Green Tech

New Jersey regulators on Tuesday approved a proposal from utility Public Service Electric and Gas to expand its solar loan program by $143 million and 51 megawatts.

The program expansion means a total of $248 million in loans, translating into an estimated 81 megawatts worth of solar systems available to interested homeowners, businesses, and municipalities across the state.

Public Service Electric and Gas already has a program to install 200,000 solar panels from Petra Solar on N.J. utility poles and street lamps.

(Credit: Petra Solar)

Since Public Service Electric and Gas' (PSE&G's) first loan program for installing photovoltaic panels was approved in April 2008, about $105 million in loans, totaling 30 megawatts worth of solar systems, have been applied for by its customers, according to company statistics. While its seen as an expansion, the next round of funding is technically a completely new program approved by the N.J. Board of Public Utilities (BUP) with specific regulations.

The Solar Loan II Program will run on a first-come, first-served basis for the next two years, or until 51 megawatts in solar systems have been installed.

The loans should cover half the cost of a solar system installation, according to BUP estimates. They will be offered as 10-year loans for residential homeowners, and 15-year loans for commercial or municipal customers, which can be repaid in cash or via earned Solar Renewable Energy Certificates (SREC). One SREC is earned for every megawatt hour of solar energy created, according to PSE&G. The BUP also set preliminary monetary rates for SREC credits.

"Initially, the SREC floor price for residential systems is $450; for nonresidential systems up to 150 kw the price is $410; and for systems larger than 150 kw up to 500 kw it is $380. The floor prices offered for SRECs for new loan applications will be reduced by about 3 to 6 percent every 6 months," according to a statement from the BUP.

For the other half of installation costs, the BUP is recommending solar system owners apply for New Jersey Clean Energy Program rebates and federal tax credits.

"There's no question that providing a source of stable, secure capital--especially in our tough economy--has helped boost the number of solar energy systems in New Jersey," Ralph LaRossa, president and COO of PSE&G, said in a statement.

"We're pleased to do our part to make New Jersey a leader in solar energy installations, second only to California," he said.

LaRossa is justified in his assertion. While it can't compare to California, which has huge projects in the 550-megawatt range underway, New Jersey is a leading state for solar installations, as well as clean-tech projects in general.

The greater New York metropolitan area, which includes a large portion of N.J., was recently ranked No. 3 in the country for most clean-tech job activity in the U.S. by a recent report, with the solar sector leading the clean-tech job market overall. It was only lagging behind the greater metropolitan areas of San Francisco and Los Angeles in California, respectively. New Jersey was also ranked 7th by another recent report listing U.S. states doing the most to wean its residents off foreign oil.

In addition to its solar loan program, PSE&G was approved in July for a partnership with Petra Solar to install over 200,000 photovoltaic panels on N.J. utility poles and street lights to tie into the state's electrical grid. It was also approved to install 5 megawatts worth of solar equipment in New Jersey urban enterprise zones, and an another 10 megawatts to be installed on the properties of interested third parties.

A bank chain in California will combine PV and EV--that is, an electric-vehicle charging station equipped with solar-photovoltaic panels.

Solar installer SolarCity and Rabobank on Tuesday unveiled the charge point at a bank branch in Santa Maria, Calif.

An electric-car charging point fed by solar panels.

(Credit: SolarCity)

The bank, which plans to build a network of four charging stations from Los Angeles to San Francisco, is considering putting solar panels on the buildings, according to Lyndon Rive, CEO of SolarCity, which installs and provides financing for solar panels. The company owns the panels at the Santa Maria location and sells the electricity they generate to the bank.

Because charge times could be an hour or two, the charge point locations were chosen with other retail outlets and restaurants nearby. The bank doesn't plan to charge customers to access the charge points.

The site at Santa Maria has a solar array able to generate 30,000 watts and a net meter that runs backward when the panels produce more electricity than the bank is consuming. An array that large could theoretically charge roughly 2 thousand cars a year, Rive calculated.

The limited range of battery-electric, or all-electric, vehicles is a serious barrier to adoption, which has led some states and communities to invest in charging infrastructure. The Rabobank charge spots were funded by California Air Resource Board, a SolarCity representative said.

