Monday, February 9, 2009

Technology Won't Save Us This Time

Let's look through the seat cushions nextFor a while many of us thought (hoped) that renewable energy would remain a bright spot of investment and innovation, even as other sectors of the economy stagnated, shriveled or sickened. However, the broader economic disease is spreading and renewable energy companies have caught the contagion.

Finavera has seemingly exited the wave energy business, a direct result of the lack of partners and especially funding for the AquaBuOY technology it acquired from Seattle-area AquaEnergy years ago.

After blowing hot and cold for the six months, the the wind industry has now joined the downturn.

Now Bluewater Wind is on the ropes following news that its parent company, Australian conglomerate Babcock and Brown is being forced into liquidation. After a lengthy and tempestuous courtship, Bluewatwer inked the first power purchase agreement (PPA) for offshore wind just this past summer with Delmarva, at a price of less than $0.11/kWh. While there is no word (yet) about the future of Bluewater, the Delmarva deal, or the PPA for the project, their collective future appears dim, another domino in the continuing unwinding. How the project could have ever been feasible at that astonishingly low rate will now likely never be known.

The lack of constancy on tax incentives (like the PTC) has been a drag on renewable energy investment for many years. Without the certainty of those incentives key financing strategies such as flip LLCs [pdf] become too risky, and the tax equity investors pull out. Without these investors renewable energy deals don't get done:

The pool of so-called "tax equity investors" has dwindled to around a half-dozen, from more than 20 in 2007. Key players such as Merrill Lynch and Lehman Brothers no longer exist. Others, including the likes of John Deere (DE) and Prudential (PRU), have backed out of the market, if only temporarily, according to research by Hudson Clean Energy, a private equity firm specializing in green energy. "This will be a constraining factor because the population of sophisticated buyers for these credits is too small," says Oerlikon's O'Brien.

The shortage of buyers couldn't have come at a worse time. To hit Obama's goals for new renewable energy, the industry will have to mobilize far more capital than it has had to before. This year, the tax equity market is expected to hit $11.1 billion and would have to rise to around $43 billion in 2012 to build all the capacity being called for. Yet in 2007, when the market had more than 20 buyers, investors bought up $5.4 billion in tax equity. Last year, just eight investors handled about $5.5 billion in 2008. "Between now and 2012, [tax equity] markets would have to grow four- or fivefold," says Arno Harris, CEO of Recurrent Energy, a renewables developer in San Francisco.

The ecosystem of creative fast-growing technology companies have pulled the economy out of the last several recessions:

In the 1970s microchips helped jump-start the economy. In the 1980s personal computers unleashed a wave of consumer and business spending. And in the 1990s the Internet gained steam just when the economy was at its bleakest, creating new companies, jobs, and investment opportunities. Even in 2001, when hundreds of dot-com companies went bust in the space of a year, a couple of guys were already working on a startup that would make money on web searches. (That would be Google.)

Technology won't save us this time, at least not all by itself, because of the tumorous growth of dysfunction in the core structures of the economy. Renewable energy could be the engine to lead the recovery, but first there must be capital investment. Attempts to "unfreeze" the credit markets have been a dismal failure, and further (but wiser) efforts in that direction, while worthy, will be insufficient. Tax cuts, refundable credits and such ilk are not the answer. A direct injection of capital to the renewable energy sector is essential for the inextricably linked needs of our future energy and economic health.

There is no time to waste; this is not a typical recession.

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