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Stimulating Clean Energy Opportunities for Washington

Stimulating Clean Energy Opportunities for Washington. Davis Wright Tremaine February 24, 2009 Ross Macfarlane Senior Advisor, Business Partnerships. “A Crisis is a Terrible Thing to Waste” Rahm Emanuel.

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Stimulating Clean Energy Opportunities for Washington

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  1. Stimulating Clean Energy Opportunities for Washington Davis Wright Tremaine February 24, 2009 Ross Macfarlane Senior Advisor, Business Partnerships

  2. “A Crisis is a Terrible Thing to Waste” Rahm Emanuel “What we have before us are some breathtaking opportunities disguised as insoluble problems.”John W. Gardner

  3. A Defining Challenge …starring REAL climate solutions Sustainable prosperity Clean energy leadership

  4. Approaching the Tipping Point: • Economics/Technology • Economic crisis drives need for job creation and rebuilding infrastructure • Clean energy coming of age as intensely competitive and fast growing global industry • Energy independence and security • Leak in economy > $50 million per day for oil and gas (WA) • Fossil fuel price volatility worsens dependency and economic disruption • Climate Disruption

  5. Winds of Change --Repowering America • President Obama consistently links economic recovery with investing in new energy future and addressing climate change. • “Few challenges confronting America and the world are more urgent than climate change. The science is beyond dispute, and the facts are clear” • “Why wouldn’t we” invest in creating jobs that reduce energy costs, dependence on foreign oil, and climate pollution?

  6. NW Priorities for a Healthy Recovery • Climate Solutions urged investments in five key areas • Efficiency First • 21st Century Grid • “Ready to go” Renewable Energy Projects • Sustainable Transportation • Green jobs – workforce training

  7. Clean Tech = Real ProductivityHigh Priority for Stimulus Investments • Clean Tech is about: • ‘Building Things Right’ • Energy Efficiency and renewable energy provide job opportunities that can’t be outsourced • Plugging leak in economy with clean, efficient energy, building and transportation systems

  8. Will it Scale? • The big question is Source: Pathways to a Low-Carbon Economy, McKinsey & Company (2009)

  9. Clean Energy in Stimulus • Unprecedented investments in clean and efficient energy • $72 Billion in direct spending • $22 Billion in tax credits • Federal spending leveraged to increase flows of private capital • e.g. $6 B in loan guarantees for transmission line and renewable expected to support $60 B in private investment

  10. Clean Energy in Stimulus • NW Priorities for A Healthy Recovery -- scorecard • Energy Efficiency -- $25.8 B spending/ $2.9 B tax incentives • 21st Century Grid -- $17 B spending and borrowing authority • Clean and renewable energy -- $6.4 B spending/ $16.5 B tax incentives • Clean Vehicles and Transit -- $21 B spending/ $2.5 B tax incentives • Green Jobs -- $500 M spending

  11. Clean Energy in Stimulus -- New Directions • Not just money • To qualify for funds, states must • Establish “decoupling” policies to ensure utilities have incentives to invest in efficiency • Commit to and enforce tough building codes • Unprecedented investments in science and research

  12. Clean Energy In Stimulus • Huge opportunity for Washington to get a “leadership share” of stimulus dollars • Washington’s potential share estimated at ca. $ 2 – 4.4 B • Does not include opportunity for Washington companies to export goods and services to address market demand • Accelerated process • Vision, coordination, and continued policy leadership will be needed to maximize opportunity

  13. Critical First Step, But we need strong climate policy CAP:Policy commitment to steadily reduce fossil fuel deendence Unleashing powerful markets for clean technologies

  14. Critical First Step • Recent study -- stimulus package will reduce oil imports and emissions of global warming pollution, but is no substitute for climate policy • Will lay groundwork for needed changes, reduce costs, create jobs, and help turn economy around • Climate policy will be needed for durable reductions and economic leadership in competitive market • Peterson International Economic Institute (2/10/09)

  15. Green Investment in California RPS Passed AB32 Introduced AB32 Passed 35 30 Post AB32: 98% CAGR (05-07) 25 20 Pre-AB32: 20% CAGR (02-04) Millions Invested (Bars) Number of Companies (Line) 15 10 5 0 2002 2003 2004 2005 2006 2007 Source: Cleantech Group

