Countdown for Renewables
Does 12 months really mean 2?
This year will continue to be challenging for renewable energy as government gridlock continues to be the main story, not project developments or technical breakthroughs.
A recent webinar, “Financing in a World of Reduced Government Assistance,” was presented by the American Council on Renewable Energy (ACORE), but the event started with the grim reality that tight budgets will set the tone.
“There will be a real struggle to find any common ground on legislation” and more focus will be given to the presidential election as the time draws nearer, said Todd Foley, the organization’s man on Capitol Hill.
An early and key point on the calendar arrives in February when Congress has to revisit the short-term budget deal and tax issues that were temporarily solved in December. As reported here earlier, this might give the renewable energy industry a last shot before the lame duck session in December to deal with the extension of tax credits and other government programs.
“The 1603 (cash grant) expiration has already had a huge impact as projects were hurried to get in, while now we’re seeing a huge drop-off,” he said. “”We can see as much as a 50 percent reduction in renewable energy projects.”
The situation will only get worse due to the lead time in project finance and construction, as the production tax credit (PTC) for wind is set to expire on December 31.
“As a practical matter, the PTC will essentially expire in March because if you haven’t stated projects to be placed in service to make the end-of-the-year deadline, you’re not going to make it,” he added.
Current market conditions, apart from government and regulatory uncertainty, are hobbling development. “Currently, it’s difficult to get a positive answer, difficult to get a power purchase agreement, either of long enough duration or one that will meet repayment requirements,” said Sarah Fitts, a partner at law firm Debevoise & Plimpton.
Projects with good cash flow and offtakers will continue to be financed, but there won’t be as many of them.
Matt Ferguson, a principal at the Reznick Group, said alliances and joint ventures may be gaining favor as a way to increase the scale of finance offerings.
“As a PTC is based on the production of the plant itself, investors and those who are new to the space have had to adjust their expectations as the overall market changed,” he said.
Peter Liu, managing director at renewable energy investor Clean Energy Advantage, preached patience. Google, Duke Energy and other companies are investing for the long haul in clean energy projects as a business strategy and not just for tax benefits.
“I think it’s going to be over the long term, so we shouldn’t be discouraged if they don’t all come on board in 2012” he said.
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