Transcript Stimulating Clean Energy Opportunities for

Stimulating Clean Energy
Opportunities for Washington
Davis Wright Tremaine
February 24, 2009
Ross Macfarlane
Senior Advisor, Business
Partnerships
“A Crisis is a Terrible Thing
to Waste” Rahm Emanuel
“What we have before us are
some breathtaking opportunities
disguised as insoluble problems.”
John W. Gardner
A Defining Challenge
…starring
REAL climate solutions
Sustainable prosperity
Clean energy leadership
Approaching the Tipping Point:
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Economics/Technology
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Energy independence and security
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Economic crisis drives need for job
creation and rebuilding infrastructure
Clean energy coming of age as intensely
competitive and fast growing global
industry
Leak in economy > $50 million per day for
oil and gas (WA)
Fossil fuel price volatility worsens
dependency and economic disruption
Climate Disruption
Winds of Change -Repowering America
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President Obama consistently links economic
recovery with investing in new energy future
and addressing climate change.
“Few challenges confronting America and the
world are more urgent than climate change.
The science is beyond dispute, and the facts
are clear”
“Why wouldn’t we” invest in creating jobs
that reduce energy costs, dependence on
foreign oil, and climate pollution?
NW Priorities for a Healthy
Recovery
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Climate Solutions urged investments in
five key areas
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Efficiency First
21st Century Grid
“Ready to go” Renewable Energy Projects
Sustainable Transportation
Green jobs – workforce training
Clean Tech = Real Productivity
High Priority for Stimulus Investments
Clean Tech is about:
• ‘Building Things Right’
• Energy Efficiency and renewable energy provide job
opportunities that can’t be outsourced
• Plugging leak in economy with clean, efficient
energy, building and transportation systems
Will it Scale?
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The big question is
Source: Pathways to a Low-Carbon Economy,
McKinsey & Company (2009)
Clean Energy in Stimulus
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Unprecedented investments in clean
and efficient energy
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$72 Billion in direct spending
$22 Billion in tax credits
Federal spending leveraged to increase
flows of private capital
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e.g. $6 B in loan guarantees for
transmission line and renewable expected
to support $60 B in private investment
Clean Energy in Stimulus
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NW Priorities for A Healthy Recovery -scorecard
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Energy Efficiency -- $25.8 B spending/ $2.9
B tax incentives
21st Century Grid -- $17 B spending and
borrowing authority
Clean and renewable energy -- $6.4 B
spending/ $16.5 B tax incentives
Clean Vehicles and Transit -- $21 B
spending/ $2.5 B tax incentives
Green Jobs -- $500 M spending
Clean Energy in Stimulus -New Directions
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Not just money
To qualify for funds, states must
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Establish “decoupling” policies to ensure
utilities have incentives to invest in
efficiency
Commit to and enforce tough building
codes
Unprecedented investments in science
and research
Clean Energy In Stimulus
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Huge opportunity for Washington to get
a “leadership share” of stimulus dollars
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Washington’s potential share estimated at
ca. $ 2 – 4.4 B
Does not include opportunity for
Washington companies to export goods
and services to address market demand
Accelerated process
Vision, coordination, and continued policy
leadership will be needed to maximize
opportunity
Critical First Step, But we
need strong climate policy
CAP: Policy commitment to steadily
reduce fossil fuel deendence
Unleashing powerful
markets for clean
technologies
Critical First Step
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Recent study -- stimulus package will
reduce oil imports and emissions of
global warming pollution, but is no
substitute for climate policy
Will lay groundwork for needed
changes, reduce costs, create jobs, and
help turn economy around
Climate policy will be needed for
durable reductions and economic
leadership in competitive market
Peterson International Economic
Institute (2/10/09)
Green Investment in
California
AB32 Introduced
AB32 Passed
$700
35
$600
30
$500
25
$400
20
$300
15
$200
10
$100
5
$0
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2002
Source: Cleantech Group
2003
2004
2005
2006
2007
Number of Companies (Line)
Millions Invested (Bars)
RPS Passed
Cap makes it real:
Get your wedge on!
