If it seems like it’s been twice as hard to raise money for renewable projects this year compared with 2007, that’s because it has been. At the Renewable Energy Finance Forum in San Francisco on Tuesday, John Eber, managing director at investment bank JP Morgan, said tax-equity financing for renewable energy is expected to total $2.5-$2.6 billion this year, down from $3.6 billion last year and $6 billion in 2007. Tax-equity financing is based on the exchange of tax credits, so it’s no wonder it has plummeted in a market where profits — and therefore taxes high enough to make use of tax credits for renewable-energy projects — are harder to come by.
However, federal cash grants, which will enable renewable projects to get money in lieu of tax credits and were approved back in February, could definitely help fill the tax-equity gap. Eber said, “The vast majority of projects are going to [want to] use the grant.” However, there have been a variety of complications that have kept many clean power projects from being eligible for the grants.
Among the biggest problems, Keith Martner, a partner at law firm Chadbourne & Parke, explained, is that four types of investors are disqualified from owning part of a project eligible for the grants. “Projects backed by private-equity funds will not receive cash grants unless there is a corporation between the…fund and the project,” he said. Another issue has been a lack of clarity about some of the requirements. For example, construction must begin, or projects must be completed, in 2009 or 2010, but some confusion remains about when projects can be considered to have begun construction, Martner said.
Even if the program is tweaked so that investors aren’t disqualified, the clock is ticking as the grants are set to expire in 2010. Martner thinks there’s a “decent chance” the program will be extended, but added that any such extension would be unlikely to happen before late 2010 — at the earliest — “because the government likes the stimulative effect of a deadline.” The drawback to having a short deadline and an uncertain extension is that it makes it difficult to plan for larger, longer-term projects.