Wobbly wind sector sets sights on stimulus

SAN FRANCISCO -- Wind power developers have long relied on complex tax-equity financing to bring most of their projects to market, but that system, once hailed as innovative, has collapsed over the last year, leaving the wind sector flailing for the cash it needs to make generation projects a reality.

This is how it worked: Large financial institutions like AIG, Wachovia, J.P. Morgan, Wells Fargo, Lehman Brothers and others would buy federal tax benefits from renewable energy startups that did not have enough taxable income to use the credits on their own.

In other words, big financial firms traded financing to offset tax liability. So-called tax-equity investors would bankroll a solar or wind project in exchange for a tax shelter, which was effectively pinned to profits. The system worked as long as Congress renewed the federal investment and production tax credits that granted developers a range of incentives, and it was widely viewed as a essential avenue within the renewable energy development community.

No more. The system, like other schemes crafted by insiders, has crumbled as AIG, Lehman and others have collapsed. The big boys no longer have cash to bankroll projects or the means to pull the profits to get credits, so the tax-equity space has turned into a financial dead zone.

According to figures from Hudson Clean Energy Partners, about 25 of the largest financial firms were active in tax equity for alternative energy in 2007. But at least 16 of them left the field last year (Greenwire, March 20).

That means an industry that had consolidated behind a handful of major players was left vulnerable to their demise. Wind in particular had banked on tax equity, financing 95 percent of its projects through this system in 2007 and following the same track in 2008 until the crash, according to numbers from J.P. Morgan.

So what now? Experts at a cleantech conference last week offered a simple fix: Figure out how to tap the American Reinvestment and Recovery Act, the economic stimulus law.

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