Energy projects fund hits buffers
A vehicle for funding clean energy projects in the US has stopped functioning, jeopardising the continued development of large-scale wind and solar projects.
The so-called “tax equity markets”, in which banks and others invest in renewable energy projects in exchange for tax credits, are struggling because the investors no longer have profits that will be taxed.
The small group of investors included Wachovia, Lehman Brothers and AIG. American International Group All have been hit hard by the financial crisis and, with profit forecasts uncertain, most have stopped making deals, according to Randall Swisher, executive director of the American Wind Energy Association.
Tax equity investments accounted for 39 per cent of the $13.5bn financial institutions invested in wind energy projects in 2007. A freeze on such deals is likely to hamper the flourishing wind business next year.
“Tax equity is a fundamental part of the way all these projects are financed,” said Mr Swisher. “While the entire market may not come to a halt, there will be a very significant negative impact on the industry in 2009.”
The freeze comes in the wake of a victory for the renewable energy industry. In October, the US Congress extended tax credits for solar and wind producers for another eight years.
“The industry fought very hard to get the investment tax credit passed,” said Arno Harris, chief of San Francisco-based Recurrent Energy, a commercial solar developer.
Investors need significant profits to take advantage of tax credits. But many financial groups face the prospect or the certainty of big losses this year.
As a result, this will be the first year when tax equity investment in renewable projects declines, according to John Eber, head of energy investment for JPMorgan Capital Corp, which was the country’s single largest tax equity investor last year.
Eber estimates that overall tax equity investment will be down 20 per cent this year.
One effect of the pullback could be consolidation among some of the smaller renewable energy companies.
Mr Harris said that he had recently looked at acquiring projects with a combined generating capacity of 30-40 megawatts. “An environment like this can be a great opportunity.”
Mr Swisher said a proposed solution was circulating among policymakers and renewable energy providers. Backers of the fix suggest the US government should make the tax credits for renewable energy production refundable.
This would allow investors without significant profits to re-enter the tax equity market, and also, said Mr Swisher, greatly enlarge the pool of potential investors.
By David Gelles in San Francisco
7 December 2008
Tags: Wind power, Wind energy
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