Released March 26, 2009 | SUGAR LAND
en
Researched by Industrial Info Resources (Sugar Land, Texas)
Credit Crunch
The lowlight of 2008 was certainly the credit crisis. There was a stunning loss of capital. The renewable industry was moving forward at another record pace last year trying to get projects online to meet the end-of-year Production Tax Credit (PTC) deadline. A lot of projects that were scheduled for completion in 2009 were pulled into a 2008 start-up. But entering the third quarter, Lehman went broke and suddenly the money just stopped. It takes a ton of money to get financing done with debt and equity.
Click on the image at right for a breakdown of renewable-energy projects under development in the U.S.
Financing
Some projects borrowed money to purchase equipment but couldn't refinance because there was no money, and some projects were in the middle of construction but there was no equity takeout, so everything got stuck. The tax equity market, which is our principle federal benefit to date, has been wonderful as long as there are people who have to pay taxes. With the economy going down, tax equity dwindled 60% by October 2008. As a result, investors were trying to get out of equipment orders, venders were pushing back on their suppliers, and orders started to get canceled or redone. Coming into January, things were extremely bad; however, interest in financing started to pick back up. A lot of it lately has to do with new legislation getting the money back into the machine.
Projects Abound
The renewable energy sector hasn't taken as bad a hit as other sectors in the Power Industry. Between October and January, the vast majority of developers were still talking about moving projects forward this year, all the while knowing that something had to clear on the financial side if they were going to break ground. But for the most part, they have not slowed down their efforts. There have been delays, but projects that have a good level of return-for-risk ratio can be very financeable in today's market. This year, the projects being funded are large-scale projects backed by large-scale companies that can use some of their balance sheets to support them. Wind and geothermal in really good resource areas and biomass projects with really low feedstock costs are moving forward. There are a lot of projects under development that will move forward this year because there is money available -- but, the available money will be more carefully focused. The recent economic stimulus will enable even more projects to move forward over the next year than was previously thought possible in the current economic climate.
Policy Support
Policy support for renewable energy is tremendous. There is a renewed sense of the importance of government to drive policies in ways to move the US into a clean energy economy.
There are several drivers why renewable energy projects are moving forward this year whether it's the PTC, State Renewable Portfolio Standards (RPS), the eventuality of a federal RPS or the price of carbon, the costs are coming down while the price of traditional options are going up, growing consumer demand. None of these things on their own have been enough to launch projects into construction but combined, they have driven the majority of construction activity.
Last year, the extension of the PTC, which was due to expire at the end of the year, went through 17 different votes in the 110th Session of Congress, trying to just get a straight line extension to keep the momentum moving forward. On October 3, 2008, the $700 billion bailout package for the financial industry, called the Emergency Economic Stabilization Act of 2008, was enacted into law by former President George W. Bush. It included $17 billion in energy tax incentives. The PTC was extended for one year, which, in addition to wind, also applied to other energy sources, such as geothermal, closed-loop biomass, hydropower, landfill gas and trash-combustion facilities. It also created a tax credit for a new energy production category, marine renewable, which is energy derived from waves, tides and currents.
The investment tax credit extended solar for eight years, as well as energy-efficiency credits and many other clean energy provisions. Last year, the cap on solar projects was lifted so that it is a true 30% Investment Tax Credit, which was huge for the solar industry, as it wasn't capped at $2,000 any longer. So there was a huge increase in solar PV installations last year. The No. 1 month for the California Solar Initiative was December. So even though we were deep in the middle of a recession, record installations went in.
The economic recovery plan President Barack Obama signed last month created strong incentives for renewable energy development. About $67 billion was allocated for renewable energy and energy efficiency. About $20 billion could directly put projects on the ground.
The bill provides a number of provisions to assist renewable project developers get money and get the financing going. The biggest thing the recent stimulus bill provided was that it makes the commercial tax credit refundable, so if you do not have the tax equity funding available, you can now receive a check from the federal government in lieu of the PTC. The second big provision is the loan guarantee program, which is just focused on renewable and transmission projects, freeing up a lot of debt equity for large-scale projects.
As part of the economic stimulus, the Department of Energy (DOE) will take its obligations more seriously to loan money it has already had to fund projects. Renewable energy developers will have a much better chance of getting money from existing DOE programs than ever before for launching experimental technologies or launching demonstration projects.
What could also drive renewable energy going forward will be a national renewable energy standard and national carbon legislation, which are expected to come out later this year.
Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.
Credit Crunch
The lowlight of 2008 was certainly the credit crisis. There was a stunning loss of capital. The renewable industry was moving forward at another record pace last year trying to get projects online to meet the end-of-year Production Tax Credit (PTC) deadline. A lot of projects that were scheduled for completion in 2009 were pulled into a 2008 start-up. But entering the third quarter, Lehman went broke and suddenly the money just stopped. It takes a ton of money to get financing done with debt and equity.
Click on the image at right for a breakdown of renewable-energy projects under development in the U.S.Financing
Some projects borrowed money to purchase equipment but couldn't refinance because there was no money, and some projects were in the middle of construction but there was no equity takeout, so everything got stuck. The tax equity market, which is our principle federal benefit to date, has been wonderful as long as there are people who have to pay taxes. With the economy going down, tax equity dwindled 60% by October 2008. As a result, investors were trying to get out of equipment orders, venders were pushing back on their suppliers, and orders started to get canceled or redone. Coming into January, things were extremely bad; however, interest in financing started to pick back up. A lot of it lately has to do with new legislation getting the money back into the machine.
Projects Abound
The renewable energy sector hasn't taken as bad a hit as other sectors in the Power Industry. Between October and January, the vast majority of developers were still talking about moving projects forward this year, all the while knowing that something had to clear on the financial side if they were going to break ground. But for the most part, they have not slowed down their efforts. There have been delays, but projects that have a good level of return-for-risk ratio can be very financeable in today's market. This year, the projects being funded are large-scale projects backed by large-scale companies that can use some of their balance sheets to support them. Wind and geothermal in really good resource areas and biomass projects with really low feedstock costs are moving forward. There are a lot of projects under development that will move forward this year because there is money available -- but, the available money will be more carefully focused. The recent economic stimulus will enable even more projects to move forward over the next year than was previously thought possible in the current economic climate.
Policy Support
Policy support for renewable energy is tremendous. There is a renewed sense of the importance of government to drive policies in ways to move the US into a clean energy economy.
There are several drivers why renewable energy projects are moving forward this year whether it's the PTC, State Renewable Portfolio Standards (RPS), the eventuality of a federal RPS or the price of carbon, the costs are coming down while the price of traditional options are going up, growing consumer demand. None of these things on their own have been enough to launch projects into construction but combined, they have driven the majority of construction activity.
Last year, the extension of the PTC, which was due to expire at the end of the year, went through 17 different votes in the 110th Session of Congress, trying to just get a straight line extension to keep the momentum moving forward. On October 3, 2008, the $700 billion bailout package for the financial industry, called the Emergency Economic Stabilization Act of 2008, was enacted into law by former President George W. Bush. It included $17 billion in energy tax incentives. The PTC was extended for one year, which, in addition to wind, also applied to other energy sources, such as geothermal, closed-loop biomass, hydropower, landfill gas and trash-combustion facilities. It also created a tax credit for a new energy production category, marine renewable, which is energy derived from waves, tides and currents.
The investment tax credit extended solar for eight years, as well as energy-efficiency credits and many other clean energy provisions. Last year, the cap on solar projects was lifted so that it is a true 30% Investment Tax Credit, which was huge for the solar industry, as it wasn't capped at $2,000 any longer. So there was a huge increase in solar PV installations last year. The No. 1 month for the California Solar Initiative was December. So even though we were deep in the middle of a recession, record installations went in.
The economic recovery plan President Barack Obama signed last month created strong incentives for renewable energy development. About $67 billion was allocated for renewable energy and energy efficiency. About $20 billion could directly put projects on the ground.
The bill provides a number of provisions to assist renewable project developers get money and get the financing going. The biggest thing the recent stimulus bill provided was that it makes the commercial tax credit refundable, so if you do not have the tax equity funding available, you can now receive a check from the federal government in lieu of the PTC. The second big provision is the loan guarantee program, which is just focused on renewable and transmission projects, freeing up a lot of debt equity for large-scale projects.
As part of the economic stimulus, the Department of Energy (DOE) will take its obligations more seriously to loan money it has already had to fund projects. Renewable energy developers will have a much better chance of getting money from existing DOE programs than ever before for launching experimental technologies or launching demonstration projects.
What could also drive renewable energy going forward will be a national renewable energy standard and national carbon legislation, which are expected to come out later this year.
Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.
