SELL SHORT? HILLARY PROVES IT'S TOO SOON TO TELL

There is a way to make money in Wall Street markets as stocks fall in value. It is called selling short. It may soon be time to sell New Energy stocks short.

But not right away. Just as Senator Clinton proved it is a little early to label the Democrats' familiar family squabbling as truly disabling disunity, New Energy is off on a good run, at least in the short term.

For the next few months, solar and wind energy stocks’ values will rise as companies rush to complete any and every project they possibly can before wind’s vital production tax credits (PTCs) and solar’s investment tax credits (ITCs) expire on the last day of 2008.

Congress can look back on 3 previous years when it allowed the wind industry’s PTCs to expire and see a crash is inevitable if it continues to reject extension of the credits. This time the crash will affect the solar industry as well. Solar and wind trade associations predict early 2009 layoffs could affect 115,000 workers and projects worth more than $20 billion.

Does financing the tax credits cost the federal government too much? Republicans don’t seem to see any way to afford investment without more drilling for oil and gas in protected federal areas. A recent GE study, however, showed that investments in New Energy subsidies return at least as much in revenues to the U.S. Treasury as they cost. (See MONEY SPENT ON NEW ENERGY INCENTIVES PAYS FOR ITSELF: STUDY)

One Washington watcher counted 13 separate votes this year on which one or the other or both houses of Congress rejected bills extending the credits.

Congress may find a way through the partisan gridlock preventing extension but it appears the parties will keep energy as an issue for the November election when they adjourn in mid-October. Republicans like telling their constituents the Democrats’ refusal to allow more oil drilling is what is keeping gas pump prices high. Democrats like telling their constituents the Republicans refusal to back New Energy is yesterday’s thinking.

As wind and solar companies rush to get their projects completed and qualified for the expiring tax credits, their unnatural hyperactivity is wreaking havoc on market dynamics.

Result: A boom, to be followed by an inevitable crash early in 2009.

Larry Sherwood, consultant, Interstate Renewable Energy Council: "This is a classic boom-bust cycle, and it's not at all good for the industry…"

That’s not all it’s not good for, Larry.

New Energy is one of the few economic sectors so far unharmed by the financial troubles resulting from the subprime mortgage scandal and subsequent real estate mess. Congress, for political purposes, appears set to withhold the tax credits’ extension and send the sector into a crash. It could have economy-wide reverberations.

A solar energy company CEO recently confided to NewEnergyNews that 2009 is shaping up to be a “lost” year. Even if the next Congress restores the tax credits, it will take months to get things straightened out and rolling again.

Thus, it may be time - barring a miracle - to consider selling short.

But not quite yet.

Requests for miracles and other opinions can be expressed directly to Senators and Congressional Representatives at Support Renewable Energy Tax Credits.

Incentives to New Energy pay for themselves with revenues to the Treasury. (click to enlarge)

Wind, solar projects race to finish before credits expire
Paul Davidson, August 25, 2008 (USA Today)

WHO
New Energy developers and customers (Tristan Grimbert, CEO, EnXco; Barry Cinnamon, CEO, Akeena Solar; Michael Allman, CEO, Sempra Generation;

WHAT
Congressional gridlock has so far prevented extension of the New Energy federal tax credits. Insiders seem convinced legislation will not be taken up in the fall. There is a flurry of activity to finish projects before they expire at year’s end, when a crash is expected.

Incentives to New Energy bring many other revenue-generating benefits. (click to enlarge)

WHEN
- The federal tax credits expire Decmeber 31, 2008.
- Congress will go back to work after the presidential nominating conventions and adjourn for the year in mid-October.
- Plans for New Energy projects previously scheduled for 2009 are being postponed or cancelled.

WHERE
- Nevada: Sempra Generation is hurrying to finish a solar farm though it does not yet have a power purchase agreement with a utility.
- Arizona: Abenogoa is unable to get financing for a planned $1 billion solar power plant.
- The Midwest: National Wind has 4 wind projects on hold, pending the fate of the PTC.
- UK: EnXco turbines purchased for Midwest installations have been rerouted to Britain, where the industry is expected to keep building as fast as it can get turbines through 2020. (See UK BUILDING WIND WITH BOTH HANDS)

WHY
- 8,000 megawatts of wind energy capacity are under construction.
- Solar panel installations are up 74%.
- The cost of the federal tax credits is estimated at $1.7 billion/year. A GE Energy study shows conclusively that money spent to incentivize New Energy projects comes back to the federal budget as revenue.
- When Congress allowed New Energy tax credits to expire at the end of 1999, 2001 and 2003, business fell off precipitously. Turbine installation once dropped 93%.
- Curtailment of the PTCs and ITCs could affect 115,000 U.S. workers.

More growth or sell short in '09? (click to enlarge)

QUOTES
- Tristan Grimbert, CEO, EnXco: "We will go the extra mile to be on time."
- Michael Allman, CEO, Sempra Generation: "We stepped out a little bit…"