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Money Meets Optimism at Renewable Energy Finance Forum West

In Seattle, the only other place you would see so many suits is a funeral. But this capacity crowd of venture capitalists and entrepreneurs came not to bury the future of green. These 380 attendees came to hear what cleantech leaders are saying about the recent economic crisis and its effects on the industry. Optimism abounds. (photos)

Congressman Jay Inslee photo on EnergyPriorities.com

Congressman Jay Inslee listed the energy policy changes he anticipates after the next president takes office. On his list are a carbon cap and trade system, and building codes that encourage energy efficiency. (Energy Priorities photo)

Despite Seattle's rush hour congestion, the Metro Transit bus delivered me downtown right on schedule. Soon I was badged for the sold-out Renewable Energy Finance Forum West, a two-day event that extends to Seattle the "REFF" events of London and Wall Street.

The capacity crowd of 380 venture capitalists and entrepreneurs came to hear what over 50 cleantech leaders are saying about the recent economic crisis and its effects on the industry.

"The timing of this event couldn't be more appropriate," said Gerard Strahan, Managing Director of Euromoney Energy Events. "It promises to be an interesting two days ahead."

Interesting, indeed. Global financial markets remain frozen, and some pundits are gleefully predicting the end of the cleantech revolution. But Michael Eckhart, president of the American Council on Renewable Energy, has not lost his enthusiasm for renewables.

"What is a better-quality investment asset than renewable energy projects?" Eckhart asked rhetorically. "After a bump in the road for four to six months, I think the financial crisis works to our advantage. In the spring we'll have banks rushing at our space, and a very competitive marketplace."

"There's going to be one bright spot in this troubled economy," predicted Nancy Floyd, Founder and Managing Director of Nth Power. She expressed dismay at the media's tendency to correlate the current situation with the 1980s, when that era's oil crisis subsided and the renewable energy industry moved from the U.S. to Europe.

"2008 is not 1988," Floyd said. "What's different today is that, as a planet, we face long-term problems, and doing more of the same is untenable. Secondly, the industry itself is more mature than 20 years ago."

Tomorrow is here

Denis Hayes, president of the Bullitt Foundation, was not as effervescent about the state of the world.

"The internet bubble lost 49 percent in two and a half years; we've lost 44 percent in one year," Hayes said. But this founder of Earth Day was far from declaring the green revolution finished. He went on to draw parallels between the states of information technology and energy technology in 1980, noting that the explosive growth of computing and the internet should serve as a reminder.

"Profound change, even in the face of extraordinary competition from the largest companies out there, can occur rapidly," Hayes said. "Now it's clean energy's turn. It's about time."

Calling all energy revolutionaries

"What America does best is revolution, and I want to talk to you as revolutionaries, people who change the game," said Representative Jay Inslee, who authored Apollo's Fire and the progressive but as-yet-unsuccessful Apollo energy bill.

""We have never been as excited, as an investor, as we are now."
--Anup Jacob, Virgin Green Fund.

The U.S. has an unlimited supply of energy in its intellectual potential, Inslee said, and the American scientific base and entrepreneurial instinct are an unstoppable combination.

Inslee enumerated the tax subsidies to fossil fuels, adding that the industry enjoys even larger subsidies in the form of military expenditures and free license to emit carbon dioxide.

"Those subsidies need to change, and they're going to change in the next 12 months," Inslee predicted. He outlined six major changes he expects from the new presidential administration that will take office in January 2009:

"A cap and trade system will be signed into law in the next 16 months. You will begin to see changes in the tax code to reel in the subsidies to fossil fuels and give them to clean energy. You will see a renewable electricity standard. We are going to give this industry a jump start with some significant federal R&D. We'll have a significant increase in our loan guarantee program. We're federally going to increase building codes, because we know the first fuel is energy efficiency."

Inslee called for an "energy week" in Washington DC to educate politicians. Later in the day, ACORE announced it has agreed to organize such an event in February 2009.

Difficult discussions ahead

Legislators are making headway in critical areas, such as smart grid research and net metering regulations, said Washington Senator Maria Cantwell, but there is much work to be done at the state and federal levels.
Senator Maria Cantwell photo on EnergyPriorities.com

Senator Maria Cantwell says that some controversial issues regarding utility regulation must be discussed at the federal level. (Energy Priorities photo)

Cantwell expressed her respect for the states' roles on many issues where the federal government has been less active, but added that there are controversial areas of electricity policy and utility regulation that need to be debated nationally.

"If we are really going to reduce our dependence on fossil fuels, we need to start having these discussions at the national level," Cantwell said. "They include issues of decoupling utilities from electricity sales, universal strong building codes, and allowing utilities to recoup clean energy investments, such as smart meters and efficiency upgrades, in their rates."

The senator reiterated Congressman Inslee's commitment to expand the loan guarantee program, established in the Energy Policy Act of 2005, to include larger projects and later-stage technologies. She favors auctions for managing carbon pricing, and expressed concern about the financial industry's ability to create a cap and trade system that won't lead to another Enron-style crisis.

Efficiency-first policy

Issues of energy and carbon policy are not strictly American. In British Columbia, Canada, electricity needs will grow by 25 to 45 percent by 2020, said Janice Larson, Director of Bioenergy & Renewables for the province's Ministry of Energy, Mines, and Petroleum Resources.

Energy efficiency is a key theme of the BC Energy Plan, Larson explained. "The first order of business in our energy policy is to find all the energy we can save, save it, then look at developing renewables."

