Big Government Incentive Gets Banks Back Into Alternative Energy

giant windmill tbi

Spurred by generous government incentives, big banks are financing new wind projects around the country the Wall Street Journal says.

The government is providing financiers of alternative energy projects with a cash grant worth 30% of the total project. The government expects to spend $3 billion in the next three years, but there is no cap on the spending. It could actually shoot to $10 billion.

…the government has committed to spending as much as is needed to keep renewable-energy investments flowing.

Under an earlier renewable energy program, the government gave companies tax credits over 10 years, which were attractive as long as financial firms believed they would be generating taxable profits for years to come. When Wall Street imploded last year, profits turned to losses and appetite for these investments disappeared quickly. Some of the companies most active in these deals — including Lehman Brothers Holdings Inc. and American International Group Inc. — were hobbled or destroyed by the turmoil.

But the new cash grants are offering the potential for attractive returns. Several bankers interviewed said they expected deals to provide an annual return of anywhere from 9% to 15%.

Wind seems to be the favourite target, with Morgan Stanley (MS) and Citgroup (C), backing projects worth over $100 million in the past month. Wells Fargo (WFC) is financing $100 million of SunPower’s (SPWRA) solar projects.

It’s sort of the perfect government project for our times. Banks are lending, and alternative energy is growing.

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