Every “wedge” is a global business
opportunity
Clean Energy in the
Stimulus and Washington
Opportunities
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Summary report and spreadsheet
prepared for Climate Solutions by:
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Greg Papciak, corporate attorney. 206-4990824, [email protected]
Daniel Malarkey, economist and clean tech
consultant. 206-310-9385,
[email protected]
Stimulating Clean Energy
Opportunities for Washington
Davis Wright Tremaine
February 24, 2009
Ross Macfarlane
Senior Advisor, Business
Partnerships
Tax Provisions for
Renewable Energy
Projects
American Recovery and Reinvestment Act of 2009
Response to Market Conditions
 Shortage of tax equity investors
 Important capital source for renewable energy projects
(monetize tax benefits)
 Few remaining active participants
 Reasons
 Inadequate tax base to use existing tax credits and
deductions
 Economic issues (banks)
Proposals
 Extend credit carryback period
 Make credits refundable
 Expand Investment Tax Credit
 Cash grants in lieu of credits
 Allow “double-dipping” of governmental
incentives
New Investment Credit Election
 Energy Investment Credit now available for wind,
biomass, geothermal, landfill gas, waste-toenergy, qualified hydropower and
marine/hydrokinetic projects in addition to solar
and fuel cells
 Expands structuring options
 Partnership Flip
 Sale-leaseback
 Lease
New Grant Program
 Cash grants mimicking Energy Investment Credit
 Facilities placed in service in 2009 or 2010 or
after 2010 if construction begins in 2009 or 2010
 Regulations
 Timing
 Monetizing depreciation
Double-Dipping on Governmental
Incentives
 Production Tax Credit continues to be subject to
50% reduction when project receives subsidized
energy financing or tax-exempt financing
 Energy Investment Credit no longer subject to
reduction for receipt of these other governmental
benefits
 Treasury grants also should not be subject to
reduction
Clean Renewable Energy Bonds
 Authorizes additional $1.6 Billion
 Qualified tax credit bond
 Public power providers, governmental bodies and
electric cooperatives
 Projects eligible for Production Tax Credit
Business Tax Provisions
 Bonus depreciation extended
 Debt restructuring
Appropriated Funds for the
Energy Sector under the
American Recovery and
Reinvestment Act of 2009
February 24, 2009
Craig Gannett & Dan Adamson
Davis Wright Tremaine LLP
Overview
 Benefits for energy sector come in two forms, tax
benefits and appropriated funds.
 Obtaining appropriated funds can be more
challenging than obtaining tax benefits due to
need to work through the selection process.
Funding Avenues
Three main avenues for appropriated funds:
 U.S. Department of Energy
 State Energy offices
 Local governments
Energy Efficiency and Conservation Block
Grants ($3.2 billion)
 Grants to states, local governments, and tribes to
reduce fossil fuel emissions and energy use, and
improve energy efficiency in the transportation
and building sectors.
 $2.8 billion will be provided to states (28%) local
governments (68%), and tribes (2%) under the
formula in Energy Independence and Security Act
of 2007 (EISA).
 $400 million will be awarded on a competitive
basis to states, local governments, and tribes.
Weatherization Assistance Program
($5 billion)
 Payments to states for home weatherization for
low-income households.
 Eligibility threshold increased from 150 to 200%
of federal poverty level.
 Per home maximum increased from $2,500 to
$6,000.
 Will be done through existing funding and
program mechanisms at the state level.
State Energy Programs ($3.4
billion)
 Funding to state energy offices for energy
efficiency and renewable energy programs.
 Portion of funds only available if state agrees to
update building codes and take other energy
efficiency steps.
 Dramatic increase in funding to state energy
offices.
Electricity Delivery and Energy
Reliability ($4.5 billion)
 As to $4.2 of the $4.5 billion, USDOE has broad
discretion to allocate funding among different
activities to modernize grid.
 Possible funding for smart meters, transmission,
energy storage, and other purposes.
 DOE staff intend to provide $100 million to rebuild
domestic transformer industry.
 $100 million for worker training.
 $80 million for transmission study/planning.
Fossil Energy Research and
Development ($3.4 billion)
 $1 billion for fossil fuel R&D.
 $800 million Clean Coal Power Initiative.
 $1.520 billion for carbon capture and reuse.
 $50 million for storage site characterization.
 $0 for nuclear.
Renewable and Transmission Loan
Guarantees ($6 billion).
 Loan guarantees for renewable generation projects and
transmission systems, including upgrades.
 To be eligible, construction must start no later than
September 30, 2011, at which time authority to enter into
guarantees expires.
 DOE has yet to issue a single loan guarantee under the
Energy Policy Act of 2005, but Secretary Chu is working to
reform the process.
BPA Borrowing Authority ($3.25
billion)
 BPA has broad authority to use its borrowing
authority for transmission, efficiency, renewable
energy, and fish and wildlife projects.
 The pockets of a classic New Deal agency are
made deeper
 BPA moves deliberately and must comply with
NEPA before green-lighting a project.
WAPA Borrowing Authority ($3.25
billion)
 WAPA serves most of the West outside of the NW.
 Authority can be used for transmission only and
includes the ability to build a line from WAPA service
territory into the NW.
 This is WAPA’s first experience using borrowing
authority
 WAPA has many transmission lines in areas rich in
renewable resources, particularly wind.
Advanced Battery Manufacturing
($2 billion)
 Grants for manufacturing of advanced batteries
and components.
 DOE has lots of experience with this type of R&D
funding; likely to be a competitive solicitation.
Conclusions/Recommendations
 Obtaining appropriated funds requires
persistence and savvy.
 Step 1: identify those funding sources that you
may qualify for.
 Step 2: contact the agencies responsible for
those funding sources.
 Step 3: if possible, participate in the process of
making the rules (e.g., criteria, timelines)
Conclusions/Recommendations
 Step 4: be ready to respond quickly once
process is established
 Step 5: consider seeking political support
Expertise. Discipline. Results.
