Financing in the renewable energy sector has improved but conditions remain challenging, despite the billions of government money that are now supporting the industry. When it comes to funding “we’re not there yet,” starkly assessed Michael Ware, a managing director with Good Energies, one of the world’s largest cleantech-focused private equity fund, at a panel at the Renewable Energy Technology conference (RETECH).
“The [renewable energy financing] markets have not returned to normal,” Ware says. “Credit markets remains tight and private equity and venture capital development fund hard to find,” he adds.
Underscoring the challenging state of plays is the steep debt – to – equity ratio now structuring project finance deals. At the peak of the market, a developer could borrow up to 80 percent of a project’s development cost. However, in the current environment, financing is typically structured on a ratio of 50 percent debt and 50 percent equity. Loan tenors have also tightened, averaging seven – to – 10 years, “we would need 17- to- 20 year tenor,” Ware points out.
Over the past year, in an effort to grease the funding wheel, the Obama administration has launched various initiatives, including the very popular direct cash grant program. It’s also eased access to production and investment tax credits. Of all three programs the most popular are probably the direct cash grants, which are available to developers with projects that either go in service in 2009 or 2010, or if construction start in 2009 or 2010. There’s word that Congress is looking to extend the program.
One company that’s benefited from these various government-backed funding streams is General Electric, which after staying on the sideline for much of the year, recently closed a string of deals with Horizon Wind Energy.
Besides cap-and-trade a lot of clean energy project developers and funders attending RETECH, say a federal Renewable Electricity Standard or a government-backed green bank are all initiatives that could provide long-term certainty and ease access to funding.