  16. Cap makes it real: Get your wedge on! Every “wedge” is a global business opportunity

  17. Clean Energy in the Stimulus and Washington Opportunities • Summary report and spreadsheet prepared for Climate Solutions by: • Greg Papciak, corporate attorney. 206-499-0824, gpapciak@gmail.com • Daniel Malarkey, economist and clean tech consultant. 206-310-9385, daniel.j.malarkey@gmail.com

  18. Stimulating Clean Energy Opportunities for Washington Davis Wright Tremaine February 24, 2009 Ross Macfarlane Senior Advisor, Business Partnerships

  19. Tax Provisions for Renewable Energy Projects American Recovery and Reinvestment Act of 2009

  20. Response to Market Conditions • Shortage of tax equity investors • Important capital source for renewable energy projects (monetize tax benefits) • Few remaining active participants • Reasons • Inadequate tax base to use existing tax credits and deductions • Economic issues (banks)

  21. Proposals • Extend credit carryback period • Make credits refundable • Expand Investment Tax Credit • Cash grants in lieu of credits • Allow “double-dipping” of governmental incentives

  22. New Investment Credit Election • Energy Investment Credit now available for wind, biomass, geothermal, landfill gas, waste-to-energy, qualified hydropower and marine/hydrokinetic projects in addition to solar and fuel cells • Expands structuring options • Partnership Flip • Sale-leaseback • Lease

  23. New Grant Program • Cash grants mimicking Energy Investment Credit • Facilities placed in service in 2009 or 2010 or after 2010 if construction begins in 2009 or 2010 • Regulations • Timing • Monetizing depreciation

  24. Double-Dipping on Governmental Incentives • Production Tax Credit continues to be subject to 50% reduction when project receives subsidized energy financing or tax-exempt financing • Energy Investment Credit no longer subject to reduction for receipt of these other governmental benefits • Treasury grants also should not be subject to reduction

  25. Clean Renewable Energy Bonds • Authorizes additional $1.6 Billion • Qualified tax credit bond • Public power providers, governmental bodies and electric cooperatives • Projects eligible for Production Tax Credit

  26. Business Tax Provisions • Bonus depreciation extended • Debt restructuring

  27. Appropriated Funds for the Energy Sector under theAmerican Recovery and Reinvestment Act of 2009 February 24, 2009Craig Gannett & Dan AdamsonDavis Wright Tremaine LLP

  28. Overview • Benefits for energy sector come in two forms, tax benefits and appropriated funds. • Obtaining appropriated funds can be more challenging than obtaining tax benefits due to need to work through the selection process.

  29. Funding Avenues Three main avenues for appropriated funds: • U.S. Department of Energy • State Energy offices • Local governments

  30. Energy Efficiency and Conservation Block Grants ($3.2 billion) • Grants to states, local governments, and tribes to reduce fossil fuel emissions and energy use, and improve energy efficiency in the transportation and building sectors. • $2.8 billion will be provided to states (28%) local governments (68%), and tribes (2%) under the formula in Energy Independence and Security Act of 2007 (EISA). • $400 million will be awarded on a competitive basis to states, local governments, and tribes.

  31. Weatherization Assistance Program ($5 billion) • Payments to states for home weatherization for low-income households. • Eligibility threshold increased from 150 to 200% of federal poverty level. • Per home maximum increased from $2,500 to $6,000. • Will be done through existing funding and program mechanisms at the state level.

  32. State Energy Programs ($3.4 billion) • Funding to state energy offices for energy efficiency and renewable energy programs. • Portion of funds only available if state agrees to update building codes and take other energy efficiency steps. • Dramatic increase in funding to state energy offices.

  33. Electricity Delivery and Energy Reliability ($4.5 billion) • As to $4.2 of the $4.5 billion, USDOE has broad discretion to allocate funding among different activities to modernize grid. • Possible funding for smart meters, transmission, energy storage, and other purposes. • DOE staff intend to provide $100 million to rebuild domestic transformer industry. • $100 million for worker training. • $80 million for transmission study/planning.

  34. Fossil Energy Research and Development ($3.4 billion) • $1 billion for fossil fuel R&D. • $800 million Clean Coal Power Initiative. • $1.520 billion for carbon capture and reuse. • $50 million for storage site characterization. • $0 for nuclear.