Columbia Center
701 5th Ave, Ste 2600
Seattle, WA 98104
www.cascadiacapital.com
Cleantech Industry Overview
Global Annual Cleantech VC Investment
$9.2
1,000
$9.0
900
$8.0
800
$7.0
700
$6.1
$6.0
$5.0
$4.4
$4.0
355
567
600
500
410
400
$3.0
300
$2.0
200
$1.0
100
$0.0
0
2003
2004
2005
2006
$ Invested
2007
# of Deals
Investment($ in billions)
$10.0
2008
# of Deals
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2008 represents new record for annual investment total
 $9.2B globally
 $5.3B in North America – almost 60%!
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Q3 ’08 represented new quarterly investment record, $1.8B in North America
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2008 Global total investment far surpassed the estimated range of $7.5B $8.0B
Source: Cleantech Group
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Current Situation & Trends
 Annual and quarterly investments have steadily increased, with
the industry really picking up pace in 2006
 This investment profile follows a similar pattern in cleantech
focused venture and private equity fund raising
 2008’s total investment of $5.3B represents a robust year-over-year
growth rate of ~33% from 2007
 In 2008, Solar was
King
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Investors believe
solar will continue
to drive efficiency
and adoption
These
improvements will
help deliver gridparity pricing
($ billions)
North America Quarterly Cleantech VC Investment
$5.3B
$5.5
$5.0
1.2
$4.5
$4.0B
$4.0
$3.5
$2.8B
$3.0
$2.5
$1.3B
$1.5
$0.5
$708M
$279M
$753M
$0.0
1999
2000
2001
2002
Annual
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1.0
$883M $912M
$477M
S o urc e : C le a nte c h Gro up
Source: Cleantech Group
1.8
0.5
$2.0
$1.0
1.2
2003
Q1
2004
Q2
Q3
2005
Q4
1.3
1.5
0.7
0.8
0.5
0.6
0.9
2006
2007
2008
Cleantech is actually 6 to 12 different markets
Renewable
Energy
Water
Energy Storage
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Solar
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Energy Infrastructure
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Wind
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Intelligent Network Devices
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Biofuel
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Grid Management
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Biomass
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Advanced Components
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Geothermal
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Software Applications
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Wave / Ocean / Hydro
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Load Management
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Waste to energy
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Optimization / Storage
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Desalination
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Purification / Filtration/ Detection
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Lighting
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Remediation
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HVAC
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Wastewater Treatment
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Power Optimization / Consumption
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Water Management
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Monitoring, Metering & Control
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Fuel Cell
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Design / Build
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Battery Technology
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Green Building Materials
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Ultracapacitors
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Biopolymers
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Power Management
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Systems Optimization
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Nanomaterials
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Retrofit / Refurbish
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Battery Management Technology
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ESCO’s
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Facility Management
Smart Grid
Energy
Efficiency
Green Building
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Global Cleantech Investment by Sector for 2008
$3,500
$3,300
$3,000
$2,500
$2,000
$1,500
$904
$1,000
$502
$500
$364
$289
$286
$148
$148
$54
Water
Agriculture
Fuel Cells
$0
Solar
Biofuels
Wind
Green
Advanced
Buildings
Batteries
Recycling
Technology
Solar
Biofuels
Wind
Green Buildings
Advanced Batteries
Recycling
Water
Agriculture Technology
Fuel Cells
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Global Cleantech Investment by Sector for 2008
2%
2% 1%
5%
5%
6%
8%
56%
15%
Solar
Biofuels
Wind
Green Buildings
Advanced Batteries
Recycling
Water
Agriculture Technology
Fuel Cells
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Clean Tech VC Growth: 2009 Market Environment
 Market for growth equity and VC financings has slowed down
 January cleantech financings totaled $710 million
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But, 5 deals in January comprised $243 million of the total January
cleantech financings
 Investors are looking for differentiated technology, not just the
ability to ride the cost curve
 Investors looking for capital efficient companies that can get to cash
flow positive on less than $30 – 40 million in capital
 Investors looking for companies that are in subsectors with
established market ecosystems
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Clean Tech VC Growth: 2009 Market Environment
 Investors had been gravitating towards smart grid and energy
efficiency
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“High in the stack” technology
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Capital efficient business models
 The government stimulus “turbocharges” the ecosystem and
demand side of the energy efficiency and smart grid markets
 Investors want to go with the Washington, D.C. capital flow
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Q4 2008 & January 2009 Project Finance Market: Renewable Energy Projects
 Solar, wind, biomass, etc. pretty much came to a standstill in the
fourth quarter of 2008.
 No project finance debt
 No tax equity
 Economics vs. fossil fuels less compelling
 Credit markets remain frozen in January 2009
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February 2009 Project Finance Market
 Flurry of activity upon announcement of stimulus bill
 ITC grant fills significant void in capital structure
 Is ahead of reality perception
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A rush for gold
 Big question is how money reaches projects
 Projects need to be completed by end of next year to qualify for ITC
grant
 For Northwest and California projects, if a project is in the idea stage,
it likely will NOT be completed by end of next year, given permitting
challenges.
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