Stimulating Clean EnergyStimulating Clean EnergyOpportunities for WashingtonOpportunities for Washington
Stimulating Clean EnergyStimulating Clean EnergyOpportunities for WashingtonOpportunities for Washington
Davis Wright TremaineDavis Wright TremaineFebruary 24, 2009February 24, 2009
Ross MacfarlaneRoss MacfarlaneSenior Advisor, Business Senior Advisor, Business
PartnershipsPartnerships
Davis Wright TremaineDavis Wright TremaineFebruary 24, 2009February 24, 2009
Ross MacfarlaneRoss MacfarlaneSenior Advisor, Business Senior Advisor, Business
PartnershipsPartnerships
““A Crisis is a Terrible Thing A Crisis is a Terrible Thing to Waste” Rahm Emanuelto Waste” Rahm Emanuel
“What we have before us are some breathtaking opportunities disguised as insoluble problems.” John W. Gardner
A Defining Challenge …starring
REAL climate solutions
Sustainable prosperity
Clean energy leadership
Approaching the Tipping Point: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 securityEnergy independence and security Leak in economy > $50 million per day for > $50 million per day for
oil and gas (WA)oil and gas (WA) Fossil fuel price volatility worsens
dependency and economic disruption
Climate Disruption
Winds of Change --Winds of Change --Repowering AmericaRepowering America President Obama consistently links economic President Obama consistently links economic
recovery with investing in new energy future recovery with investing in new energy future and addressing climate change.and addressing climate change.
““Few challenges confronting America and the Few challenges confronting America and the world are more urgent than climate change. world are more urgent than climate change. The science is beyond dispute, and the facts The science is beyond dispute, and the facts are clear”are clear”
““Why wouldn’t we” invest in creating jobs Why wouldn’t we” invest in creating jobs that reduce energy costs, dependence on that reduce energy costs, dependence on foreign oil, and climate pollution?foreign oil, and climate pollution?
NW Priorities for a Healthy NW Priorities for a Healthy RecoveryRecovery Climate Solutions urged investments in Climate Solutions urged investments in
five key areasfive key areas Efficiency FirstEfficiency First 2121stst Century Grid Century Grid ““Ready to go” Renewable Energy ProjectsReady to go” Renewable Energy Projects Sustainable TransportationSustainable Transportation Green jobs – workforce trainingGreen jobs – workforce training
Clean Tech = Real ProductivityClean Tech = Real ProductivityHigh Priority for Stimulus InvestmentsHigh Priority for Stimulus InvestmentsClean 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
Will it Scale?Will it Scale?
The big question isThe big question is
Source: Pathways to a Low-Carbon Economy, McKinsey & Company (2009)
Clean Energy in StimulusClean Energy in Stimulus
Unprecedented investments in clean Unprecedented investments in clean and efficient energyand efficient energy $72 Billion in direct spending$72 Billion in direct spending $22 Billion in tax credits$22 Billion in tax credits
Federal spending leveraged to increase Federal spending leveraged to increase flows of private capitalflows of private capital e.g. $6 B in loan guarantees for e.g. $6 B in loan guarantees for
transmission line and renewable expected transmission line and renewable expected to support $60 B in private investmentto support $60 B in private investment
Clean Energy in StimulusClean Energy in Stimulus NW Priorities for A Healthy Recovery -- NW Priorities for A Healthy Recovery --
scorecardscorecard Energy Efficiency -- $25.8 B spending/ $2.9 Energy Efficiency -- $25.8 B spending/ $2.9
B tax incentivesB tax incentives 2121stst Century Grid -- $17 B spending and Century Grid -- $17 B spending and
borrowing authorityborrowing authority Clean and renewable energy -- $6.4 B Clean and renewable energy -- $6.4 B
spending/ $16.5 B tax incentivesspending/ $16.5 B tax incentives Clean Vehicles and Transit -- $21 B Clean Vehicles and Transit -- $21 B
spending/ $2.5 B tax incentivesspending/ $2.5 B tax incentives Green Jobs -- $500 M spendingGreen Jobs -- $500 M spending
Clean Energy in Stimulus -- Clean Energy in Stimulus -- New DirectionsNew Directions Not just moneyNot just money To qualify for funds, states mustTo qualify for funds, states must
Establish “decoupling” policies to ensure Establish “decoupling” policies to ensure utilities have incentives to invest in utilities have incentives to invest in efficiencyefficiency
