[pagebreak:Are the Green Gears Grinding to a Halt?]
There are growing signs of rust on the once gleaming green energy machine, and the corrosion is threatening the wind and solar power industries.
Despite the uncertain and often illiquid economy, the overall forecast for sustainable industry financing is reasonably good; but the gears appear to be grinding to a halt when it comes to wind and solar because traditional methods of power project financing are threatened by the skittish capital markets.
Certainly, the broad credit market environment has negatively impacted project financing for solar and wind power projects and made it hard to raise debt funding; however, more specifically, critical tax equity take-out financing has dried up as traditional buyers of tax credits in the solar and wind market have all but disappeared with no sign of returning soon. This combination of events has caused venture capitalists and other early-stage investors to pull back from technologies serving the renewable power industry, because, in large measure, they believe it will be extremely difficult to commercialize solar and wind technologies if there's no funding from tax equity investors.
Painful Metrics
The metrics show the pain currently being experienced by solar and wind power companies. Installations are down anywhere from 30 percent to 50 percent; prices of wind turbines and solar panels have dropped by at least 25 percent over the past six months; and equity valuations have declined, in some cases, by 50 percent or more from where they were 12 or 18 months ago.
New entrants like Microsoft and other large corporations are beginning to explore the solar and wind tax credit space, but no one is moving forward in a meaningful way, and no one is moving fast enough to fulfill current market demands. And, since appetite from investment banks, commercial banks and insurance companies for tax credit financings related to wind, solar and other renewable projects has dwindled in terms of participants from the high teens to the low single digits, it may not matter; supply of tax equity interest simply cannot keep up with demand under the current conditions.
Stability From the Public Sector
We believe that stabilizing the wind and solar industries in the United States is a job for the public sector right now, and that government must play a commanding leadership role in helping the private sector realize its true commercial potential.
Companies in these industries are crucial from an environmental point of view; but they are even more critical from an economic perspective.
In 2007 and 2008, more than 50 wind energy-manufacturing facilities were opened, expanded or announced in the United States, adding 14,000 new jobs. More than half of those jobs came on stream in 2008, as the U.S. economy was faltering.
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For its part, the solar industry employs more than 80,000 people in the United States and has created over 15,000 jobs during the past two years. According to a report last year by Navigant Consulting, the solar energy sector alone will create 440,000 permanent jobs and spur $325 billion in private investment by 2016 with the right tax policies in place.
Even more importantly, the jobs created in the wind and solar industries drive U.S. productivity and enhance our global competitiveness.
Last year, the wind industry installed a record 8,300 megawatts of capacity in the U.S., bringing total wind capacity in the country to about 25,000 megawatts. As a result, for the first time, the United States now leads the world in installed wind power generating capacity. The U.S. solar industry is no slouch, either. Last year, for example, it nearly doubled the growth of solar photovoltaic installations.
Maintaining Growth and Leadership
So how can we keep this momentum going? How can we keep these two vibrant renewable energy fields from stalling?
Like many others in the solar and wind industries, we believe that a refundable tax credit is a viable solution that would have a significant and immediately positive impact here.
Why?
Because the refundable tax credit would go directly to the solar and wind developers and would be a financeable arrangement; and because it would simplify project financing, lessen industry volatility and attract much-needed early-stage technology investment.
Talking Dollars and Cents
The refundable tax credit also makes sense from a dollars-and-cents point of view. Non-refundable tax credits can reduce a company's tax liability to zero – but not below. That means solar and wind startups, many of which take years to become profitable, may not have enough taxable income to take full advantage of the credits. Refundable tax credits, on the other hand, can drop a company's tax liability to less than zero. That means a wind or solar startup can count on a check from the government to help them get going. After that, it's all in the market's hands.
Before the economy fell apart, venture capitalists or Wall Street investment banks typically provided this early-stage funding to wind and solar developers, but now, given current market conditions, that is not likely to continue, so Washington DC has an opportunity to step in and play a very constructive role with role with refundable tax credits as part of the economic stimulus plan.
Keeping the Eco Engine Running Smoothly
The hype and hope surrounding clean technology has been so overwhelming that you'd think the green energy machine was a Maserati. But even a Maserati needs an oil change and tune up now and then in order to deliver on its high-performance promise and potential.
And that's exactly where we are right now with the sustainable industry revolution.
So, in that vein, consider the refundable tax credit for solar and wind as a mere lubricant that will keep the eco engine running smoothly and profitably for generations to come.
Michael Butler is Chairman and CEO of Seattle-based Cascadia Capital, LLC, a national investment-banking firm that is helping sustainable industries finance the future; Jamie Boyd is a senior vice president at Cascadia.
The above opinion piece is from independent writers and is not connected with Greentech Media News. The views expressed here are those of the authors and are not endorsed by Greentech Media.