Providing the military with solar tents, financing multi-million dollar deals, and not waiting for the next big government program: that’s the state of the renewable energy finance in New York.
This year, the feel of REFF Wall Street is of a robust industry trading ideas and strategies–not without challenges–but with a history of doing projects that meet the demands of a demanding market. Hosted by ACORE (American Counsel On Renewable Energy) and Euromoney Energy Events, the June 21st-22nd meeting is a dramatic change from 2008, when the excitement was about the future: the trillions that were coming, the policies that would make the industry viable, the technologies that would dominate.Â This week, the talk was about the billions that have gone into the market, the policies that succeeded–or failed–and very little about technologies. This conference talked about the problem of secure and safe energy, financing, negotiating the local and regional policies, and a vision for bringing together stakeholders.
Meeting the problem
Energy is the problem: 20% of coal fired plants are old and due to retire in the next few years; “clean coal” is still a vision in the making; and nuclear has a popularity rating somewhat below the Boston Strangler. That leaves the US with an energy gap with implications for US businesses and consumers that could dwarf the Great Recession.
Kevin Walsh, Managing Director at GE Energy Financial Services, added that the other elephant in the room is price volatility. Between fluctuating natural gas and oil prices, energy dependent businesses, like utilities and manufacturers, are dramatically affected. Meeting this future poses real opportunity for firms like ENN North America, a Chinese solar firm. Yunquan Sun,Â President, believes that the US is the future for his company. With projects throughout the world, Dr. Sun mentioned a 4.5 Megawatt installation–enough to fuel over 500 homes–on one of New Jersey’s largest landfills.
Benjamin Cook, Vice President of Project Finance at SolarCity, put his finger on the heart of the issue when he noted that project financing in renewables is about cash flow. What that means is that projects built today generate income for years in the future. Unlike other investments, which are predicated on exit strategies, clean tech investors may well be in for the long term.
One solution for investors looking for a quicker in and out is CleanPath Ventures.Â Their CFO, Karin Berardo, announced at REFF that the firm now has over $800 million from an unannounced investor, to put into projects with a generation of over a 1,000 megawatts in the next five years. They plan to monetize cash flow by developing projects and then selling them to buyers who want a secure, long term return. By addressing local developers lack of financial and political expertise, and investors lack of technical and development experience, they can clean the path for projects that benefit both.Â CleanPath plans a 12-24 month development cycle, with an expected churn rate of between 3 to 5x.
Unlike the events of 2008-2010, when the renewable industry hoped for a federal policy to price carbon, this REFF openly acknowledged the limitations in federal policy.
Regionality is likely to dominate for some time to come.Â Explaining the need for CleanPath’s expertise, Berardo noted that the permitting and policy issues are local–not federal. She added that the PPA’s (Power Purchase Agreements) which guarantee that a utility will buy the energy output of a technology, are complex contracts affected by local pricing, politics and mandates. Having expertise–as well as contacts–with state and local agencies and utilities can shave months off of negotiations and create real wins for all sides. She noted that ClearPath has five PhD’s in Policy, and that policy makers are known to contact ClearPath for their insights.
All that said, the reality of regional differences does not eclipse the need for certainty from the Federal government. As Marshal Salant, Managing Director & Head of Alternative Energy Finance at Citigroup, said, Citigroup works with DOE (US Department of Energy) for loan guarantees and tax equity to offset project level risk.
He talked about the stampede to get projects into DOE before the December 31, 2011 deadline, and a real need to leverage all public incentives.Â “It’s a lot of work,” he added, “but you’ve got to do it.”
He also mentioned the need to bring in private equity–pension funds. He doesn’t believe this will happen without some Federal support, even though he sees bond appetite growing. He said that his division had spoken with over 100 institutional investors, but most are still doing their homework. In short, he hopes that policy makers will NOT turn their backs on this industry, which is essential for energy security and independence, jobs, and an offset for climate change.
