A couple weeks ago I asked Mike Lichtenfeld, a deal associate with MMA Renewable Ventures what the impact was on the Project Finance business was after the first bailout package wasn’t approved. Here is a synopsis of his written response:
“Credit contraction, if sustained, will hurt the clean energy sector as much as any other industry – our projects, our manufacturing capacity, our corporate development and expansion all depend on access to debt capital. That much is clear. In addition, we know that the bailout debacle has stalled negotiations on an energy bill that would include extension of critical tax incentives for clean energy. However, even under a scenario in which the credit markets open and tax incentives are extended, the financial distress experienced market-wide to date has probably changed the landscape of tax equity investors for the worse, not only by reducing the numbers of players through outright institutional failure, but also by drastically reducing the tax equity appetite among those players still standing.
Financial institutions large and small that have been active in renewable energy from a tax advantaged equity position have recently underperformed or experienced losses in the economic maelstrom. The outlook for the US economy – even under a bailout scenario – is at best a mild and short-term recession, so a constricted tax equity universe could continue for 12-18 months or more….
…. When the political, economic, and technical bottlenecks open in 18-24 months, developers and financiers with construction-ready utility scale projects will be well-positioned.”
Mike’s colleague Mark Higgins wrote a note discussing the impact of the constrained credit market on the US and I spoke with Bill Hargett yesterday; he relayed the market in Spain didn’t look very good for project developers looking for funding there. Accordingly, research analysts like Renewable Analytics are sensing that module pricing may continue to fall making projects cheaper.
We have a classic economics case before us, as projects become cheaper new market entrants will come. The question is who are they given that investment in CleanTech and renewable energy is a 10-figure endeavor if it is to have any impact at all? In the past banks, insurance companies and mortgage lenders had the capital and tax exposure to invest. Given the turmoil and the capital needed, who will be poised to make these enormous investments and take advantage of depressed module prices, feed in tariffs in Europe, RECs in the US and the UK and long-term (eight year) tax incentives in the US?* Government backed utilities? Large private equity houses?