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Energy revolution sparks compromise
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The energy revolution that is brewing in Washington and on Wall Street has a different feel to it than other revolutions of the past; in fact, it can be called more of a renaissance than it can be called a revolution due to the aspect of compromise inherent in the negotiations.
The narrow passage of the climate and energy bill in the House on Friday signaled just how far clean energy reform has come and how far it still has to go. Critics claim many of the negotiations weakened the essence of the bill, but President Obama’s Washington insider experience is playing out in ways that make him appear to be an expert in the aggregate small steps necessary to negotiate backroom political deals. Washington, like Wall Street does not like big surprises or unnecessary risk of any sort if it can be avoided.
The Senate is now set to consider placing limits on pollution for the first time, an indication that the debate over climate change has shifted to a debate over mitigation methods. There still is much room for debate, but it seems as though the Obama Administration understands the necessity of compromising on political points in order to achieve a larger objective. Get the policy in place first, even if it seems as though the climate and energy bill currently being negotiated seems watered down from what environmentalists and energy policy idealists think is necessary. Small steps here at the beginning of the 21st century versus the overarching pollutive strokes of the 20th is what we are getting. The process of collective change in cognitive thinking surrounding climate and energy has begun and will birth a new way of generating energy over the course of the next one hundred years; not to mention provide investors with an outlet to pour their savings and reap positive returns for decades to come.
Financing of renewable energy projects in America (and across the world for that matter) over the past few months have seen both extremes. A metamorphosis of who is and who will fund clean energy over the course of the next few years is taking place. In the past, a lionshare of projects were funded through tax equity. This is the process where investment banks and other lending institutions provide the capital for large scale renewable energy projects and receive tax credits in exchange for capital. This began to change as the financial crisis began taking shape and ultimately dried up once investment banks and other lending institutions became averse to even moderate risk and in some cases simply ran out of capital to fund energy projects of any sort, fossil fuel or clean energy.
We are now entering a new era. Lending institutions are beginning to see renewable energy as a less risky investment than fossil fuels because of the direction political legislation is pulling the country. For the time being, the government is holding the clean energy industry up while legislation is passed to give form to an idea that birthed from a grassroots environmental movement in the late 20th century. As the fledgling industry matures and signs from the policy perspective are made more clear, more private capital will take over and drive the the industry. It is said that $50 billion in government grants and guaranteed loans can spur $500 billion in private investment. What happens when the $126 billion from the American Recovery and Reinvestment Act enters the investment arena is anybody’s guess, but indications are that much of the money currently on the sidelines in the investment community is waiting for two more signals from the policy perspective before leaping headstrong into industry. Those would be the Senate’s passage of the climate and energy bill, and the U.S. agreeing to some form of international climate treaty in Copenhagen in December.
The Senate’s bill can be watered down; free emission credits can be handed out; percentages of renewable energy can be significantly lower than what they started out as. These details can all be scaled up in the coming decade. The passage of an energy bill that is not drafted by the oil and coal industry is the signal the investment community has been waiting for to diversify their energy investments.
More cooperative investment groups are springing up recently, and others that have been around for almost 20 years are entering a renaissance of sorts. The Energy Future Coalition marries together business, labor, and environmental groups to develop clean energy projects, increase energy efficiency, build out the smart grid, and work toward generating 25% of our domestic energy from renewable sources by 2025.
The New Apollo Program is made up of a coalition of interested parties building an investment strategy that will aid in the development of a clean energy economy while simultaneously cutting energy bills for families and businesses. The Renewable Energy and Energy Efficiency Partnership is a global partnership that works to increase the number of renewable energy and energy efficiency projects by reducing policy, regulatory, and financial barriers. U.S. Renewables Group is a private equity firm that is focused directly on renewable power, biofuels, and clean technology infrastructure.
If the government’s momentum developed in the recent past can be sustained, and private capital takes over and runs with the ball, we will all have witnessed the birth of one of humanity’s greatest accomplishments...the societal establishment of the idea that our species is but a part of this living, vibrant planet that we live on.
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