Wind and Solar Energy Markets Slowed by Financial Crisis
2009 Development Off Its Projected Growth
By: DANIEL A. YARANO
February 2009
Despite the long term excitement in the U.S. solar and wind energy markets, these markets are not immune from the adverse consequences of the U.S. financial crisis. The credit crisis has hit both of these energy markets as debt financing and tax equity have essentially dried up. The fortunate projects that are able to secure debt financing are able to do so at higher rates as the cost of such debt financing has risen sharply. Furthermore, project developers are also finding it difficult to secure the tax equity for their projects. The number of US third-party tax equity investors has decreased as JP Morgan, Wells Fargo and GE Energy Financial have reduced their number of financings in 2009. Other tax equity investors, such as Lehman Brothers, Wachovia and AIG, are focusing their resources on internal restructuring matters. Many tax equity investors are delaying any new tax equity investments until they forecast the impact of the current recession on their tax credit needs.
Independent power producers reliant on third party financing may find it impossible to finance the development of solar and wind projects in 2009 until the financial markets improve. The largest developers in the solar and wind industries with strong balance sheets are also feeling the pain of the financial crisis. Many of these developers, who use third-party debt to finance their projects in order to maximize return on equity, have seen the increased cost of credit have a material adverse impact on the project’s return on equity. As a result, much of the project development for 2009 will be conducted by developers with large balance sheets and who absorb the tax credits themselves.
The U.S. financial crisis is impacting the solar panel, wind turbine and component suppliers as well. The crisis has caused a delay in orders and cancellations. Within the wind industry, this has resulted in excess turbines becoming available for sale.
Developers and industry supply and service companies with large cash reserves may find the financial crisis has created new opportunities for them. Developers and suppliers that do not have strong balance sheets to weather the financial crisis may need to consider selling development assets, merger opportunities or joint development agreements with stronger companies to shore up cash in the short term and prepare to compete once the financial markets improve.
Takeaway
Despite the long-term excitement in the U.S. solar and wind energy markets, these markets are not immune from the adverse consequences of the U.S. financial crisis.