Renewable Energy's Power Outage

Stalled Stimulus Programs Deter Investment; 'Artificially Slowed Recovery' By YULIYA CHERNOVA The U.S. government stimulus package passed in February promised to reinvigorate the renewable-energy industry with new capital and programs, but the prospect of large flows of government money to the industry is holding up private-sector investment. New incentive programs haven't yet been defined, and uncertainty about program rules has deterred investors from backing companies that also may get government money. At the same time, companies are holding off from accepting private capital because of the possibility of getting it more cheaply from the government. "It artificially slowed the recovery," Matt Cheney, chief executive of Renewable Ventures, the U.S. subsidiary of Fotowatio SL, a Spanish developer of renewable-energy projects, said of the stimulus plan. Three new stimulus programs were hailed by analysts as likely to have the biggest effect in boosting renewable energy: a cash incentive from the U.S. Treasury for 30% of the cost of a renewable energy project, loan guarantees for renewable energy projects, and loan guarantees for renewable energy manufacturing. None of these incentives has yet been defined with specific rules and none of the programs are yet accepting applications, though both the U.S. Treasury Department and the U.S. Department of Energy, which administers the loan-guarantee programs, promise to issue rules and open up to applications soon, possibly in July. Keith Martin, a partner at law firm Chadbourne & Parke LLP who has advised on tax and project finance in renewable energy, said the absence of those rules is chilling project finance. One uncertainty, he said, is what will happen when a project changes hands and whether, for example, the ownership change would prompt the government to reclaim its money. Typically, renewable-energy projects are structured so that investors own 95% and then "flip" the project back to its developers after 10 years. Many backers of such projects are "tax equity" investors who use tax credits available from the federal government to offset their taxable income. Though a number of tax-equity deals "looked in May like they would push over the finish line, negotiations are stretching out," Mr. Martin said, a situation that he ties directly to questions surrounding government programs. A similar uncertainty haunts project lenders, Mr. Martin said. These bankers are worried about how the government would handle a situation in which a bank forecloses on a project within five years. "Will it come in and take part of the collateral?" Mr. Martin said. Very few large project-financing deals that weren't carryovers from last year actually closed in the first half of 2009. The ones that did include a $100 million commitment from Wells Fargo & Co. to finance SunPower Corp.'s 2009 projects and an undisclosed amount of tax equity finance for SolarCity Inc.'s solar projects from U.S. Bancorp. These financings worked under the assumption that the underlying projects won't take advantage of the new stimulus provisions, according to the developers involved. For companies that need the money, on the other hand, government debt and capital are tantalizingly cheap. "We will not close on anything until we finally hear from the DOE on the loan guarantee," said Keshav Prasad, vice president of business development at Signet Solar Inc. Signet applied for a loan guarantee under the federal government's previous set of applications in February. The company will need at least $200 million to proceed with its goal to build a thin-film manufacturing facility in New Mexico. Signet is talking to private-equity investors, said Mr. Prasad, in parallel to working with the Department of Energy on its application. Write to Yuliya Chernova at yuliya Chernova@dowjones.com