SolarCity last week announced that it bought two Los Angeles companies that operate solar-powered charging stations, which is a new division in the company. Rive said the company envisions installing solar panels and fast-charging equipment in homes of people who are seeking a so-called carbon-free lifestyle.

"These bank branches are what I call enabler locations because they allow EV drivers to take longer trips and thereby use the EV as their primary car," Tom Dowling, infrastructure manager for electric-vehicle charging at the Electric Auto Association, said in a release. "Solar-powered charging stations mean true zero-emission driving, from well to wheels."

If you're looking to bankroll a green-business revolution, boring old banks and the government are looking just as effective as flashy venture capitalists.

Tech investors from Silicon Valley to Shanghai are betting billions of dollars on breakthrough green technologies, with many hoping to repeat the success of Google or Amazon in the energy industry. It's a shift that has helped create the buzz around clean energy among entrepreneurs, politicians, and in industry.

But despite a lot of attention on high-risk ventures, experts say the financing engine for the clean-energy economy needs to be a hybrid, drawing on both venture capital and on more staid funding sources, many of which are hamstrung by the global capital crunch.

"Venture capitalists are critically important for starting new innovations and getting businesses incubated. But what hasn't happened to date is getting large-scale capital to help bring those businesses to commercial scale," said Bracken Hendricks, a senior fellow at the Center for American Progress think tank and expert on green jobs. "We need the policies and financial mechanisms to turn early start-up companies into global powerhouses."

Using a baseball analogy, venture capital is all about hitting home runs--one company could deliver 10 or 20 times the initial investment within five or seven years. To get that, venture capitalists traditionally seek out companies that have a proprietary technology that sets them apart from the pack.

But many businesses that create green collar jobs are not a clean fit with that high-risk, high-reward model. Although they still require financing, companies that manufacture wind turbines or do home energy audits, for example, don't require technology breakthroughs.

"If you care about investing in clean energy for job growth, venture capital may not be the way to go," said one investor who requested anonymity. "Government spending should be doing more to support service industries."

Government funding could, for example, be used to retrain tradesmen to retrofit commercial buildings to be more efficient, he said. Meanwhile, large-scale energy projects, such as a solar power plant, rely largely on bank-issued debt and, increasingly, government loan programs.

Running the numbers
There are signs that entrepreneurs and investors in the green-tech field are getting a better grip on how to finance their ideas. The key is to pull money from different sources at different stages, say investors.

In a sign of the difficulty financing solar, commercial installer Borrego Solar said on Monday it has taken in $30 million from an outside investor to fund new projects.

With the additional funding, Borrego Solar will now be able to offer purchase power agreements to companies and government organizations.

In that model, a school or business does not buy the actual solar equipment but instead purchases the power it generates at a fixed rate over 20 or 25 years. The panels themselves are owned and maintained by a third party, such as an installer or a financing company.

Taiwanese metal cable manufacturer Walsin Lihwa took an equity stake in Borrego Solar and will be financing purchase power agreements.

Changes to solar power subsidies, where a project developer can apply for cash from the Department of Energy rather than take a tax credit, makes it easier for non-U.S. companies to fund solar, said CEO Mike Hall. He said the model of offering financing and installation from a single company simplifies the arrangement for the customer.

But the money available for project finance has dried up substantially over the past year, a situation that has delayed projects, say industry executives.

Click on the image to launch a photo gallery of products and solar installations from last fall's Solar Power International conference.

(Credit: Martin LaMonica/CNET Networks)

"The gating factor for solar 12 months ago was the shortage of solar modules (panels). Now it's really a question of access to capital," said Hall, who added that it was very difficult to secure the financing with Walsin Lihwa.

Hall said demand for solar among commercial and government customers is strong but installers will need to add financing to grow in the coming year.

"Everybody that wants to be successful over the next 18 months needs an alternative strategy for access to capital."

The return for renewable-energy projects is generally considered predictable and low risk. But most of the banks that provided tax equity funds for renewable energy have exited the market in the past year.

SunRun is among those companies that believe the quickest way to get solar panels installed en masse is to eliminate the hefty up-front cost.

