In 2008, alternative energy seemed poised to become the next big thing. As oil prices soared, seed money poured into the sector, and some saw a new investment bubble forming. Pundits envisioned a green future where wind farms would generate clean electricity for office buildings and factories, which in turn would be outfitted with solar-panel arrays, geothermal heat pumps, and low-energy lighting. Employees would commute to work in electric or ethanol-powered cars.
That future seems much farther away in 2009. Alternative energy is withering, thanks to the recession and the credit freeze. Companies and governments that only months ago were committed to funding green initiatives are now struggling with budget cuts. Wind turbine manufacturers have made layoffs, as have companies in the solar and biofuel arenas.
David Mortensen, U.S. finance chief at Grundfos Pumps, a manufacturer of water pumps, says he’s suffering a bout of déjà vu. “My first job out of college in the 1970s was at [California utility] PG&E as a solar project coordinator, and it felt exactly the same then as it does now,” he says. “There was a gas crisis, solar was just around the corner, and everyone thought energy prices would continue to go crazy. Then energy prices came way down and solar was back where it started.”
Yet three decades after that first exposure to solar power, Mortensen took the plunge. Last year Grundfos installed a solar array at its Fresno, California, manufacturing facility. The project caught the attention of a fellow CFO at a neighboring company, but Mortensen says that executive is now wholly focused on his company’s near-term survival. “They’re not sure they’ll be around to use the energy,” says Mortensen.
Banks Bail Out
Tobin Ginter, CFO of Rodney Strong Vineyards, says when his company spent $2 million to build its solar array in 2003, the alignment of tax incentives, concern about energy prices, and a corporate commitment to environmentally friendly practices made solar very attractive. The project improved the company’s cash flow from the outset, thanks in no small part to those incentives, which included the ability to accelerate depreciation. Now, says Ginter, “if your business is struggling, [solar] will be a tough call to make, especially if financing isn’t available.”
Banks like Morgan Stanley once financed or invested in many solar and wind projects. (In Grundfos’s case, Morgan Stanley paid for the installation of the solar array.) The banks typically benefited from the tax credits they gained from investing in alternative energy. Now, “Morgan Stanley seems to have exited that business,” says Eileen Kamerick, finance chief at TectaAmerica, a commercial roofing company with a growing portfolio of energy-efficient roofing options. And the ailing bank is not alone: of the 18 financial institutions that were frequent backers of wind and solar projects, only 4 are still in the business.
Venture capitalists, who flocked to clean-energy start-ups after the dot-com bust, all but closed their wallets late last year. Fourth-quarter venture investment in the sector was down 44 percent from the previous year, according to Ernst & Young.