  35. Renewable and Transmission Loan Guarantees ($6 billion). • Loan guarantees for renewable generation projects and transmission systems, including upgrades. • To be eligible, construction must start no later than September 30, 2011, at which time authority to enter into guarantees expires. • DOE has yet to issue a single loan guarantee under the Energy Policy Act of 2005, but Secretary Chu is working to reform the process.

  36. BPA Borrowing Authority ($3.25 billion) • BPA has broad authority to use its borrowing authority for transmission, efficiency, renewable energy, and fish and wildlife projects. • The pockets of a classic New Deal agency are made deeper • BPA moves deliberately and must comply with NEPA before green-lighting a project.

  37. WAPA Borrowing Authority ($3.25 billion) • WAPA serves most of the West outside of the NW. • Authority can be used for transmission only and includes the ability to build a line from WAPA service territory into the NW. • This is WAPA’s first experience using borrowing authority • WAPA has many transmission lines in areas rich in renewable resources, particularly wind.

  38. Advanced Battery Manufacturing ($2 billion) • Grants for manufacturing of advanced batteries and components. • DOE has lots of experience with this type of R&D funding; likely to be a competitive solicitation.

  39. Conclusions/Recommendations • Obtaining appropriated funds requires persistence and savvy. • Step 1: identify those funding sources that you may qualify for. • Step 2: contact the agencies responsible for those funding sources. • Step 3: if possible, participate in the process of making the rules (e.g., criteria, timelines)

  40. Conclusions/Recommendations • Step 4: be ready to respond quickly once process is established • Step 5: consider seeking political support

  41. 2008 represents new record for annual investment total $9.2B globally $5.3B in North America – almost 60%! Q3 ’08 represented new quarterly investment record, $1.8B in North America 2008 Global total investment far surpassed the estimated range of $7.5B - $8.0B Cleantech Industry Overview 43 Source: Cleantech Group

  42. In 2008, Solar was King Investors believe solar will continue to drive efficiency and adoption These improvements will help deliver grid-parity pricing Current Situation & Trends • Annual and quarterly investments have steadily increased, with the industry really picking up pace in 2006 • This investment profile follows a similar pattern in cleantech focused venture and private equity fund raising • 2008’s total investment of $5.3B represents a robust year-over-year growth rate of ~33% from 2007 44 Source: Cleantech Group

  43. Cleantech is actually 6 to 12 different markets • Solar • Wind • Biofuel • Biomass • Geothermal • Wave / Ocean / Hydro • Waste to energy • Energy Infrastructure • Intelligent Network Devices • Grid Management • Advanced Components • Software Applications • Load Management • Optimization / Storage Renewable Energy Smart Grid • Desalination • Purification / Filtration/ Detection • Remediation • Wastewater Treatment • Water Management • Lighting • HVAC • Power Optimization / Consumption • Monitoring, Metering & Control Water Energy Efficiency • Design / Build • Green Building Materials • Biopolymers • Systems Optimization • Retrofit / Refurbish • ESCO’s • Facility Management • Fuel Cell • Battery Technology • Ultracapacitors • Power Management • Nanomaterials • Battery Management Technology Energy Storage Green Building

  44. Global Cleantech Investment by Sector for 2008 46

  45. Global Cleantech Investment by Sector for 2008 47

  46. Market for growth equity and VC financings has slowed down January cleantech financings totaled $710 million But, 5 deals in January comprised $243 million of the total January cleantech financings Investors are looking for differentiated technology, not just the ability to ride the cost curve Investors looking for capital efficient companies that can get to cash flow positive on less than $30 – 40 million in capital Investors looking for companies that are in subsectors with established market ecosystems Clean Tech VC Growth: 2009 Market Environment 48

  47. Investors had been gravitating towards smart grid and energy efficiency “High in the stack” technology Capital efficient business models The government stimulus “turbocharges” the ecosystem and demand side of the energy efficiency and smart grid markets Investors want to go with the Washington, D.C. capital flow Clean Tech VC Growth: 2009 Market Environment 49

  48. Solar, wind, biomass, etc. pretty much came to a standstill in the fourth quarter of 2008. No project finance debt No tax equity Economics vs. fossil fuels less compelling Credit markets remain frozen in January 2009 Q4 2008 & January 2009 Project Finance Market: Renewable Energy Projects 50

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