The San Francisco-based start-up on Tuesday said that it has raised an additional $18 million, in a funding round led by venture capital firm Accel Partners. Accel is known for backing Facebook and BitTorrent.

The money will be used for SunRun to expand its solar financing beyond California, Arizona, and Massachusetts, according to the company. SunRun has previously raised $12 million from Foundation Capital, which also participated in this round, and has secured $105 million from U.S. Bancorp for financing solar installations

Even though the performance of solar photovoltaic panels continues to improve, the installation cost for a typical homeowner remains a large barrier. Before state and federal incentives, rooftop solar panels and installation can cost $20,000 to $35,000.

With SunRun financing, the purchaser pays an up-front fee of $1,000 and then a fixed monthly charge. SunRun owns and maintains the solar panels so it benefits from financial incentives, such as tax credits.

This type of business model is being pursued by a handful of solar start-ups, including SolarCity, and utilities.

Likewise, municipalities are coming up with alternative ways of financing solar panels to cut the up-front investment. Berkeley, a forerunner in this area, has devised a way to allow homeowners to help pay for solar panels through property taxes.

SolarCity said it has the funds to further finance its solar-panel leasing offering.

The Foster City, Calif.-based company on Wednesday said it has secured tax equity funding through U.S. Bancorp Community Development Corporation, the second fund created with the U.S. Bancorp division.

First Solar panels installed by SolarCity in Berkeley Hills, Calif.

(Credit: SolarCity)

SolarCity is one of a handful of companies that offer financing options for homeowners and businesses to install solar electric panels.

Rather than pay the large upfront cost of solar, consumers pay a monthly fee and can anticipate lower monthly electricity bills. In some cases, the solar installer owns the panels and the consumer leases the panels for 20 years.

SolarCity now offers its financing option in California, Oregon, and Arizona. With the fund, the company plans to hire another 100 employees over the next six months.

The solar industry overall has been hit hard by a dearth of tax equity funds to finance solar projects. Because corporate profits have dipped, fewer banks are able to create a fund based on tax credits, which is how renewable energy projects in the U.S. have traditionally been subsidized.

SolarCity said its two tax equity funds were the only ones created this year to finance residential solar.

Amid the carnage of last year's stock-market performance, shares in clean-energy firms fared worse than others, according to data published Wednesday by researcher New Energy Finance.

That dramatic decline--at one point going below 2003 levels--was despite some of the most advantageous political and economic factors for clean technologies in years.

At its low point in November, the WilderHill New Energy Global Innovation Index (the ticker is "NEX"), which tracks 88 clean-energy global stocks, fell over 70 percent. The index then enjoyed an "Obama bounce" after the presidential election, to end up at a 61 percent decline in 2008.

For comparison, the S&P 500 index fell 38.5 percent last year and the U.S. Nasdaq Composite was down 41 percent.

The downbeat news from the public markets comes on the heels of the year-end data about clean-tech venture capital, which saw funding peak in the third quarter of 2008 and then finished the year sliding down.

Among public companies, the two hottest--and some argue overinflated--sectors within clean tech battered the worst were solar and biofuels. On average, solar shares plummeted 75 percent; biofuels and the biomass sector plunged 68 percentl; and wind fell 56 percent.

The poor performance reflects the fact that the energy business is very capital intensive and sensitive to fluctuations in fuel and commodity prices.

The price of oil plummeted from over $140 a barrel in July to under $40 in December. Meanwhile, the credit crisis made financing harder for projects such as wind farms or manufacturing plants.

The overall clean-energy sector, which has been exploding over the past three years, was also due for a correction, New Energy Finance CEO Michael Liebreich said in a statement.

Yet the demand for clean-energy products and services is still strong, making the long-term outlook good, he argued.

"Worries about climate change and energy security are still on the political agenda, and indeed the latter issue has become even more topical with the dispute over gas supplies between Russia and Ukraine and the conflict in Gaza. And Obama is not the only leader seeing clean energy as an important element in the programs they are planning, to help stimulate economic activity," Liebreich said.

Meanwhile, the level of venture funding in 2009 could potentially drop after three years of rapid growth, said Brian Fan, senior director of research at the Cleantech Group.

Still, he said, the "fundamental drivers" of energy scarcity amid growing demand and of climate change policies are intact, which should attract more investors.

