The last two days at the Renewable Energy Finance Forum in New York City have been spent trying to figure out what the “New Normal” for the industry is. That phrase was used by Bloomberg New Energy Finance CEO Michael Liebreich in his presentation Monday morning.
So what does he mean by the New Normal?
Well, it’s just sort of a humdrum period compared to the last few years. There’s no major investment bubble like we saw with solar in 2006 and 2007. There’s no imminent crisis like in 2008 and into 2009. It’s the first time in many years that the industry is moving at a regular pace (albeit a slow one due to the still-poor economic conditions).
“We are just very much in the process of building the industry. We’re neither in the depth of a trough, nor are we in an overheated stage,” said Liebreich, in an interview after his speech.
Those who believe strongly that there’s an urgent need to develop renewables probably won’t be happy with that definition. But from a purely business perspective, things are looking, well, sustainable. ::continue::
There’s more debt and equity available, but there are fewer places to deploy capital. Lenders and project financiers are fleeing only to quality projects that can still compete with today’s depressed fossil energy prices. That’s ensuring that only the best projects come online.
In the venture capital space, investment has increased over 80% over this time last year. Many of those investments are going toward less-sexy sectors like transportation and energy efficiency and not as much to solar and biofuels. (Although solar companiesare still seeing a fair amount of investment).
Nancy Floyd, Managing Director of the San Francisco cleantech venture firm Nth Power, said that the New Normal is all about working with established energy companies. For the foreseeable future, traditional energy companies matter very much to the renewable energy industry. Without them, there simply aren’t as many opportunities. Floyd expects around 75% of exit strategies for early stage cleantech companies will be through M&A.
“The incumbent players are acquiring new technologies – players like Areva, ABB and Siemens. Expect them to play a large role in this sector,” said Floyd in an interview.
On the public policy side, most of the renewable energy professionals at REFF were happy with the status quo. The grant program set up by the stimulus package to deal with the lack of project finance have kept the industry alive. Now that companies and lenders know how to navigate the program, many people are worried that it will be changed or discontinued altogether.
“We understand this grant program. Changing policy again might severely slow us down,” said Arno Harris, the CEO of Recurrent Energy, in panel discussion. “We should see an extension of the grant program.”
There were calls at REFF to replace the investment tax credit with the grant until 2016, when the ITC is supposed to expire.
Of course, there were also calls for a more aggressive approach to policy, like putting a price on carbon or creating a long-term renewable energy target. Unfortunately, the lack of a long-term policy is kind of the New Normal too. The industry has gotten so used to inconsistencies in policy making, it’s almost a given that things will happen in a piecemeal way in Washington.
All in all, the mood was sober. The long-term enthusiasm among investors for renewables was very stong, as it is every year at REFF. But there was also a recognition by speakers and attendees that it will be a slow and steady climb for many years to come.
As Michael Eckhart, the President of ACORE put it at the end of the conference: “This year and into the next, it’s nothing fancy, just down and dirty. The companies that survived 2009 will thrive in 2010 with the same mentality they got through last year with.”