Monday, August 31, 2009

Wind Farms Set Wall Street Aflutter

From the Wall Street Journal:

After nearly a six-month lull, Wall Street is getting back into the business of financing new wind farms.

Morgan Stanley and Citigroup Inc. have invested $100 million each to finance separate wind farms this month, taking advantage of a brand-new federal program that is paying substantial cash grants to help cover the cost of renewable energy investments.

Bankers say this is the beginning of an active pipeline of new wind-farm financing, as well as investment in large solar installations and geothermal facilities. Project developers and Wall Street appear to be viewing the federal cash grant program as such a good deal, industry experts say, it may grow much larger than its Washington creators expected.

"The money is coming back," says Ethan Zindler, head of North American research at consultant New Energy Finance Ltd.

Under the program, the government will give a cash rebate for 30% of the cost of building a renewable-energy facility, awarded 60 days after an application is approved. Investors are also given valuable accelerated depreciation deductions, which help offset taxes.

The Energy and Treasury departments have said they expect to spend $3 billion on the program, which started July 31 and runs through the end of 2010, and was part of the stimulus bill. But a government spokesman says requests for $800 million in grants were submitted during the first four weeks.

Some Wall Street bankers say they expect applications to grow to $10 billion, based on projected wind-power installations.

"We see opportunities and we are pursuing them pretty actively," says Kevin Walsh, managing director of General Electric Co.'s GE Energy Financial Services division, which was a major financier of wind deals in the past.

The strong interest echoes the $3 billion cash-for-clunkers program that provided incentives to trade in older, lower-gas mileage cars, and which was quickly overwhelmed by demand. "We are concerned that this may evolve into a cash-for-clunkers version 2.0," says a spokesman for Rep. Darrell Issa, a California Republican....

[wind energy markets]

...But the new cash grants are offering the potential for attractive returns. Several bankers interviewed said they expected deals to provide an annual return of anywhere from 9% to 15%....MORE

HT: Environmental Capital who write:

Big Money Returns to Wind Power–For How Long?
It seems that after a year in the wilderness, Wall Street has finally rediscovered the virtues of investing in clean energy—not out of altruism, but in search of double-digit investment returns.

Our colleague Russell Gold reports today in The Wall Street Journal that the Obama administration’s plan to juice clean-energy investment by changing how federal subsidies are handed out is paying dividends: Big banks including Morgan Stanley and Citigroup are underwriting wind farms worth more than $100 million each.

That’s partly a result of new government policy: For the first time, wind-farm developers have the option of receiving 30% of the cost of the project in cash, rather than getting tax credits over the life of the wind farm. The upfront cash turns clean-energy investment into a no-brainer: Bankers told the WSJ the new plan offers returns of up to 15%.

The program could be really big: While the government figured it might spend $3 billion to spur new projects, bankers and other observers figure the tally could rise as high as $10 billion through 2010. Crunching the numbers, that kind of government support could theoretically mean the installation of 15 gigawatts of new wind power—or roughly half of the entire U.S. wind-power capacity today.

Does that mean that clean energy, and particularly wind power, is out of the woods? Not entirely....MORE