As we near the end of the first quarter of 2010, the renewable energy industry is asking “what next?”
Indeed, as appetite (and dependence) by renewable energy companies for federal money keeps growing, many of the stimulus’ key provisions, including the very popular direct cash grant program, are slated to end at the end of the year. So, with the 2010 deadline looming, what’s in store for the renewable energy sector in the post-stimulus era?
The short answer, don’t expect Washington to close the money tap anytime soon, says Edwin Feo, a partner overseeing Milbank, Tweed’s cleantech practice. He was speaking at a panel at the Renewable Energy World Conference, which ended today in Austin, Texas.
Incentives like investment and production tax credits are not going away, he says. And Capitol Hill is moving to extend the cash grants.
On the Senate side, Senators Dianne Feinstein, (D-Calif.), and Jeff Merkley, (D-Ore.) recently introduced a measure that would extend the grants until 2012. That’s likely the scenario favored by renewable energy companies. Ironically, so far these grants have mostly benefited European companies.
On the House side bill H.R. 4599 was introduced earlier this month. The legislation would actually change the cash grants into refundable tax credits. Renewable energy companies would apply for these credits as part of their standard tax filing.
Project finance bankers like the grants, points out Feo, and have been willing to lend against them.
A banker at a New York investment bank tells GER that without the direct cash grants, “lots of renewable energy projects would have been dead on arrival.” Feo ponders: “It will be interesting to see how they [banks] work under a tax refund regime.”
The money these days, at least amongst the bankers we informally polled, is on an extension of the grants.
Regarding other government funding streams, Milbank, Tweed’s Feo says he does not expect tax equity investments to grow much over the next year as traditional tax equity investors — mostly financial services firms — remain cautious. He points out that even before the global financial crisis, “the tax equity market was never that deep.”
Overall, as GER has reported before (see, here or here), the crazy times experienced from 2006 to 2008 are done. “The days of thin covenants are over,” Piper Jaffray project finance banker Tina Neal says, in a sober assessment of the market. “Credit committees are now actually paying attention,” adds another banker, speaking to GER on the side of the conference. But even in this more cautious environment 2010 and 2011, unlike last year, will see deals get done.
Feo says “terms of [project finance] debt are improving,” and as a result he predicts, “lenders will expand the roster of eligible borrowers.”