President Barack Obama may find it harder to increase renewable energy than his predecessor during a financial crisis that halted lending by Lehman Brothers Holdings Inc. and other alternative-power financiers, investors said.
New loans to harness the wind, sun and biodegradable waste will need extra government backing in a deepening recession, said Clayt Tabor, finance director at Midwest Wind Finance, a wind-farm developer in Minneapolis. Obama’s goal to double U.S. renewable- energy by 2012 may take years longer because even fully funded projects take at least three years to develop, he said.
Obama, more supportive of clean energy than George W. Bush, may struggle to shift quickly from coal-burning plants that spew global-warming gases. In Bush’s last three years, solar and wind production doubled, helped by easier financing and tax breaks that attracted loans from Lehman, now bankrupt, and insurer American International Group Inc., later taken over by the government.
“The project-development cycle is three to five years, so you can’t just stop and start on a dime” in a tough environment, said Brian Redmond, managing director of CP Energy Group LLC, a Boston-based renewable-energy advisory firm, in an interview.
The new president repeated his call to double renewable power capacity in three years during his first weekly radio and video address as president on Jan. 24. He’s pressing Congress to pass an $825 billion economic-recovery package with provisions to aid green energy. House Democrats have begun work on the legislation.
No Lehman, No AIG
The bill, devised to avoid the longest and deepest U.S. recession in a quarter-century, includes $20 billion in new tax breaks for green-energy investors, data from the Joint Committee on Taxation show.
If approved, they will come on top of $7.7 billion in tax breaks already available. These incentives, part of the October bank rescue, are only offered to investors earning profits.
Under the stimulus bill, eligibility for the $7.7 billion will be broadened to include investors with losses, a growing group in the recession. Lehman, which had agreed to make loans to developers such as Newton, Massachusetts-based First Wind, is now bankruptcy court. AIG has stopped lending on renewable-energy projects.
House Speaker Nancy Pelosi has said she will bring the stimulus package to the full House by Jan. 28. The Senate released portions of its proposal Jan. 23.
The U.S. had renewable-energy generators capable of producing 28,721 megawatts of power in 2007, not counting hydroelectric dams, according to Energy Department data. A megawatt can supply about 800 average U.S. homes.
Cost Estimates
Doubling that may cost $150 billion, estimated Scott Brown, chief executive officer of Hanover, New Hampshire-based New Energy Capital. Brown’s firm has invested more than $50 million in the last three years in renewable energy.
Industry cost estimates for Obama’s plan are based on past budgets. It costs about $2 million to install 1 megawatt of wind power. Solar power costs about $4 million to $8 million a megawatt. Acciona SA, a Spanish builder, last year completed a 64- megawatt solar plant in the Nevada desert for $266 million.
“There’s been debate about whether it is realistic to expect new construction in that time frame no matter how much money the government throws at it,” Brown said in an interview. He said Obama’s target is realistic if new aid comes through and U.S. sets quotas for production, as Texas did.
In 1999, then-Governor Bush signed a Texas law requiring utilities to buy renewable power from small generators. In 2005, the Texas legislature increased the quota to 5,880 megawatts by 2015 and 10,000 megawatts in 2025.
‘Leverage $100 Billion’
“I think it’s very optimistic,” Midwest Wind’s Tabor said of Obama’s target to double green power, in an interview. “These projects take a lot longer than everybody realizes.”
The administration wants financial incentives “to leverage $100 billion in private sector clean-energy investments over three years,” a report released with Obama’s radio address said. Obama spokesman Tommy Vietor declined to comment. Political analysts said the new president may get Congress to approve the aid.
“With the new balance of power in the House and Senate, I would be surprised if they couldn’t write their own ticket when it comes to renewable energy,” said Jerry Taylor, senior fellow at the Cato Institute, a Washington-based policy research group.
Green investment start from a standstill. Solar-energy developers already have projects under way to produce about 5,400 megawatts in three to five years, the Washington-based Solar Energy Industry Association trade group said. Solar power more than tripled in the past three years to 4,400 megawatts.
Fewer Projects
Wind developers added 7,500 megawatts in 2008 to bring total generating capacity to 24,000 megawatts, according to the American Wind Energy Association. Projects in 2009 could fall by half without the right financial aid from Congress, said Denise Bode, the group’s chief executive.
Tax credits have been used by investors with gains to recover 30 percent of the cost of a solar project by lowering their tax bill by the same amount. For financiers of wind energy, taxes can be reduced by 2.1 cents a kilowatt-hour. A kilowatt-hour will light 10 bulbs of 100 watts for an hour.
Renewable energy is “very capital-intensive,” Redmond said. “The ability to mobilize that amount of megawatts is going to depend on how quickly we can get financial institutions to support projects that are on the drawing board.”
In recent years, First Wind, Houston-based Horizon Wind Energy LLC and other developers gained financing from outside investors who were attracted by the tax incentives, called “tax equity.”
Tax-Equity Investors
Horizon owns or operates wind turbines that can produce 3,500 megawatts and is developing another 10,500 megawatts, its Web site says, without giving completion dates.
The number of active tax-equity investors has fallen to five from 20, Environmental Finance magazine reported this month.
Michael Morris, chief executive officer of American Electric Power Co., the biggest U.S. producer of electricity from coal, said “as a practical matter,” Obama’s target is too ambitious.
“I’m not anti-wind at all, and I’m not anti-solar,” Morris said in an interview. “I’m just not sure we can double it so quickly. The supply chain is incapable of handing it. And I don’t think there is enough capital available today to put into that space.”