Clean-Energy Sector Looks for Private

By JEFFREY BALL Santa Barbara, Calif. Hit hard by the recession, the clean-energy industry is on the ropes. Governments are injecting stimulus money in hopes of keeping it alive, but what the industry ultimately needs is a far bigger dose of private investment. In the space of a few months, the recession has slammed the brakes on what had seemed a full-tilt push for new ways to power the planet while emitting less pollution. It has thrown a wrench into the plans of once-booming but still-nascent companies that produce everything from wind power to solar energy to biofuels. The weak economy has whacked the industry in two ways: It has prompted investors to pull back their capital, and it has reversed the rapid run-up in energy prices that for the past few years was fueling much of the industry's growth. A return to high energy prices probably would spur clean-energy investment again. But one of the forces that was driving up energy prices was the expectation of tougher government limits on greenhouse-gas emissions, which would have burdened the industry with higher costs. In the near term, the recession is likely to slow momentum for those mandates. Politicians are less likely to sock voters with policies that will make energy more expensive when those voters are worried simply about keeping the lights on. Last week, at ECO:nomics, The Wall Street Journal's annual conference on the business of the environment, clean-energy developers large and small swapped tales of how the recession and the resulting drop in energy prices have hobbled their plans. "It's wicked timing," William Roe, chief executive of biofuels developer Coskata Inc., said at the conference. Coskata, based near Chicago, is trying to find funding for a plant it is trying to build. But these days, "when you talk to a bank," Mr. Roe said, "all you get is a smile and a pat on the head." Even T. Boone Pickens is feeling the pinch. The Texas oilman has been spending millions of dollars to drum up support for his "Pickens Plan." It envisions developing big new wind farms to generate electricity as a way to free up U.S. natural gas to power truck fleets -- and, in turn, to curb U.S. demand for imported oil. But Mr. Pickens has been forced to scale back his own plans to develop a massive wind farm in Texas. Two years ago, Mr. Pickens was hoping to build a 4,000-megawatt wind farm in his home state, and investors were "lined up wanting to finance it" because energy prices were so high, he said. Now, with natural-gas prices having fallen by more than half, it's unclear when the project will grow beyond its first 1,000-megawatt phase. As oil prices surged and greenhouse-gas emissions took a higher place on the political agenda, spending by public and private sources to develop renewable energy and improve energy efficiency surged to $155 billion in 2008 from $34.1 billion in 2004, according to New Energy Finance, a London consulting firm. When the recession dried up financing for big projects and deflated energy prices, the clean-energy race ran out of gas. The economic-stimulus plans rolling out everywhere from the U.S. to Europe to China seek partly to breathe new life into the global clean-energy campaign. But because the global energy system is so huge, even billions of dollars of short-term government money won't matter much unless it's able to get hundreds of billions of dollars in long-term private investment flowing into clean energy again. The $787 billion U.S. stimulus plan contains some $94.1 billion over 10 years for clean energy, for everything from plugging energy leaks in old houses to building more wind turbines, according to a study by HSBC. But the public money will work only if it can get private investment "off the sidelines and get the commercial banks to lend again to good projects," Matthew Rogers, the Department of Energy official who oversees the department's stimulus spending, said at the conference Friday. The International Energy Agency estimates that annual global spending on renewable energy and energy efficiency would have to average $542 billion through 2030 to prevent atmospheric concentrations of carbon dioxide, a greenhouse gas, rising to a level many scientists say would trigger particularly dangerous consequences from climate change. One thing government could do is lay out policies to convince private investors that clean energy is still a smart long-term investment. It appears likely to do that, eventually. But the coming year is likely to feature heated and historic debates over how the details of those policies should shake out. One likely fight will be over the prospect of forcing companies to pay to emit carbon dioxide, probably through a "cap and trade" system. Under such a system, the government would print permits entitling industry to emit a set number of tons of greenhouse gases every year; companies would buy and sell those permits, launching a race to curb emissions at the lowest cost. Exactly how that policy is drawn would determine how much it would raise electricity prices and which Americans would bear the brunt of that bill. For now, the clean-energy industry is reaching for any lifeline it can get. At the Journal's conference, when Mr. Rogers finished speaking and stepped off the stage, dozens of clean-energy entrepreneurs swarmed around him, handing him their business cards in hope of a shot at some short-term government relief. Write to Jeffrey Ball at jeffrey.ball@wsj.com