Archive for the ‘Investment’ Category

New Investment Structure for Renewable Energy On the Radar

Looking for new ways to finance this. Photo by Paul Anderson, some rights reserved.

While those who created the Green Mien envisioned it as a blog focusing on energy regulation, this writer often strays away from the law into the workings of the energy industry. Today, we get to combine these topics, courtesy of the insight of a New York Times ‘Dealbook’ article on renewable energy companies lobbying for a new legal framework for investment structures modeled after those used by the oil, gas, and real estate industries.

The renewable industry credits themselves for technological progress but sees the cost of financing projects as a barrier to lowering the cost of the energy they produce. Allowing renewable energy companies to raise funds through a master limited partnership (M.L.P.) or a real estate investment trust (REIT) would make financing easier and cheaper and reduce the cost of their energy by a third.

Under current law, renewable energy companies receive a tax credit against their income, but because they are often marginally profitable, they need extensive investment from companies (often those looking to shield their non-energy profit from taxes) in order to take advantage of the credits. Through a M.L.P. or a REIT, renewable energy companies could reach a much wider pool of investors, allowing them to offer a lower rate of return than that demanded by the few big investors who can currently invest in renewable companies.

The IRS has the authority to allow a company to form a REIT for group of renewable energy projects – and is considering one such case right now. But M.L.P.’s, which have been used to fund the development of much energy infrastructure, especially pipelines, can be opened to renewable energy companies only through an act of Congress. There are signs of support: Senator Chris Coons, Democrat from Delaware, plans to reintroduce a bill on M.L.P.’s next year, and is building support from the Obama administration and Republicans for the measure. And in December, 31 lawmakers sent a letter to the White House supporting the changes.

The big challenge to opening M.L.P.’s to renewable companies or to similar changes is its small-fries status in the tax overhaul brewing in Congress. The White House is also focusing its efforts on eliminating subsidies and loopholes to level the playing field.

 

“Decentralized” Energy: The UK Leads the Way

Photo by CMG0220. Some rights reserved.

Often a development in the energy industry is chosen to be spotlighted in the Green Mien for the scope of its impact, but that is not always required. Some stories deserve to be told for their potential to describe one or two small threads that may prove to hold together a complex quilt – this is the case with today’s post. Environmental Finance has a piece about small energy projects in the UK installed at major energy-consuming locations like hospitals, manufacturers, and retailers, into which investment is pouring.

Sites like food retailer Waitrose’s store on the Isle of Wight host energy centers powered by available fuel (biomass from local timber at the Waitrose plant), which they call decentralized energy centers. Usually with thermal energy capacity between 1MW and 10MW, the centers generate power for their central energy need and sell surplus energy to nearby consumers. Hosts of these plants, the big hospitals and factories, see the benefits of mitigating against rising prices, securing energy supply, and potentially reducing environmental impact.

Because the projects in the UK are financed by multiple lenders before being converted to a long-term supply contract, the host energy-guzzlers are spared investing any capital. Investors in London are supposedly “queuing up” to finance these projects, whose feasibility has grown rapidly over the past few years. The security of the supply contracts attracts some investors, but the projects’ potential to address future energy costs and supply security are also encouraging businesses to consider an on-site energy facility.

Resources across the country are pouring into finding and developing new ways to power our lives, and the UK’s work in developing decentralized energy projects might just be blazing the path to the power plant of my dreams: just big enough to light a Walmart Supercenter.

Brobdingnag Revisited

Jonathan Swift showed us in Gulliver’s Travels that an ordinary man in the land of giants must be mindful of where those around him step and sit.  This week, while the giants of the energy industry shake the earth with their steps, stories abound of smaller suppliers and asset holders are trying to keep themselves from being caught underfoot.

-The New York Times details Mongolia’s struggle to achieve a balance between maintaining vital relationships with its two massive neighbors, China and Russia, and its own interest in making a profit from its expansive coal and mineral deposits.

-USA Today documents the development process of shale gas wells and the effects they can have on individual landowners.

 -The Chicago Tribune reports on a Michigan landowner whose legal case includes allegations of larger antitrust concerns involving two major energy companies and their negotiations in land purchases.

-And Tropical Storm Debby is causing flooding in Florida and keeping the lights off simply by standing (nearly) still.

The Agencies Align for Nuclear

Secretary Chu. Photo by NNSA News. Some rights reserved.

Last Thursday, the Nuclear Regulatory Commission approved Southern Co.’s construction of a nuclear reactor near Waynesboro, Georgia, the first new reactor to be approved since the 1978 construction of the Shearon Harris plant in North Carolina. (The Hill covers the approval in more detail here). The story of the next year’s accident at Three Mile Island and its drag on the nuclear industry has been well told, and in the wake of the Fukushima disaster, an Obama-mandated task force calling for sweeping improvements to the NRC’s “patchwork” of regulatory requirements threatened to extend what has been decades of regulatory delays. Combined with financing problems, the industry has struggled to build new reactors. On both fronts, this week’s developments point to good news for the industry.

The Nuclear Energy Institute, the industry’s trade group, touts NRC’s approval as recognition that nuclear energy can contribute to a low-carbon future and a diversified energy supply, while critics say that the project should face additional scrutiny and environmental review after the disaster at Japan’s Fukushima Daiichi plant. Those events have prompted the NRC to consider new rules to better protect the country’s 104 reactors from earthquakes and floods, but did not deter the Commission, which voted 4-1 in favor of approval. The Commission’s chairman, Gregory Jaczko, was the lone dissenter, highlighting that reactor operators have made no assurances they will incorporate lessons learned from Fukushima into their operations.

