US Renewables Financing Set to Collapse Without Grant Extension

Renewable energy financing will decline precipitously next year if the US Congress fails to extend the cash grant programme, financing experts have warned.

Combining funds from the Section 1603 Treasury grant programme and available tax equity, the renewable energy sector will likely receive $6.7 billion in financing in 2010, surpassing the recent peak of $6.1 billion in 2007, which was all tax equity, according to a new study by the US Partnership for Renewable Energy Finance, a non-profit coalition of renewable financing experts.

But that financing will decline between 50% and 80% if the 1603 programme is allowed to expire at the end of 2010, according to the report, which surveyed all tax equity participants in the sector.

"The 1603 grant is the most urgent issue," said Michael Eckhart, president of the American Council on Renewable Energy in Washington, DC.

Although numerous provisions of the energy and climate bills being debated in Congress are critical for the long-term success of the industry, none of them would prevent the near collapse of the sector in the next two years if the programme is not extended, said Neil Auerbach, co-managing partner at private equity firm Hudson Clean Energy Partners in Teaneck, New Jersey.

"The Treasury grant programme is a cornerstone of renewable energy finance," he said. "If you remove the cornerstone, the edifice weakens and it's in danger of collapse."

In 2007, 20 tax equity investors provided $6.1 billion to the renewable energy sector, but investment fell sharply to $3.4 billion in 2008 when 10 investors dropped out of the market due to insufficient taxable income or bankruptcy.

Fortunately for the renewable energy sector, the cash grant programme filled some of that financing void. In 2009, tax equity and the grant programme combined to provide $3.2 billion in financing, with the cash grant accounting for 61% of the equity capital market, according to the study.

Cash grants will comprise 55% of the $6.7 billion in tax equity and cash grant financing the renewables sector is expected to receive in 2010, according to the survey. But if the Treasury programme expires, financing will likely fall to $2.95 billion in 2011 and could even decline to $1.2 billion if the economy or credit markets revert to 2009 levels, the study found.

"If it expires, it will have very dire consequences on investment in this field," Eckhart said.

There are currently 16 tax equity investors active in renewable energy, but as many as five of them will leave the market if the grant programme expires at the end of the year.

By. Gloria Gonzalez

Source: Environmental-Finance