US renewables sector can meet Obama challenge - analysts

Environmental Finance, 15 January 2009 - The US renewable energy sector is capable of meeting President-elect Barack Obama's pledge to double US production within three years, but the ongoing financial crisis will challenge the industry in 2009, analysts and industry experts said.

Currently, renewable energy sources comprise 7% of the US energy supply, according to the US Energy Information Administration. In a speech last week, Obama reiterated his pledge to make development of the sector a major part of his economic stimulus package.

“I think it's a very admirable goal and I do believe the industry can step up to the plate and achieve that goal,” said Charles Dewhurst, a Houston-based partner and leader of the national energy industry practice at consulting firm BDO Seidman.

However, meeting Obama's goal will require the industry to overcome several challenges, primarily the economic crisis that slowed the sector's growth in the second half of 2008. Financing of new renewable energy capacity at the global level declined from $23.9 billion in the first quarter of 2008 to $19.3 billion in the third quarter, according to New Energy Finance.

“The economic crisis will cause a decline in renewable energy project activity through 2009,” said Milo Sjardin, at New Energy Finance in New York. “The stimulus package may boost it a little bit, but there's certainly going to be difficulty getting project financing.”

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It is also uncertain how much of Obama's proposed $825 billion stimulus package will be devoted to the renewable energy sector. Estimates of the energy portion range from $30 billion to $50 billion, not all of which will be directed to renewable energy, according to Citi Investment Research.

Revamping the production and investment tax credits that have underpinned recent strong growth in US renewables has also been widely discussed, with renewable energy lobbyists advocating making the credits refundable. This would make the incentives more attractive, as most companies expect to pay lower taxes, undermining the value of tax credits. The number of active tax equity investors has dropped from 20 to five, but making the credits refundable would spur more tax equity investment, they argued.

In the absence of any changes to the tax structure, it will be difficult for companies to take advantage of the credits because of financing challenges, said Seth Tennant, a New York-based associate of the alternative energy group of Citi Investment Research.

The wind, solar and geothermal sectors are all expected to benefit from Obama's commitment. US solar photovoltaic demand, for example, could increase by about 1,750MW to 2,000MW, increasing the US installed base by 150-200%, according to Citi.

“It's really going to be low-cost, low-carbon producers” who will benefit most, said Jack Robinson, president of Winslow Management Company in Boston, which has been involved in green investing for more than 25 years. All three sectors can triple production “with no difficulty”, he said.

The impact of the stimulus package on other low-carbon energy sources is less clear. Despite safety concerns, nuclear energy has to be part of the conversation because of its limited greenhouse gas emissions, although there is no timeframe for new capacity coming online, Tennant said.

Green companies expected to benefit from Obama's commitment include First Solar and Energy Conversion Devices, both of which are well positioned to quickly ramp up solar production, Robinson said. Wind turbine maker and technology companies Vestas and American Superconductor and geothermal company Water Furnace Industries can also quickly utilise any advantages provided by the stimulus package, he said.

Dewhurst at BDO Seidman also expects to see a continuation of major oil companies establishing and expanding separate business units specifically focused on wind and solar development.