One approach that has gotten bi-partisan support is CEDA, the Clean Energy Deployment Administration that Dan Reicher, Executive Director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford Law School, andÂ Chairman of the Board of ACORE, has been advocating since he was director of climate and energy initiatives at Google.Â CEDA would create a revolving fund–similar to CleanPath–that would help companies with innovative technologies cross the valley of death: that is the gap between proof of concept and commercialization that has stalled many good clean technologies. Such a fund, in addition to paying back taxpayers, would provide a needed balance to the millions of dollars now supporting petroleum development and exploration.
Reicher went on to outline four additional national priorities needed to ensure energy security.
- Fund R&D.Â While pricing has been dramatically falling for the cost of installation per kilowatt, there are new technologies that could do even more.Â From nanotechnologies that greatly increase the efficiency of photovoltaics, to energy storage from maximizing natural processes, to wind turbines that fit invisibly onto buildings, technologies may someday make cheap and abundant power a reality.
- Renew the production tax credit for wind. Production tax credits, which give investors a future tax credit for their investment, is expiring the end of this year. Such tax credits mitigate some risk for investors, which helps them bring more funds into the markets.
- National clean energy standard. There have been calls for both a national renewable energy standard, and a national clean energy standard. The latter includes CCS (Carbon Capture and Sequestration/Storage) as well as Nuclear energy.Â Such a standard sets a percentage of how much energy must be produced from renewable or clean sources, rising over a period of years.
- Federal procurement. The military and the General Services Administration (GSA) could set standards for purchases by the government that would reduce the reliance on foreign energy, lower costs and support the clean tech industry.
The later point was roundly echoed by Retired Vice Admiral Dennis McGinn, USN, the newly appointed President of ACORE. Vice Admiral McGinn has a long history of fighting for smart energy, including a stint at Battelle Memorial Institute, the world’s largest nonprofit independent research and development organization, where he was a corporate officer and led the energy, transportation and environment division.Â He is a former Deputy Chief of Naval Operations for Warfare Requirements and Programs, and has frequently testified before congress on energy issues.
He noted that the Department of Defense had, what he called, a “reasonable budget” and that they pay their bills.
He talked about his own experience observing flexible solar panels at Kandahar in Afghanistan.Â He talked about lives saved when soldiers kept critically important gear working longer than the heavy batteries they were used to carrying. In addition, the solar panels reduced reliance on diesel by 90%, and didn’t generate the noise or heat of the generators. He told a story of how marines under attack didn’t know their solar panels had been hit because the electronics kept on working anyway. As he said,
“If it’s good enough for US Marines in Afghanistan, then it’s good enough for all of us. “
One of the biggest differences from past events was Vice Admiral McGinn’s call for integrating the full spectrum of energy, including natural gas, energy efficiency and bio-fuels.Â He outlined an aggressive series of events, planned by ACORE, to bring together diverse stakeholders to seek solutions. In the past, when the renewable energy industry was more nascent, there was a feeling of an embattled group fighting for their future. However, with over 750 participants, the tone has changed.Â Recognizing that energy is a national issue, Vice Admiral set a path for cooperation between stakeholders from industry, finance, utilities, educational institutions, nonprofits and communities. The goal of the process is to listen to issues, research best practices, publish and report.Â It is a bold vision, that is emblematic of an industry no longer in it’s infancy.
As Vice Admiral McGinn concluded,
“We are leaders in our communities and have responsibility to educate.Â Let’s not let the people who say it can’t be done get in the way of the people who are doing it.”
At the 7th REFF-Wall Street in June 2010, over 700 attendees from 23 countries and over 480 companies assembled, defying continued economic difficulties and an uncertain legislative outlook, to debate the key challenges facing the renewable energy sector, and identify lucrative future business prospects going forward. With over 70% of attendees at Director level or above, REFF-Wall Street brings together the crÃ¨me de la crÃ¨me of the USAâ€™s renewable energy industry, drawing attendees from the entire value chain, including financiers, manufacturers and developers. Euromoney Energy Events and the American Council On Renewable Energy (ACORE) are delighted to once again be bringing the USAâ€™s premier renewable energy finance event to New York.