"Fifty percent of our crown utility BC Hydro's incremental resource acquisitions must be met through conservation by 2020. It's a very, very aggressive target," Larson said.

That's especially aggressive for a region that enjoys relatively low electricity rates of 6.4 cents per kilowatt-hour, Larson cautioned. While that factor has encouraged economic development, "low rates are one of the barriers to the uptake of clean and renewable energy development," she said, and the province's energy policy addresses that dilemma.

"If we took the money we spend in one year in Iraq, $120 billion, we could fund extensions of public transit across this country and put one million Americans to work building those systems."
--Phil Angiledes, Apollo Alliance.

Why utilities love renewables

"From our perspective, renewables are attractive to utilities for a variety of reasons," explained Eric Markell, EVP and CFO for Puget Sound Energy. "They have short construction cycles and moderate construction risk, and they provide us with long-dated predictable costs."

Markell went on to say that overall, renewables reduce supply chain risk for a utility. Large-scale solar and wind projects dampen portfolio volatility, and utilities experience no resource nationalism risk as with liquid fuels. PSE thinks of the environmental impacts of large-scale renewables as relatively small, he said, and they help the utility avoid the risk of carbon costs.

Renewables have problems, including integration and capacity, he said. They now provide utilities with tax credits, but he doesn't consider tax credits to be a viable long-term solution.

Why developers hate tax credits

As gleeful as the renewable industry is about the recent tax credit extensions, the financial crisis is certain to magnify some of its limitations. Utility-scale wind and solar project developers often do not have enough U.S. tax liability to use tax credits; they also rely heavily on debt financing. In an e-mail earlier this month, Michael Goguen, Managing Partner at Sequoia Capital, said that large-scale cleantech projects might have to "work harder to get financed" in the coming months.

That holds true for Acciona Energy North America, a subsidiary of Spain's Acciona SA and the developer of Nevada Solar One. Susan Nickey, CFO, says the company relies on tax credit investors. The problem is that there are fewer such investors today, which is driving market pricing upward.

"At some point we need to start looking at more traditional leverage pricing," Nickey said. "Instead of a 70 percent equity and 30 percent sponsor model, perhaps we need to start looking at 70 to 80 percent debt and less tax credit equity to support the capital to move our projects forward."

Financial trends could accelerate the need to examine the successor to the PTC model. Like Acciona, Spanish utility Iberdrola can't take full advantage of U.S. tax credits. The company has global stakes in wind power. Iberdrola uses tax equity partnerships, also referred to as wind portfolio transactions, but eventually would prefer to see a tradable credit or revenue-based policy.

Renewables vendors remain optimistic

"The recent doom and gloom conversations around tax equity investment for renewable energy projects is greatly overblown," said Mac Irvin, Managing Director of Structured Finance for SunPower.

Irvin describes the current economic difficulties as short-term noise in an otherwise positive trend for renewables. The eight-year extension of the investment tax credit will let in new investors who previously sat on the sidelines due to uncertainty, he said. The latest energy legislation also allows utilities to use the tax credits, which Irvin finds encouraging.

"The entrance of utilities into this space will increase the supply of tax equity," Irvin said, "They understand the energy business and are willing to be project owners."

"We're in the space because we think these are sound investments," said Kevin Walsh, Managing Director, GE Energy Financial Services, which invests primarily in wind projects.

Walsh criticized the business media for misinformed reporting on the renewable energy sector during the financial crisis.

"Some of this press has filtered down to the renewables industry, unfortunately, and some of it is inappropriate," Walsh said." When they talk about oil prices coming down and the impact on our industry, I think it's really foolish and short-sighted. Frankly, $64 oil won't have an impact on this market, but they're getting sucked into that argument once again. We're not buying it. Our commitment to this space is not faltering at all, but we're having to deal with these headlines."

Walsh called for legislative changes, such as tradable or refundable PTCs, in the new administration. Longer term, he said the U.S. should move away from tax-driven incentives. In Europe, where GE Finance invests heavily, incentives are not tax-driven, he said. Walsh called for a renewable portfolio standard or a carbon tax, or both, to succeed the PTC.

Crash course for investors

A lavish reception Monday evening at the revolving restaurant atop the Space Needle gave us a chance to continue the day's discussions 500 feet above the lights of Seattle.

"It was like drinking from a fire hose in there," one delegate said of the day's presentations. This conference is geared for newcomers, and renewable energy has a very steep learning curve. Conference sessions treated delegates to a crash course in electric transmission, the smart grid, green real estate, carbon policy, and emerging technologies. Additional keynote speakers included Seattle mayor Greg Nickels and Boeing Capital Corporation's Managing Director of Capital Markets Development, Kostya Zolotusky.

This conference is a new entry to the long list of cleantech investing forums and summits across the country, but it is hosted by two veteran organizers: ACORE and Euromoney Energy Events. It replaces a regional event previously hosted by Nth Power and Stoel Rives, both of which were involved in organizing "REFF-West."

Related article:

"Renewable Energy a 'Finance-driven' Industry" - REFF-Wall Street coverage in Renewable Energy World Online

Related podcast:
"An In-Depth Look at Renewable Energy Finance" - Inside Renewable Energy, June 2008


This is very inspiring to me.

Thank you,

Lori Lake

Founder: GreenTV

The federal government took a major step towards promoting the use of hybrid vehicles. In simple terms, it converted the tax deduction for purchasing a hybrid vehicle into a tax credit. This change was remarkable because a tax credit is very valuable because it is a reduction from the actual amount of tax you owe, not your gross income.