The stimulus package is supposed to provide a shot in the arm to the renewable energy industry which has been devastated by the crushed credit markets.
So far, it’s not working, the Wall Street Journal reports.
The problem is that the Treasury and Energy departments haven’t revealed the rules for how they will dole out stimulus money used for financing renewable projects. This is keeping private investment at bay.
Lenders want to know what sort of incentives they can expect for financing alternative energy projects. Borrowers want to know if there will be cheaper options available from the government. Until those rules are clear, neither wants to commit to anything.
Keith Martin, a partner at law firm Chadbourne & Parke LLP who has advised on tax and project finance in renewable energy, said the absence of those rules is chilling project finance.
One uncertainty, he said, is what will happen when a project changes hands and whether, for example, the ownership change would prompt the government to reclaim its money. Typically, renewable-energy projects are structured so that investors own 95% and then “flip” the project back to its developers after 10 years. Many backers of such projects are “tax equity” investors who use tax credits available from the federal government to offset their taxable income.
Though a number of tax-equity deals “looked in May like they would push over the finish line, negotiations are stretching out,” Mr. Martin said, a situation that he ties directly to questions surrounding government programs.
A similar uncertainty haunts project lenders, Mr. Martin said. These bankers are worried about how the government would handle a situation in which a bank forecloses on a project within five years. “Will it come in and take part of the collateral?” Mr. Martin said.
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