May 13, 2009
Ken Silverstein
EnergyBiz Insider
Editor-in-Chief
With the worst part likely over and key aspects of the stimulus program about to begin, a sense of economic confidence is in the air. Yet, green energy developers are starved, not just for seed money but also for political and regulatory certainty.
The stimulus package, which passed in February and which was pushed as the central vehicle that would lift the economy out of recession, has billions set aside for clean technology in the form of loan guarantees, venture capital and block grants provided to the states. It's about supplying much-needed funding to companies at a time when traditional debt and equity markets are hard to crack.
"We seem to be getting over our jitters and the direction is very positive," says Ed Einowski, a partner in the Portland, Ore. office of Stoel Rives. "The intended effect of the stimulus bill seems to be realized."
Einowski points specifically to new laws to allow green energy developers the option of pursuing investment tax credits or cash grants that are paid up front instead of production tax credits that are earned after projects get going. If the goal is to get such things as wind and solar farms built now, cash payments -- not credits against taxes owed -- would be more effective to move viable deals forward.
In a typical setting, entrepreneurial businesses would start by raising venture capital before they would try to access established debt and equity markets. But the credit crisis has changed all that. Supporters of the stimulus measure argue that if the government didn't step in to guarantee credit and to provide federal dollars, the economy could slide further into recession.
Altogether, the stimulus bill has $787 billion in it. The money should not be viewed as a "magic pot of gold," says Chris Rissetto, partner in the Washington, D.C. office of law firm of Reed Smith. "It's merely another appropriations bill" -- a vehicle to allow the administration to correct problems in the economy. Along those lines, he is predicting more such money will come, perhaps as stand-alone spending measures.
"It is not just a matter of sending in a postcard and the government will then send you a check," says Rissetto. "As the monies are competed and awarded, they will have fiscal, contractual and accounting obligations tied to them."
Jumping In
To be sure, economic doubts still exist. While the dust has not settled, the economy is slowly progressing and therefore giving more assurances to risk-takers. Such confidence, in fact, is integral to not just overall economic development but also to that of the energy sector. As banks and other lenders get their houses in order, they will move to attractive industries and the energy sector will assuredly be one of them.
Until then, many economic analysts say that the federal government must provide not just steady guidance but also the means by which feasible ideas become commercialized. Loan guarantees are one mechanism and the U.S. Department of Treasury is supposed to provide those rules by early June. Generally speaking, those loans will go to developers with shovel-ready projects that can be well underway by 2011.
Meanwhile, a recently established national venture capital fund will serve to help creative businesses that are in their infancy. The task is to identify energy concepts that have the potential to radically change the landscape by shifting the focus from fossil fuels to sustainable ones. The Energy Department will generally give transformative technologies seed money in the range of $2 million and $5 million.
U.S. businesses say they are ready to jump in and access stimulus-related funds. Consider IBM's Venture Capital Group, which essentially links start-up companies and the venture capital world. Toward that end, IBM will work closely with utilities to identify opportunities or with its venture capital network to learn of the next big thing. Energy efficiency and intelligent utility tools are among its key interests.
The company has a prudent investment strategy, says Drew Clark, director of strategy. IBM does not directly invest equity in companies, but instead partners with venture capitalists globally to gain insights into emerging technologies and nurture small businesses and potential start-up partners. Now, though, the high-tech giant says that it can also effectively accelerate the entry of clean energy technologies by joining public-private partnerships under the federal stimulus plan.
It's a point well taken, given that the Obama administration has said that the projects it would look on most favorably are those that can come to the table with some of their own financing. The real question is whether the innovative ideas outlined by the Obama administration will get the attention -- and the capital -- they need to become commercial.
"We are hoping that Energy Department will be flexible and quick so that companies that are caught up in the credit crisis or that need venture funds can go to the next level," says Michael Hindus, a partner in the San Francisco office of Pillsbury. "This is about jobs and this is something that must yield positive results in a short time, at least before the next election cycle."
If the interest continues and progressive energy technologies are brought to market, then the federal stimulus program will have achieved its desired outcome. The New Energy Economy will then triumph, while the Great Recession will continue to fade.
Join Energy Central on its webcast May 20th at 1 p.m. Eastern to discuss what businesses and their advisors need to know in order to access federal stimulus monies.
Correction: Your editor was trying to see who was paying attention and who wasn't. Well, we know a goodly portion of you caught the intended 'mistake' in the Monday, May 11 column, Pouring on Coal Waste: The Exxon Valdez accident in 1989 spilled 11 million gallons of oil. From time to time, we'll test you.
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