Green-tech pros gird for stimulus jolt
Although it's early, green-tech investors and executives so far have been impressed with the Obama administration's direction and tactics on clean energy.
After weeks of supportive words from the president, U.S. green-tech professionals saw something else this week: money starting to flow.
The Department of Energy said last Friday that it expects to provide $535 million in loans to California start-up Solyndra, which has a novel design for rooftop solar arrays. The alternative-energy loan, the first of its kind in four years from the DOE, is a positive sign for the finance-challenged green-tech industry, investors and entrepreneurs said this week.
"I'm happy to see our government supporting advanced research initiatives particularly in regards to energy because the country needs it," said John Walecka, a founding partner at RedPoint Ventures, one of the investors in Solyndra.
"The government doesn't have any intention of running businesses. But from what I can see, they are sophisticated and thoughtful in how to structure deals--that's very clear," he said.
Because of the troubled credit markets, the DOE program has become the "provider of last resort" to companies that need financing to expand and build manufacturing plants, said venture capital investor Paul Holland of Foundation Capital, who was in Washington this week at a meeting of energy professionals at the White House.
Energy Secretary Steven Chu has revamped the DOE's loan-vetting process to break the logjam of these loans, which many high-profile green-tech start-ups such as Tesla Motors and battery maker A123 Systems have applied for. Meanwhile, the government's economic stimulus plan calls for $1.6 billion for research through the national laboratories and for investments to bulk up and modernize the transmission grid to transport solar and wind power.
In anticipation of a big inflow of money, green business people have reported spending a lot of time in Washington, D.C. Everyone--from small start-ups to established wind project developers--is hiring lobbyists to influence policy.
"If you just take wind, every developer in the country will be knocking on the DOE's door and asking to get a piece of the pie," Jim Barry, chief executive of renewable energy project developer NTR said at the Jefferies Global Clean Technology conference in New York earlier this month. "The higher quality projects will rise to the top."
Wind and solar benefit
Businesses involved in building large wind farms or solar projects will directly benefit from stimulus spending, according to investors. Companies that sell smart-grid equipment and software to utilities, meanwhile, could benefit indirectly from investments to modernize the grid.
In the short term, loans and changes in the way the federal government subsidizes renewable energy will help finance projects that might have been stalled because a lack of tax equity, Kevin Walsh, managing director of renewable energy at GE Energy Financial Services, said at the Jefferies conference. Utilities are also expected to invest in their own renewable energy projects, rather than rely on third parties.
But even with the hefty commitment to clean energy in the stimulus plan, many of the rules surrounding those policies still need to be worked out, Walsh said. He called the current period "the implementation phase" and noted that there is more energy-related legislation in the works, including an expected energy bill this year and climate regulations.
Depending on the industry within green tech, the financial impact from stimulus-related investments won't necessarily be felt this year, Mark Bachman, an equity analyst with Pacific Crest Securities, said in a research note Monday.
"Investors should expect neither loans for renewable energy, manufacturing facilities and transmission projects nor matching smart grid and facility construction grants to add materially to 2009 expectations. The lion's share of these funds will be released in 2010 and impact sales and EPS (earning per share) in late 2010 and beyond," Bachman wrote.
Government-funded bubble?
In all, the stimulus plan has $39 billion in direct investments through the DOE and another $20 billion in tax incentives, Obama said earlier this week. The challenge with implementing these policies is setting subsidies at the right level to promote nascent industries without funding flawed companies, said Paul Clegg, an equity analyst from Jefferies.
"There is a risk that we overstimulate or we keep some of the wrong companies in business," he said. "We're likely to see a lot of boom and bust cycles and, as a result, a lot of volatility."
Even though the DOE made a point in acting quickly by approving a loan to Solyndra, bureaucratic delays or mismanagement are another risk.
"Any time you have a big new initiative, you have to assume a certain amount of waste and a certain amount of mistakes," Foundation Capital's Holland said. "However, directionally, these are really the right things for the country."