SunRun has secured financing from U.S. Bancorp to expand its solar power purchasing program to 2,000 more homes in the next year, the San Francisco start-up said Thursday.

U.S. Bancorp, the parent of U.S. Bank, has committed $105 million in tax equity, a fund that will allow the bank and SunRun to take advantage of the federal solar subsidy, which is a tax credit.

SunRun's business model--one being pursued by a handful of new solar installers--is to provide financing to homeowners and small businesses interested in installing solar panels.

Rather than pay the up-front cost of buying and installing panels, the consumer pays a smaller initial fee and then monthly electricity usage at a rate lower than the utility. SunRun and its financial backers own the panels and maintain them.

This sort of contract, called a power purchase agreement, has fueled rapid growth of solar electric installations at corporations in the past few years.

These types of investments--which are difficult to secure amid the slumping economy--are structured to offset tax bills for businesses and generate steady cash for investors.

So far, SunRun has more than 300 customers, all of which are in California, said President and Chief Operating Officer Nat Kreamer. He added that the company hopes to expand in the East Coast.

In addition, SunRun said Thursday that it has added David Buzby to its board. Buzby is the chairman of SunEdison, a company that handles purchase power agreements for corporations and utilities.

Update at 9:30 a.m. PT with correction to clarify SunRun's business model.

The crisis rocking the U.S. financial sector is rippling into the clean-energy business, bruising more mature industries like wind while leaving young start-ups relatively untouched so far.

The unraveling of debt-heavy investment banking firms--including the demise this week of Wall Street icons Lehman Brothers and Merrill Lynch--means that financing for large-scale renewable energy projects will get harder and more expensive, according to analysts.

"This isn't good news for anybody--it's going to have an impact economy-wide," said Ethan Zindler, head of north American research at New Energy Finance.

New Energy Finance's clean-energy stock index is down about one third so far this year--lower than the Dow--and the sector has been volatile, Zindler noted.

Lehman and Merrill Lynch were involving in financing clean-energy deals, but to a far lesser extent than Goldman Sachs, JP Morgan, and General Electric's renewable-energy financing arm.

"If you look at the other investment banks, their survival is probably more critical to clean energy," Zindler said.

Because it is the most mature, wind energy will likely get hit hardest by a squeeze on credit. Wind farms rely on project finance from banks or other institutions to fund construction and development.

But with fewer investment banks offering financing amid strong demand, wind project developers may get less favorable terms, ultimately making the energy from those projects more expensive.

Solar and geothermal projects often use the same funding mechanism of project financing and a government tax credit. That subsidy program is set to expire at the end of this year, creating more uncertainty.

At an event to announce a Google-General Electric energy policy and technology partnership on Wednesday, GE CEO Jeffrey Immelt said that the financial crisis may affect the company's energy interests, which includes a multi-billion dollar wind turbine business.

"People need to be concerned. This needs to be worked through and resolved because it's hard to have a springboard to do other things when everything intersects with financial services," Immelt said.

VCs still flush
Whereas companies that rely on public markets for financing have less attractive options, the private equity side of the business hasn't yet shown the same signs of distress.

Energy technology companies and projects typically require a lot more capital to develop and commercialize than, say, a software venture. Several start-up biofuels or solar companies have raised tens or hundreds of millions of dollars to scale their technology to commercial level.

As a result, those companies that need late-stage financing could have trouble going from product development to commercialization. Rather than try to tap public markets or investment banks for capital, clean-tech companies may look to other sources like hedge funds or large corporations.

But so far, the main funders of early-stage companies have not hit the brakes.

In fact, over 90 percent of venture capitalists and investors expect investment in green technology to increase in 2009, according to the results of a KPMG survey of 301 VCs scheduled to be published next week.

About two thirds of respondents said that the green tech investment cycle is sustainable, and not a bubble as many fear.

In general, early-stage investors say long-term trends point to demand for clean technologies and supportive government policies.

The same is true for the clean-energy sector, overall, even for those companies now vulnerable to the public-market turmoil, Zindler said.

"If you take the long view, the sector is a good place to be," he said. "But the big caveat is that we're just in the third or fourth inning of this."