Summary of REFF Wall Street conference in June at Wealth Daily

Alexander Richter 6 Jul 2009

Notes from REFF Wall Street, a June 2009 renewable energy finance conference, with valid points on financing renewable projects with implications for geothermal as well.

While I rather provide conference overviews having been there myself, I couldn´t resist posting notes of Nick Hodge that he posted on his page last week.

REFF Wall Street is a renewable energy conference of a series of similar events in London/ UK, Brazil, India and other places. It brings together the finance community and provides a good overview on the current status on financing renewable projects.

He talks about the statement by ACORE’s president at the start of the conference, where he says – in describing the current state of the industry – “It’s never been better and it’s never been worse.” This is quite true.

Main take away from his notes posted below are: It is of utmost importance to finalize administrative rules regarding all elements of the stimulus package aimed at renewables. E.g. grants, tax credits etc.. Only if those are finalized the financial community can evaluate the impact it could have on their credit decisions and they could start lending to developers again.

With a new clean energy focused administration in Washington, “Green sentiment”, so the article, “is growing to a boil both at the consumer and corporate level, with even behemoths like Wal-Mart greening their supply chain and giants like GE, Google, and IBM leveraging their know-how to get in on the action. This thing is real. We knew that.

There is meaningful and significant energy and climate legislation in front of Congress (passed the House since writing). For possibly the first time ever, the energy bill at hand seriously considers its environmental implications.

Indeed, for those of us with skin in this game, much ground has been covered in just a short time. It wasn’t long ago when we were distraught over whether or not the investment tax credit (ITC) and production tax credit (PTC) would be extended.

Yes, the congressional majority and president are on our side. Yes, the stimulus money is going to help out in a big way. Yes, it looks as though the social sentiment is finally starting to shift.

But more importantly, with banks still unwilling to lend, where, exactly, is the money coming from to build the next solar plant? To get the financing for the next wind farm? …” … and this applies to so many geothermal projects as well.

And for Green Chip investors, how is that going to affect the valuations of stocks?

The Worst of Times: Financial crisis. Recession. Withdrawal of lending. Loss of tax equity. Slow closing of deals. Stimulus money not being spent yet. For all the things going for us, there are an equal amount going against.

For starters, banks are unwilling to lend until the government releases detailed guidelines about how the stimulus money is to be spent, because included in that money are loan guarantees.

The rules for those loans are still being written, and the financing structures and mechanisms still being devised. And the banks aren’t willing to lend until all that’s figured out.

So you can see the stalemate emerging. The banking industry is counting on government guidance before it lends to clean energy energy projects. This is because the government has thrown so much money out there that it’s now a de facto lender, and its actions must be taken into account by banks when financing projects.

Neil Auerbach of Hudson Clean Energy Partners had the following questions, just to name a few:

  • Do grant proceeds count as equity?
  • Will grant proceeds serve as security?
  • Can project developers use both grants and loan guarantees for construction financing?
  • Can one JV partner in a clean energy project apply for a loan guarantee and not the other?

And his sentiment was echoed by top brass from numerous other global banks. They had many other questions like these revolving around senior debt, subordinated debt, tax equity and how the government’s stimulus spending rules will affect lending practices.

So here’s the concern. The procurement and construction timeline for cleantech projects can be long: 4-6 months for rooftop solar, 6-10 months for utility scale solar, and 9-15 months for wind.

The rate of new projects has already slowed dramatically because of current capital restrictions. Is the industry going to be able to survive the wait while the government hashes out lending details? How long can the industry tread water while capital continues to be choked off?

With several government officials in attendance, there were more than a few calls to speed the process or risk dying on the vine.”

Source: Wealth Daily