The government also has an instrumental role in financing the new plant. The Energy Department announced this week that it is finalizing an $8.3 billion taxpayer-backed loan to build the reactors. Energy Secretary Steven Chu said that though the project still has to meet a number of conditions, the loan is nearing final approval, as reported in this article from The Hill. No surprise to anyone following the story behind another government-backed loan to an alternative-energy company, that company’s subsequent bankruptcy, and a year-long House investigation, the DOE’s loan is not without its own controversy.

Rep. Edward Markey, D-Massachusetts, in his opposition to the plant, pointed to anger over a $535 million loan to California solar firm Solyndra, which House Republicans of the Energy and Commerce Committee have been investigating for more than a year, alleging that administration officials missed warning signs and mishandled taxpayer funds. Markey wants the Committee to open an inquiry into Southern Co.’s new loan, noting that it is worth fifteen times more than Solyndra’s ill-fated loan, and describing it as “exponentially riskier.” Rep. Cliff Stearns, R-Florida, who heads the oversight panel, says the renewable energy loan guarantees that his panel is investigating are at a higher risk than the “proven [nuclear] industry” with its “established record.”

While the tentacles of politics are wrapped around every bit of this story, it illustrates some of the major hurdles alternative- and clean-energy projects face in the future, from regulatory uncertainty to evaluating risk in financing such projects. The Green Mien has posted about significant progress in financing clean energy, but we predict that Knowledge Mosaic’s tools in navigating the regulatory landscape will not prove obsolete anytime soon.

VC Investment Down, IPOs Up for Clean Technology Companies in 2011

Solar panels in the Mojave Desert. Photo by Shayan (USA). Some rights reserved.

The public debate about government’s role in developing clean energy has never been livelier. In addition to President Obama’s push for clean energy in his State of the Union address, Spain, a poster-child for wind energy, is making headlines for cutting subsidies to renewable energy industries. Less discussed, at least recently, is the role of private investment in clean energy.

An Ernst & Young analysis, covered by Environmental Finance here, shows that venture capital investments in clean technology reached $4.9 billion in 2011, down 4.5% from 2010 due to a slow fourth quarter. The number of deals fell slightly to 297 from 300 in 2010, but Ernst & Young’s clean-tech director, Spencer Jay, trumpets that the industry is holding steady in a tough economic environment, and that many companies are commercializing their services.

The leading clean-tech segment was energy and electricity generation, raising $1.5 billion, followed by the industry products and services segment at $1.0 billion, energy storage at $932.6 million, and energy efficiency – the innovation that Ernst & Young says does not require as much capital – at $646.9 million.

The big mover here is the energy storage sector, which saw a 250% increase in investment in 2011 compared to 2010. Energy storage complements the intermittent electricity generation of wind and solar, allowing the overall cost of electricity to consumers to decline.

The IPOs announced in 2011 for clean-tech companies confirm these trends. Solazyme, the year’s high-profile advanced biofuels IPO, as well as Gevo (producer of isobutanol as a “drop-in” for gasoline and chemicals used in manufacturing), KiOR (converting forest-based biomass to crude oil), and BrightSource (large-scale solar developer), are all energy generation companies. The fifth IPO, Silver Spring Networks, in the industry products and services sector, is a smart grid software provider.

These companies have something else in common, too:  four of the five are based in the San Francisco area. While northern California has long been a hot clean-tech market, both Massachusetts and Colorado – the home of Gevo – have also taken big steps towards establishing themselves as clean-tech ‘innovation clusters,’ seeing venture capital investment increases of 63% and 28% respectively.

Private Financing for Energy-Saving Retrofits on the Horizon

Photo by aylamillerntor. Some rights reserved.

As we posted in June, President Obama’s Better Buildings Initiative updated tax incentives aimed to encourage retrofitting buildings to reduce energy bills. Although considered the “low-hanging fruit” of carbon reduction, financing of commercial building retrofits for energy efficiency has largely remained in the realm of public subsidies. Opening the floodgates of private financing could expand the scale and reach of such projects, and a study released Tuesday by the Deutsche Bank Americas Foundation aims to nudge lenders to do just that.

Energy savings projections have accompanied building and financing proposals for some time, but loan underwriters have long looked at these projections with a skeptical eye, rarely incorporating them into underwriting models. There are no consolidated results showing energy savings from subsidized retrofitting projects – around since the Carter administration – nor from the Energy Star programs run by utilities across the country, leaving little data for the underwriting models of financial institutions. Similarly, energy audits are not usually subject to follow-ups and are subject to little accountability. Which is where the Deutsche Bank study comes in.

Analyzing the accuracy and reliability of energy audits associated with more than 230 apartment building retrofitting projects in New York City, the study offers data to instill a measure of confidence in lenders who have generally been reluctant to underwrite energy savings. The Foundation touts that their data-driven findings lay the foundation for lenders and builders to collaborate to develop standards for reporting, best practices, and energy monitoring. The New York City Energy Efficiency Corporation will take this next step, using the data to pilot underwriting guidelines as a starting point for the first transactions that underwrite energy-saving projects.

Accompanying the study is a companion document summarizing the wide ranging benefits of energy efficiency retrofits for building owners and tenants. A New York Times article from June describes the demand for the Deutsche Bank study, and a November article covers some of its early findings.

Does It Pay to Be Green? Not In the Stock Market

A fascinating, if a little sad, article in the Christian Science Monitor explores the current conundrum of “green” mutual funds. Turns out investments in solar and wind aren’t paying off. Investors are pulling out, which in turn makes it even harder for renewable energy projects – and the funds that, well, fund them – to get off the ground.

In order to turn a profit, many climate-related funds are making investments in more successful, but less climate-friendly areas such as natural gas – what one fund manager calls “a cleaner source of fuel … a stopgap, transitional area for energy.” Read the full story here.

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