The Wall Street debacle has undercut the value of shares in solar and wind power companies, biofuels companies and other renewable energy stocks significantly - in some cases, percentage drops have been even more than the market average. But this decline in market value has no real basis in the records or the potential of renewable and alternative energy companies - it appears to be more driven by the fears of investors in general. The concern from this end is that the market crisis may create longer term difficulties in getting commitments for ongoing investments in renewable energy. When there is nationwide - worldwide uncertainty over the ultimate cost of borrowing, investments tend to be even more closely vetted and less easily locked in.
The current credit crunch is problematic across the economy, particularly so for many renewable energy - whether solar, wind or biofuels - where the vast majority of the cost is upfront capital. This makes the cost of capital even more important to any kind of reasonable ROI, and that can make the difference between success and failure of an otherwise viable project.
As recently as this summer, with gas and oil prices soaring to near $140 per barrel, wind farms were even more appealing - guaranteed electricity prices appeared to be a sure thing for investors, but more recently, it's a different story - a senior vice president of a major investment firm, FBR Capital Markets, was quoted in the New York Times today: "Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive."
In the renewable and alternative energy field, investments normally come in stages - ERG was formed in recognition of this fact. Companies involved with advanced technology operations, new processes, community based systems, and facilities have traditionally found early money in their key partners, but then had to find second and third stage funding before qualifying to incur major debt to finish pilot projects, take products commercial, or build facilities that cost hundreds of millions of dollars.
The volatility in the market has made commitments to future funding difficult, and in the short term, made financial benchmarks for early stage firms difficult to reach.
Government support can be crucial in getting to the point where investor confidence can take over. But Pennsylvania government now faces its own financial difficulties - State Senators Vince Fumo (D, Philadelphia) and Gib Armstrong (R, Lancaster) showed bipartisan concern last week, projecting a current year budget deficit of as much as $2.5 billion, and the fear of even more in 2009-2010.
Traditional state funding programs through DCED or the Commonwealth Financing Agency are based on job creation - but these programs don't consider the multipliers of alternative energy projects in spinoff industries, supply and distribution businesses, so they tend to gravitate to more traditional manufacturing industries. The Pennsylvania Energy Development Authority was initiated to provide grants and loans guarantees for alternative energy projects and related research referring to deployment projects, manufacturing or research where private funds were unavailable, but this year's grants have focused on energy efficiency and many have been granted to municipalities in recent years. DEP's Energy Harvest program was specifically created to promote new and innovative technologies in the marketplace. But this year, DEP established guidelines which prohibited for profit entities from even applying for these funds.
And even the $500 million energy investment act bond funding is in limbo today, with officials carefully noting that it will be late winter at the earliest until the state can hope to sell the bonds for the as yet developed programs. Given the rest of the marketplace, ERG would urge that, if the state is truly interested in generating the energy, the jobs and the economic benefits that can come from these projects, serious consideration be given to programs that provide early stage matching funds for alternative energy companies that demonstrate their own ability to get private investment, and to guaranteed loan programs where minimum state investment can leverage up to 20 times the capital through those loans.
The current credit crunch is problematic across the economy, particularly so for many renewable energy - whether solar, wind or biofuels - where the vast majority of the cost is upfront capital. This makes the cost of capital even more important to any kind of reasonable ROI, and that can make the difference between success and failure of an otherwise viable project.
As recently as this summer, with gas and oil prices soaring to near $140 per barrel, wind farms were even more appealing - guaranteed electricity prices appeared to be a sure thing for investors, but more recently, it's a different story - a senior vice president of a major investment firm, FBR Capital Markets, was quoted in the New York Times today: "Natural gas at $6 makes wind look like a questionable idea and solar power unfathomably expensive."
In the renewable and alternative energy field, investments normally come in stages - ERG was formed in recognition of this fact. Companies involved with advanced technology operations, new processes, community based systems, and facilities have traditionally found early money in their key partners, but then had to find second and third stage funding before qualifying to incur major debt to finish pilot projects, take products commercial, or build facilities that cost hundreds of millions of dollars.
The volatility in the market has made commitments to future funding difficult, and in the short term, made financial benchmarks for early stage firms difficult to reach.
Government support can be crucial in getting to the point where investor confidence can take over. But Pennsylvania government now faces its own financial difficulties - State Senators Vince Fumo (D, Philadelphia) and Gib Armstrong (R, Lancaster) showed bipartisan concern last week, projecting a current year budget deficit of as much as $2.5 billion, and the fear of even more in 2009-2010.
Traditional state funding programs through DCED or the Commonwealth Financing Agency are based on job creation - but these programs don't consider the multipliers of alternative energy projects in spinoff industries, supply and distribution businesses, so they tend to gravitate to more traditional manufacturing industries. The Pennsylvania Energy Development Authority was initiated to provide grants and loans guarantees for alternative energy projects and related research referring to deployment projects, manufacturing or research where private funds were unavailable, but this year's grants have focused on energy efficiency and many have been granted to municipalities in recent years. DEP's Energy Harvest program was specifically created to promote new and innovative technologies in the marketplace. But this year, DEP established guidelines which prohibited for profit entities from even applying for these funds.
And even the $500 million energy investment act bond funding is in limbo today, with officials carefully noting that it will be late winter at the earliest until the state can hope to sell the bonds for the as yet developed programs. Given the rest of the marketplace, ERG would urge that, if the state is truly interested in generating the energy, the jobs and the economic benefits that can come from these projects, serious consideration be given to programs that provide early stage matching funds for alternative energy companies that demonstrate their own ability to get private investment, and to guaranteed loan programs where minimum state investment can leverage up to 20 times the capital through those loans.
Comments