16 April 2009
Public Incentives Pave the Way for Renewable Energy
States, cities lead in innovative financing
Washington — Woody Beardsley, president of a small investment firm in Denver, is bullish on renewable energy. He says the financial incentives for solar, wind and other renewable-power industries contained in the American Recovery and Reinvestment Act of 2009 (ARRA) not only will double the amount of renewable energy produced over the next three years as President Obama promised, but also pave the way for expansion in future years.
Renewable power now accounts for 7 percent of energy consumed in the United States, according to the Energy Information Administration, part of the Energy Department.
The ARRA, also known as the economic stimulus bill, signed by the president in February in Denver, allows solar and other renewable projects to convert tax credits into direct payments to investors in the projects for the next two years. “It speeds up the process of getting a piece of investment back, and more importantly, it expands the universe of investors,” Beardsley told America.gov.
Before, he said, his firm — Hybrid Energy Group (HEG) — had to find investors who had a significant amount of tax liability and wanted to benefit from those tax credits. “Finding such investors was becoming increasingly difficult in the weakening economy,” he said.
Beardsley said HEG, a for-profit company, took advantage of federal and state tax incentives when it purchased the $730,000 solar system that President Obama inspected atop the Denver Museum of Nature and Science on February 17.
“A nonprofit entity [like the museum] is not in a position to take advantage of any of the state or federal tax incentives or to depreciate the asset,” Beardsley explained. “So we pay for the equipment, and the nonprofit achieves its renewable energy goals.”
HEG will own and operate the 465 solar panels for 20 years, taking tax depreciation on the equipment, and the museum will pay HEG for the electricity generated. At the end of that time, the museum will have the option of purchasing the system — presumably for much less than the original purchase price — and operating it itself, or contracting HEG to continue operating it. Meanwhile, HEG is in various stages of negotiations and planning for $4 million worth of solar-panel installations on several more community buildings in the Denver area.
“A lot of people would like to invest in renewables, but don’t know how,” Beardsley said. “We’re trying to create a [financing] vehicle for them and at the same time provide a service to the community.”
STATES, CITIES GO THEIR OWN WAY
Much of the impetus for renewable energy in recent years has originated at the state and local levels.
“The states have really become the bright spots in terms of investing in renewable energy projects and understanding the economic opportunities represented by a clean-energy economy,” said Mark Sinclair, executive director of the Clean Energy States Alliance (CESA), based in Montpelier, Vermont.
The coalition of states committed to support renewable-energy projects and markets, founded in 2002, has grown to include 20 states, ranging from California to Vermont.
Clean-energy funds in those states support renewable-energy companies or projects through grants for market assessment or business planning; debt and equity financing; and production incentives. Such support is particularly important for early-stage companies or those shunned by commercial lenders. State clean-energy funds also offer grants, rebates and loans to consumers interested in installing solar power or other renewable-energy systems in their homes.
Sinclair told America.gov that those funds are capitalized in a variety of ways: some through special charges added to consumer electric bills, some from the proceeds from mergers of utility companies and others through the sale of power-generation equipment.
It was partly the merger of two utilities that underwrote creation of one of CESA’s smaller members — the TRF Sustainable Development Fund, which is managed by The Reinvestment Fund (TRF) of Pennsylvania. The Sustainable Development Fund uses a $32 million account to pay for clean-energy projects in underserved areas. The fund manages money from different kinds of investors, including public and charitable groups, to offer below-market-rate loans to developers of wind farms or solar systems and to encourage builders to install energy-efficient lighting, heating and cooling systems in new and old buildings in Pennsylvania and some neighboring states.
“Our model is to find ways to make a little bit of public subsidy work as efficiently as possible,” said Robert Sanders, TRF’s energy group managing director. “Our approach is to use the very flexible money we have to leverage everyone else’s money.” This is done through a variety of creative loan and lease arrangements.
CESA recently released a report showing that, since 1998, state clean-energy funds have supported nearly 50,000 projects that “generate 5.3 million megawatt hours of electricity each year, enough to power 500,000 homes.” Through 2007, the state funds invested $1.5 billion in renewable energy projects, leveraging an additional $2.6 billion in private capital.
