During the go go years of 2003 to 2007 banks’ balance sheets were still written in black ink and it sometimes seemed all anyone needed to secure financing for a green energy project was a business plan and a pulse. The financial implosion of 2008 changed all that, draining liquidity out of the capital markets and leaving banks unwilling, and in some cases unable, to lend. Thanks to a timely infusion of cash from Uncle Sam, many banks were able to limp through the worst part of the financial crisis and continue to lend sparingly.
However, over the past two years, the beneficiaries of these loans have mostly been big companies. For the smaller fish that helped spark the renewable energy boomlet of 2005-2007, the quest for capital has remained challenging. Unable to secure capital, these small developers became prime acquisition targets for better funded companies.
More than a year ago, while reporting from an industry conference in Austin, Texas, we described a funding environment only slightly improved from the dark days of 2008 “The days of thin covenants are over,” Piper Jaffray project finance banker Tina Neal, told us back then. “Credit committees are now actually paying attention,” added another banker. Deals were still getting done, but at a much slower pace.
While arranging project financing is never a cakewalk, liquidity is undeniably improving and closing deals seems to be getting easier everyday. The banks’ cautious approach over the last three years has allowed them to accumulate large cash reserves, which they’re now eager to put to work. “There’s so much liquidity out there,” Credit Suisse Managing Director Ray Wood told attendees of the Midwest Energy Forum last week in Chicago.
Data compiled by G.E.R. backs up Wood’s assessment. Over the past six months in Canada and the U.S. banks have closed financing for about $3.1 billion in wind, solar and other renewable energy investments. Given this pace of investment, it is not surprising that project finance bankers we polled tell us that they have plenty of work. “We are busy like we haven’t been in a while,” said one banker, who then wondered aloud if the market is overheated.
“Project developers have grown more confident,” a senior banker at Crédit Agricole in New York recently told us. “(I think this is) partly because they’ve moved away from fear of a double dip recession.”
One of the most active markets is actually north of the border in Ontario, Canada’s most populous province, where a generous subsidy program has helped fuel a new mini boom. Over the past two years Ontario’s energy authority has agreed to buy 1,400 megawatts of mostly solar-powered electricity. Heavy hitters like GE and thin-film panel maker First Solar have set up shop in the province to develop large projects. Ontario’s investor-friendly regime is a favorite with bankers. “If I could, I would do Canadian deals all day long,” one banker told us.
The U.S. has also benefited from generous, all be-it temporary, subsidies like the 1603 cash grants. By the end of last year the government disbursed some $5.4 billion in grants to renewable energy projects, supporting a total investment of over $18 billion. Almost everyone is happy about liquidity’s comeback, but the real question is whether all this liquidity has translated into lower loan pricing. For obvious reasons the bankers we talked to were tight lipped about pricing, but all agreed that overall cost of funds were down.
VC and PE Watch
SmartGrid Technology company Grid2Home closed a $2.6M Series B financing.
Battery Ventures is prepping a new fund that could invest in cleantech companies.
Battery Maker Amprius recently raised $25 million.
Ramblings and Musings
Back in January we wrote about potential corporate espionage at French carmaker Renault. The company had fired three executives, accusing them of selling company secrets regarding the carmakers electric vehicle strategy. Some say the secrets were sold to Chinese companies, a rumor the foreign ministry in Beijing quickly denied. Did Renault act too quickly? It certainly looks like it. Alleged secret bank accounts in Switzerland and Liechtenstein have yet to turn up and the three accused executives continue to proclaim their innocence. The story is emerging as a potential embarrassment for Renault CEO Carlos Ghosn. However, it does underscore how important electric cars are for automobile companies, which have all but accepted that electric cars will generate the bulk of their revenues over the long-term.
By. Green Energy Reporter