CAN NEW ENERGY BEAT THE ECONOMY?

The WilderHill New Energy Global Innovation (NEX) Index has fallen 38% since early September. It tracks the New Energy investment market. The Dow Jones Industrials dropped 19% in the same period.

Michael Schirber, science and energy writer: “Is there any silver lining for alternative energy in this gloomy financial market? Like seemingly everything else in these topsy-turvy times, the answer may be yes and no.”

The yes:

Reflecting the hopes of many in the New Energy industries, Schirber suggests that as the Herculean bailout, rescue and finagling efforts by world leaders begin to stabilize the financial world, investors may realize that New Energy, buoyed by tax credits and incentives granted as part of the recent spending legislation, represents a huge opportunity in a dark time.

Angus McCrone, chief editor, New Energy Finance Ltd.: "The medium outlook is that banks will resume lending and will be looking for opportunities that are more reliable than mortgages…Clean energy has proved itself a mature asset class and should be an attractive hope for banking lending."

A wind industry authority says McCrone’s assessment is exactly right.

Christine Real de Azua, assistant director of communications, American Wind Energy Association (AWEA): "There is no question that 2009 is going to be a tougher year…But thanks to the PTC extension, we are going to see some projects going forward that we weren't sure about a few weeks ago."

An authority on the solar energy industry, which had its investment tax credit (ITC) extended for 8 years by the recent legislation, agrees.

Roger Efird, chairman, Solar Energy Industries Association (SEIA): "By passing this bill, Congress has finally given the solar energy industry 'policy certainty' that will attract investment, expand manufacturing and lower the cost of solar energy to consumers…"

The no:

Money is tight. Financing for New Energy projects like wind installations and solar power plants runs to the billions. Lehman Brothers and Wachovia, among the biggest financiers for New Energy three months ago, are gone.

McCrone, chief editor, New Energy Finance: "The credit crunch is making it a bit more expensive for renewable energy developers to raise debt for their projects…"

At the billions level, McCrone’s “bit more expensive” can be a deal breaker.

Will the deals break?

There are reasons to be optimistic.

McCrone, New Energy Finance: "Energy security and climate change are still pressing issues and governments are implementing policies to encourage utilities to sell clean energy rather than fossil-fuel energy."

Will this growth be sustained in 2009? (click to enlarge)

How the Financial Debacle Might Power the Future; With tax credits and the credit crunch, the renewable energy market is being pulled in two directions
Michael Schirber, October 14, 2008 (Live Science via U.S. News & World Report)

WHO
Michael Schirber, science and energy writer, U.S. News & World Report; Christine Real de Azua, assistant director of communications, American Wind Energy Association (AWEA); Angus McCrone, chief editor, New Energy Finance Ltd.; Roger Efird, chairman, Solar Energy Industries Association (SEIA)/president, Suntech America; Lending institutions financing New Energy (examples: Lehman Brothers, Wachovia)

WHAT
The New Energy tax credits and subsidies may, in the next few months, rescue the New Energy industries from the worst of the financial crisis and recession. Or not.

The WilderHill New Energy Global Innovation (NEX) Index (click for NEX site)

WHEN
October 3: Congress passed and President Bush signed into law an 8-year extension of the solar energy industry’s investment tax credit and a 1-year extension of the wind power industry’s production tax credit as well as a package of other tax credits and subsidies.

WHERE
The October 3 tax credit and subsidy package applies in the U.S. and prevents the New Energy industries from migrating to Europe and Asia as they did in the 1970s.

WHY
- A history of boom and bust cycles associated with the granting or withdrawing of tax credits to New Energy validates the hope the recent extension of them will generate growth.
- The PTC allows a 2.1 cent/kilowatt-hour of electricity produced tax reduction for wind farms built before Dec. 31, 2009.
- The ITC allows a tax reduction on 30% of the value of a solar system installed by homeowners and businesses. It also applies, for the first time, to utilities installing large-scale systems.
- The October 3 legislation also provided tax credits and incentives for geothermal energy, battery-powered vehicles, energy efficiency programs, energy R&D programs, fuel cell and biofuels development and other energy development technologies like “clean” coal.
- Lehman Brothers went bankrupt. Wachovia was bought by Wells Fargo.



QUOTES
- Angus McCrone, chief editor, New Energy Finance Ltd.: "Quite simply, the overall stock market has been hit by panic, and investors have been rushing to reduce risk…So young, high growth — but also relatively high risk — sectors such as clean energy tend to get bashed even harder than the rest of the market."
- Christine Real de Azua, assistant director of communications, AWEA: "The entire industry was getting nervous…"
- Angus McCrone, chief editor, New Energy Finance Ltd.: "The fundamental growth story for the sector remains intact…"