs are in their demise, what other sources of financing — equity or debt — might emerge to support newer technology projects?

At Renewable Energy World 2012 in Long Beach, we will have a panel of national experts addressing the prospects for the financing market of 2012.  Our panel includes Ben Cook of SolarCity, Greg Rosen of Union Bank, Todd Grenich of Grenich Capital, Kristian Hanelt of Clean Power Finance, and Stephen Tracy of Novogradac, and will be moderated by the author.  We will have a no holds barred exchange on the sources, terms and hot issues for project financing.  Be there!

RELATED ARTICLES

Renewable Energy Is Beginning To Power Africa

Andrew Burger, Contributor According to the International Energy Agency, sub-Saharan Africa will require more than $300 billion in investment to achieve universal electricity access by 2030. Committing more than $7 billion in U.S. government support ...

Renewable Power Can Now Flow All Over Europe

Rachel Morison and Weixin Zha After almost two years of delays, Germany, France and their neighbors in central-western Europe connected their electricity markets on Wednesday under a system that lets prices dictate where power flows between countries. F...

Yingli Seeks to Reassure Investors After Stock Plunge

Louise Downing and Justin Doom Yingli Green Energy Holding Co., the second-largest panel maker said it’s confident it can keep making repayments on its debt and that it is taking steps to mitigate risks to its business. It blamed media reports ...
Electric Vehicle

Tesla E-motorcycles Complement SolarCity Microgrids

Mahesh Bhave, Contributor Batteries are the renewed focus of attention given the launch of Tesla’s PowerWall on April 30. What or where might the next major application be? Utility scale storage appears to be one. My thesis is that launching Tesla e...

CURRENT MAGAZINE ISSUE

03/01/2015
Volume 18, Issue 3
file

STAY CONNECTED

To register for our free
e-Newsletters, subscribe today:

SOCIAL ACTIVITY

Tweet the Editors! @megcichon @jennrunyon

FEATURED PARTNERS



EVENTS

Doing Business in Brazil – in partnership with GWEC, the Global Win...

Brazil is one of the most promising markets for wind energy.  Ranke...

EU PVSEC 2015 (European PV Solar Energy Conference and Exhibition)

The EU PVSEC is the largest international Conference for Photovoltaic re...

Sponsor/Exhibitor: MIREC Week 2015

Solectria, Pillar, and Variadores together are co-Silver Sponsors! Come ...

COMPANY BLOGS

EU PVSEC 2014 extends its Scope

Added focus on application and policy topicsAbstracts for conference con...

EU PVSEC 2014: Call for Papers Receives Great Response

More than 1,500 contributions apply for presentation in AmsterdamScienti...

Boulder County Residents Generate Their Own Energy with Community S...

Despite a soggy afternoon, solar energy advocates gathered at ...

NEWSLETTERS

Renewable Energy: Subscribe Now

Solar Energy: Subscribe Now

Wind Energy: Subscribe Now

Geothermal Energy: Subscribe Now

Bioenergy: Subscribe Now  

 

FEATURED PARTNERS