It was a bad week for the renewable energy sector and the environmental community as a whole. For almost a year, since the House passed the historic American Clean Energy and Security Act (ACES), there was optimism that the senate would pass its own measure and finally bring forth the long-awaited comprehensive energy and climate change law. Yet, after months of negotiations, compromise and outreach the Senate Democratic leadership on Thursday afternoon decided not to push for legislation capping carbon emissions. They killed the Kerry – Lieberman American Power Act and its controversial cap-and-trade proposal.
This is a setback for the environmental community but also investors in cleantech and renewable energy companies. Indeed as key stimulus funding programs from the American Recovery and Reinvestment Act (ARRA) expire, the green industry has been hungry for the sort of long-term certainty a cap-and-trade regime would bring. Some of the proceeds raised from the sales of carbon permits would have provided a sustainable funding stream to support greentech and renewable energy infrastructure. More importantly, pricing carbon would lay the groundwork for a market supported green industry rather than one largely supported by government handouts that were subject to the shifting winds of politics.
Cleantech venture capitalist Rob Day, a partner with Black Coral Capital, wrote in Greentech Media that yesterday’s news meant he would have a hard time backing startups with a business model built around a priced carbon. Day wrote:
“If you send me a business plan which includes a price per carbon as part of your economic value proposition I’m going to have to mentally reset that value to $0/ton and assess your value proposition through that lens.”
He added that the sector will have to brace themeselves for more uncertainty and that, he said, is an “absolute industry-killer.”
So what kind of energy bill will replace Kerry-Lieberman? Kate Sheppard at Mother Jones writes that Democrats are expected to a throw out a hodgepoge of of BP spill-focused measures as well as incentives like $5 billion to spur the development of a natural gas truck fleet. There will also likely be another $5 billion to fund the HomeStar program, which will encourage construction of energy-efficient homes. With November’s elections looming, Obama’s green economy will have to wait. If Republicans take over Congress in the fall, then it could be years before cap-and-trade is revisited.
Despite the lack of long-term renewable energy law, investments will continue but project developers without stellar assets will find it even more difficult to secure project finance. This week developer Terra-Gen Power closed a $1.2 billion financing supporting 570 megawatts of wind capacity at its Alta Wind Energy Center in Kern County, California. Citi led the bank syndicate. The bank will buy the project from Terra-Gen and then lease it back to the developers. Bankers have traditionally shied away from leaseback transactions backing wind projects because, unlike gas-fired power plants, they do not generate electricity consistently.
A lawyer involved in the deal tells us that Terra-Gen’s strong backing was instrumental in helping the developer get the financing. The company is partially owned by Adebayo Ogunlesi’s Global Infrastructure Partners. Ogunlesi is a former vice chairman of Credit Suisse (the Swiss bank is involved in the funding) investment banking business. Another factor that helped Terra – Gen is its power purchase agreement with Southern California Edison, which was signed in 2006 when natural gas prices were high and wind-generated electricity was more competitive.
VC and PE Watch
This week we learned Christopher Huntington, a co-founder and vice president of VC-backed SkyFuel had launched the New York-based New Energy Advisors. Joining him in the new venture is Mark Cox, the founder and general partner of cleantech-focused VC, New Energy Fund.
Stealth battery developer XL Hybrids has increased its Series A funding to $1.58 million,bringing it $300,000 over the $1.2 million it had initially set out to raise as part of this inaugural funding round. Investor name were not disclosed.
Khosla Ventures-backed Calera, a developer of technology that captures emissions from industrial flues and recycle it into pavement and building materials, secured $19.9 million in stimulus funds from the Department of Energy to help it scale its technology, reports Earth2Tech.
While the Senate dithered about America’s long-term energy future, Google acted decisively this week to strengthen its green cred. For the first time since it started investing in cleantech and renewable energy, the Mountain View, Calif., search engine giant Google inked a 20-year agreement to purchase wind power from NextEra Energy to power several data centers. Over the past three years Google has tackled the green revolution from various angles. It’s been a venture capitalist, investing some $50 million backing smartgrid, geothermal, and other high-risk, high-reward startups. It is also developing its own solar technology in house and as of a few month ago taken equity stakes in actual wind farms. The power purchase agreement was done through Google’s recently incorporated Google Energy, which allows the company to buy electricity wholesale. Google (and a slew of other Fortune 500 chieftains) obviously understand that in world where carbon will be constrained — it’s not a matter of “if” but rather “when”– it can’t afford not having a green strategy. A lesson, that Congress has not learned.
Image: Fred911 @ Flickr