Mad Scramble for Green Deals

To follow the money in the renewable energy business, there's no better place to look than Ed Feo, managing director of USRG Renewable Finance. I recently caught up with him to get a read on 2011 and review some of the highlights or maybe lowlights, of the year that just ended.

If federal tax incentives sunset this year, look for another mad scramble to finish renewable energy projects, as wind and solar projects tried to meet deadlines, before Congress intervened at the last minute.

As federal policy for renewable is concerned, the "avoidance of catastrophe" seems to be the usual model, as the effects of the financial crisis still lingered, Feo said

The renewable energy industry might see a repeat of last year because the lifeline Section 1603 cash grant program was extend for only one year.

"I think the extension of the 1603 is one of the most important things to have happened at the end of last year, although the extension is just for a year. We may be in the same circumstance in December," he said.

One thing that doesn't appear to be happening right now is policy certainty. "The extension of 1603 didn't address the larger issue of what to do to with the incentives for renewable energy," Feo said. "There has to be, one would hope, a dialogue around what is the plan for long-term federal incentives."

A tax equity market that isn't large enough to meet demand will put pressure on prices as developers compete for that pool of money. And the demand for business services gets a bit contorted, so inevitably the cost of those services goes up. Low natural gas prices also create pressure on power contracts.

Feo offered a different take on the cost drivers for the solar market, which most assume is a function of lower cost Chinese-made materials. Increased competition on the development side has also lowered power contract prices

"Prices are being matched by the drop in panel costs, but it's not being driven by panel costs. It's really the other way around, I think," he said. "The price that it takes to win a contract from the utilities results in a price that only works at a certain level, which puts more pressure on what developers can pay to vendors .Vendors have to be more creative in terms of how they offer their product."

- 2011 is going to be a difficult year for wind because of the backlog of contracts not being as robust as it was a few years ago
- Solar is going do surprisingly well this year because the power contracts negotiated over the past five years are finally coming into construction
- Distributed generation side will show remarkable life as those utilities get into the business and the power purchase-leasing model starts to get some legs under it.