Newsmaker: Down payments on clean tech

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Are you looking at financing sugar cane projects in Brazil or the U.S.?
Walsh: The U.S. can plant sugar cane. It's just that Brazil has such a head start. They have a lot of things going for them in Brazil--the climate (and) they've been doing it for years. What they don't have going for them in the U.S. is that they are subject to this import tariff. They can sell to other places in the world, even with the tariff they can compete pretty well, but that's something you have to navigate.

So there are two fundamental risks in biofuels in my mind: one is policy risk--whether you are going to have policies and tariffs to navigate. And the other is just basic commodity risk--feedstock risk and commodity risk on the supply side. And you have to be able to manage that.

It seems that policies are generally moving in the right direction for renewables. Do you see any policy changes that will increase risk?
Walsh: I think policy support for all these technologies will be there in some fashion. The devil is in the details. But let's face it, the environment is such that regardless of what political party you have, there is going to be policy support because of concern for energy security, because of concerns about the environment, or interest in supporting the farm sector, for example.

So the stars are aligned for policy support. We're trying to have a voice in that. From an investor, what you're looking for is predictable, reliable, stable, long-term policy--that's really what drives the cost down. Because if the policy is too short and too skittish, then investors will either not invest in the sector at all or the price will be higher because you'll price your capital higher for risk.

the environment is such that regardless of what political party you have, there is going to be policy support because of concern for energy security, because of concerns about the environment, or interest in supporting the farm sector.

If you think the risks are very stable across the project...the more certain those risks are. The more you lock them (the risk factors) down, the more you apply leverage to that project. The more leverage you apply, the lower the cost of capital. It's a pretty simple equation.

How much are you financing, and what's the growth compared with other energy financing activities?
Walsh: We created a dedicated renewables group (in early 2006) with $800 million that we had accumulated over the five-plus years prior. In little over a year's time, we've grown to a $2.3 billion portfolio. It's the fastest-growing part of the business. Our target is to over $4 billion by 2010, and nothing I can see should stop us from hitting that goal.

And the growth is being all driven by energy security and environmental concerns?
Walsh: Those are the fundamentals driving it--but also technology. Technology continues to improve. Supply chain constraints in some of these areas have actually driven up the cost of a wind project, for example, over the last couple of months. The cost of wind turbines has gone up (because) the basic commodities of steel and copper--some of the precious metals--have gone up tremendously. So the cost to build a wind plant has gone up, but the technology embedded in those wind turbines keeps getting better and better all the time. So you're getting a higher capacity factor from that wind plant, better reliability, and so on. The drivers as we think about it again are energy prices, climate change, energy security, technology improvement, and in some sectors, the interest and support for agriculture.

How is renewable energy finance investing different from traditional fossil fuel projects?
Walsh: Another twist on commodity prices--when looking at natural gas or oil, for example--is volatility. In a renewable plant, you wring out the fuel volatility part of the equation because there's no fuel cost. All the cost of a wind plant--there is an operating cost, you can't ignore that--but it's all capital costs, which are fixed. So you get fixed rate financing; you know what the wind is going to cost for the next "X" years. If you build a gas-fired plant, unless you get a fixed long-term gas contract, you don't know (the costs). It's very attractive for utilities--whether they build wind plants themselves or they buy (wind power)--to wring out some of the fossil fuel price volatility. So that's an attractive feature. Solar is the same, geothermal--there are no fuel costs.

What's your sense for the investors' appetite? Are people willing to spend on renewables, which was largely ignored by Wall Street for years?
Walsh: Oh yeah. We're seeing more competition. It is what it is, but people are starting to get comfortable (with renewable energy project finance). They see some success from people like ourselves.

Some of what we do is very traditional--it's hydro(power), geothermal, and biomass--they've been done for years. The newer stuff, people are starting to get more comfortable with. Wind, obviously, is getting more investors. Solar PV (photovoltaic), solar thermal--those are new to a lot of investors, so that will take some time to see some success or failure. In the biofuel space, you have an interesting dynamic. There are people who want to play but don't understand the commodity risk, or don't really pay attention to it. And then you have people who do understand it and are being pretty smart about how they manage it. There will be some issues in that space, I suspect.

Is the financing anything special, or are they pretty standard financial instruments?
Walsh: Well, no, they are special in some instances when they are very tax-driven, in the U.S. anyway...So you need to understand how to take advantage of those features.  

More Newsmakers

[TonyGuitar]

Shhhh! Compressed Air Motor = Secret!

Taxis running around Paris on compressed air?

Yes! And compressed air motor vehicles by Tata Motors of India for low cost transportation? Also true. Tata to be selling vehicles for about three thousand dollars in India.

http://BendGovernment.blogspot.com

My interest is primarily in the electric car where you plug in for a few hours charging at night.

Plugging in an air compressor to charge a 4,600 PSI air bottle to power a vehicle is just as easy in my view.

Anything to be free of the stinking volatile, price gouging and uncertain gas pump.

Compressed air and electric motor vehicles are being held back by Exxon-Mobile, Chevron and big Auto* [ they buy up advanced battery patents ], but the true dawn of both has arrived. Say hello to *No Gasoline*. = TG

TonyGuitar.blogspot.com

[bigduke]

Energy for transport

All this reminds me of the elimination of street cars and interurbans of the first forty years of the last century. Those with loose cash can buy up rail transport and sell busses on tires in those days, now it is technology patents so no one can use these ideas for a couple of decades.

The finite amount of oil and natural gas should require conservation for future generations.

Our Prius gets double the miles per gallon of most cars on the road, and we use bikes for local travel as well. Who will produce the first 100 MPG vehicle that can carry at least four passengers.

duke