Filling the Void
But the federal government’s massive stimulus package may provide the alternative funding that the alternative-energy sector so badly needs. Passed in February, the $787 billion American Reinvestment and Recovery Act includes billions of dollars of incentives for green energy (see “Seed Money” at the end of this article). Many in the industry think the incentives will provide a lifeline to better days. “It looks like, feels like, and tastes like it’s going to be very, very good for us,” says Art Hennessey, finance chief at American Capital Energy, a solar project management company. Ethan Zindler, head of U.S. research at New Energy Finance, a research firm focused on investment trends in renewable energy, says he expects the stimulus to help offset the impact of the recession. “This kind of support should allow the market to open up, and should allow the renewable-energy sector in the U.S. to grow somewhat from where we were last year,” he says.
The stimulus package is not the only force working to sustain the sector, although it is certainly the strongest. For one, mandated clean- energy standards, which typically require utilities to generate 10 to 20 percent of their power from renewable sources in the next 5 to 10 years, will keep many municipalities focused on ways to reduce their carbon footprints. Zindler says about 30 states have adopted such standards.
Such policies could help get venture dollars flowing again, notes Christopher Scott, CFO of BlueFire Ethanol, which has developed technology to turn urban and agricultural waste into ethanol. “The more government interest there is in terms of policy that gets pushed through, the more investor interest there is,” he says.
Other capital sources may also spring up to fund alternative-energy research and solar and wind installations. Cash-rich companies and wealthy individuals could step in to fill the void left by banks, says Zindler. Deep-pocketed oil companies like Chevron and Valero are developing wind farms; BP already has several. With oil around $35 a barrel, “the [oil companies'] return on investment on a wind farm looks a lot better,” says Zindler. Costs for solar panels have fallen by 25 percent since last summer and are expected to decline further; wind turbines have also become cheaper. As a result, dollars flowing to the sector will go further.
Finally, while the dramatic falloff in new construction has certainly hurt many green companies in the building-materials sector, “some infrastructure investment you can’t defer forever,” says TectaAmerica’s Kamerick. She notes that there are still buildings going up at medical institutions, universities, and municipalities. “We are finding that if people are going to build something, they are willing to look at the capital costs of adding some sort of green solution to the roof,” says Kamerick.
Thus there are signs of growth for the alternative-energy sector. Executives throughout the industry are optimistic about the stimulus package, although they are still unsure about the details and how to access the funds. It could take time for the enormous package to make its way through the congressional appropriations process, and individual projects may need to pass regulatory muster, says Kamerick.
Finding conventional financing for alternative energy remains a challenge. But a substantial dose of federal aid, long-standing concern about energy security and price volatility, and widespread new standards for renewable-energy use may help green avoid a repeat of the 1980s, when it experienced its own lost decade.
Kate O’Sullivan is a senior writer at CFO.
The American Recovery and Reinvestment Act of 2009 provides $50 billion for a variety of green-energy initiatives. Here are some of the provisions:
• Smart-grid investments: $11 billion
• State and local energy-efficiency grants: $6.3 billion
• Weatherization of houses for low-income families: $5 billion
• Federal green-buildings program: $4.5 billion
• Clean-coal projects: $3.4 billion
• Research on electric-car batteries: $2 billion
• Worker training for green jobs: $500 million
The act also extends the production tax credit for wind energy and converts solar-energy tax credits to tax rebates.