Commit to and enforce tough building Commit to and enforce tough building codescodes
Unprecedented investments in science Unprecedented investments in science and researchand research
Clean Energy In StimulusClean Energy In Stimulus
Huge opportunity for Washington to get Huge opportunity for Washington to get a “leadership share” of stimulus dollarsa “leadership share” of stimulus dollars Washington’s potential share estimated at Washington’s potential share estimated at
ca. $ 2 – 4.4 Bca. $ 2 – 4.4 B Does not include opportunity for Does not include opportunity for
Washington companies to export goods Washington companies to export goods and services to address market demandand services to address market demand
Accelerated processAccelerated process Vision, coordination, and continued policy Vision, coordination, and continued policy
leadership will be needed to maximize leadership will be needed to maximize opportunityopportunity
Critical First Step, But we Critical First Step, But we need strong climate policyneed strong climate policy
CAP: Policy commitment to steadily reduce fossil fuel deendence
Unleashing powerful markets for clean
technologies
Critical First StepCritical First Step Recent study -- stimulus package will Recent study -- stimulus package will
reduce oil imports and emissions of reduce oil imports and emissions of global warming pollution, but is no global warming pollution, but is no substitute for climate policysubstitute for climate policy
Will lay groundwork for needed Will lay groundwork for needed changes, reduce costs, create jobs, and changes, reduce costs, create jobs, and help turn economy aroundhelp turn economy around
Climate policy will be needed for Climate policy will be needed for durable reductions and economic durable reductions and economic leadership in competitive marketleadership in competitive market
Peterson International Economic Peterson International Economic InstituteInstitute (2/10/09) (2/10/09)
2002 20062003 2004 2005 2007
$0
$100
$200
$300
$400
$500
$600
$700
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
25
20
15
10
5
0
30
35
Mil
lio
ns
Inve
sted
(B
ars)
Nu
mb
er of C
om
pan
ies (Lin
e)
Source: Cleantech Group
RPS Passed AB32 Introduced AB32 Passed
Post AB32:
98% CAGR (05-07)
Pre-AB32:
20% CAGR (02-04)
Green Investment in Green Investment in CaliforniaCalifornia
Cap makes it real:Get your wedge
on!
Every “wedge” is a global business opportunity
Clean Energy in the Clean Energy in the Stimulus and Washington Stimulus and Washington OpportunitiesOpportunities Summary report and spreadsheet Summary report and spreadsheet
prepared for Climate Solutions by:prepared for Climate Solutions by: Greg Papciak, corporate attorney. 206-499-Greg Papciak, corporate attorney. 206-499-
0824, 0824, [email protected]@gmail.com Daniel Malarkey, economist and clean tech Daniel Malarkey, economist and clean tech
consultant. 206-310-9385, consultant. 206-310-9385, [email protected]@gmail.com
Stimulating Clean EnergyStimulating Clean EnergyOpportunities for WashingtonOpportunities for Washington
Stimulating Clean EnergyStimulating Clean EnergyOpportunities for WashingtonOpportunities for Washington
Davis Wright TremaineDavis Wright TremaineFebruary 24, 2009February 24, 2009
Ross MacfarlaneRoss MacfarlaneSenior Advisor, Business Senior Advisor, Business
PartnershipsPartnerships
Davis Wright TremaineDavis Wright TremaineFebruary 24, 2009February 24, 2009
Ross MacfarlaneRoss MacfarlaneSenior Advisor, Business Senior Advisor, Business
PartnershipsPartnerships
Tax Provisions for Renewable Energy ProjectsAmerican Recovery and Reinvestment Act of 2009
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)
Proposals Extend credit carryback period Make credits refundable Expand Investment Tax Credit Cash grants in lieu of credits Allow “double-dipping” of governmental
incentives
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
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
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
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
Business Tax Provisions Bonus depreciation extended Debt restructuring
Appropriated Funds for the Energy Sector under theAmerican Recovery and Reinvestment Act of 2009 February 24, 2009Craig Gannett & Dan AdamsonDavis Wright Tremaine LLP
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.
