By Matt Daily - Analysis
NEW YORK (Reuters) - The U.S. renewable energy sector, which has been hit hard by the banking crisis, will get a new lifeline from the economic stimulus package that is expected to pass the U.S. Congress on Friday.
The flow of new wind and solar projects has slowed to a dribble in the past few months, forcing some solar companies to lay off workers and others to temporarily idle production lines as banks shut off capital flows to the industry.
“I think this is very, very helpful and productive,” Rick Gittleman, head of law firm Akin Gump Strauss Hauer & Feld’s renewable energy practice, said of the measures in the stimulus package.
The U.S. House of Representatives on Friday approved the $787 billion stimulus package containing a measure that would allow renewable energy developers to seek grants directly from the U.S. government. Much of their financing now is linked to tax credits that are nearly impossible to sell because of the banking crisis.
The U.S. Senate is expected to vote on the bill later on Friday and send it on to President Barack Obama.
Wind power has grown rapidly in recent years in the United States, with more than 24,000 megawatts of capacity in operation, or about 1 percent of the total power supply. Solar power is far less than that, but has been growing at 40 to 50 percent per year.
“We’re feeling very optimistic, and it feels like the message got to Congress,” said Arno Harris, chief executive officer of Recurrent Energy, a California-based solar power developer. “If the bill passes, I think we’re going to be off to the races.”
Green power project developers often finance new wind and solar installations by selling the tax breaks they receive under government programs to banks. Those banks use the green tax breaks to reduce their own tax burdens, and provide much needed money to the renewable energy industry to keep growing.
But most banks have no need for those tax breaks now as they grapple with billions of dollars in losses linked to the mortgage market collapse and souring assets.
Only about four or five financial institutions are currently buying those tax incentives from renewable energy developers, compared to nearly 20 last year.
The Solar Energy Industries Association said it was pleased with the final version of the stimulus bill that emerged after negotiations between the two houses of the Congress.
“I think what we’re seeing in the final bill is the best of the House bill combined with the best of the Senate bill (and) provides a strong boost for renewable energy, and solar in particular,” said SEIA President Rhone Resch.
Earlier this week, Vestas Wind Systems, the world’s largest wind turbine maker, had urged the U.S. government to move quickly on the stimulus, and warned that it could lay off workers if the slump in new orders was not reversed.
Demand for renewable energy sources remained strong, Vestas CEO Ditlev Engel said, but the banking crisis has prevented many buyers from investing in the sector.
By taking the financing burden off the tax equity market, new projects will be viewed much more like traditional electricity development projects by banks and other financial players, which should draw more cash to the sector.
“At the end of the day you will get a much more rational review of the projects,” Gittleman said. “I think that the major players who were reluctant to get into this because of their concerns about tax equity will be able to get in.”
Reporting by Matt Daily; Editing by Gary Hill