Funding AvenuesThree main avenues for appropriated funds: U.S. Department of Energy State Energy offices Local governments
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.
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.
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.
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.
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.
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.
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.
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.
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.
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)
Conclusions/Recommendations Step 4: be ready to respond quickly once
process is established Step 5: consider seeking political support
w w w . c a s c a d i a c a p i t a l . c o m
Expertise. Discipline. Results.
Columbia Center701 5th Ave, Ste 2600
Seattle, WA 98104
43
Cleantech Industry Overview
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
Source: Cleantech Group
Global Annual Cleantech VC Investment
$9.2
$4.4
$6.1567
410355
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
2003 2004 2005 2006 2007 2008
Inve
stm
ent($
in b
illion
s)
0
100
200
300
400
500
600
700
800
900
1,000
# of
Dea
ls
$ Invested # of Deals
44
Current Situation & Trends
In 2008, Solar was King
Investors believe solar will continue to drive efficiency and adoption
These improvements will help deliver grid-parity pricing
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
Source: Cleantech Group
North America Quarterly Cleantech VC Investment
1.2
$279M
$708M
$477M
$753M $883M $912M$1.3B
0.5 0.9 0.6
0.7 0.8
1.5
1.8
1.0 1.3
0.5
1.2
$4.0B
$2.8B
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
$5.5
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Annual Q1 Q2 Q3 Q4
($ billions)
$5.3B
Source: Cleantech Group
45
Cleantech is actually 6 to 12 different markets
Renewable Energy
Water
Energy Storage
Solar
Wind
Biofuel
Biomass
Geothermal
Wave / Ocean / Hydro
Waste to energy
Desalination Purification / Filtration/ Detection Remediation Wastewater Treatment Water Management
Fuel Cell Battery Technology Ultracapacitors Power Management Nanomaterials Battery Management Technology
Smart Grid
Energy Efficiency
Green Building
Energy Infrastructure
Intelligent Network Devices
Grid Management
Advanced Components
Software Applications
Load Management
Optimization / Storage
Lighting
HVAC
Power Optimization / Consumption
Monitoring, Metering & Control
Design / Build
Green Building Materials
Biopolymers
Systems Optimization
Retrofit / Refurbish
ESCO’s
Facility Management
46
Global Cleantech Investment by Sector for 2008
$3,300
$904
$502$364 $289 $286
$148 $148 $54
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Solar Biofuels Wind Green
Buildings
Advanced
Batteries
Recycling Water Agriculture
Technology
Fuel Cells
Solar Biofuels Wind
Green Buildings Advanced Batteries Recycling
Water Agriculture Technology Fuel Cells
47
Global Cleantech Investment by Sector for 2008
56%
15%
8%
6%
5%
1%2%2%5%
Solar Biofuels Wind
Green Buildings Advanced Batteries Recycling
Water Agriculture Technology Fuel Cells
48
Clean Tech VC Growth: 2009 Market Environment
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
49
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
50
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
51
February 2009 Project Finance Market
Flurry of activity upon announcement of stimulus bill
ITC grant fills significant void in capital structure
Is ahead of reality perception
A rush for gold
Big question is how money reaches projects
Projects need to be completed by end of next year to qualify for ITC grant
For Northwest and California projects, if a project is in the idea stage, it likely will NOT be completed by end of next year, given permitting challenges.