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Demand for Solar and Wind Power Drops
as Banks Stop Financing Related Projects

by World Business Council for Sustainable Development
Environmental News Network, February 6, 2009

Thursday - Wind and solar power grew at a blistering pace in recent years, and that growth seemed likely to accelerate, especially in the United States under the green-minded administration of the new president, Barack Obama.

But because of the credit crisis and the broader economic downturn, the opposite is happening: Except in isolated markets, like China, installation of wind and solar power is slowing, and in some cases plummeting.

Factories building parts for these industries in the United States have announced a wave of layoffs in recent weeks, and trade groups are projecting 30 percent to 50 percent declines this year in the installation of new equipment, a decrease that bars more help from the government.

Prices for turbines and solar panels, which soared when the boom began a few years ago, are falling. Communities that were patting themselves on the back just last year for attracting a wind or solar plant are now coping with cutbacks.

"I thought if there was any industry that was bulletproof, it was that industry," said Rich Mattern, the mayor of West Fargo, North Dakota, where DMI Industries of Fargo operated a plant that makes towers for wind turbines. Even though the flat Dakotas are among the best places in the world for wind farms, DMI recently announced a cut of about 20 percent of its work force because of falling sales.

Much of the problem stems from the credit crisis that has left Wall Street banks reeling. Once, as many as 18 big banks and financial institutions were willing to help finance installation of wind turbines and solar arrays, taking advantage of generous government tax incentives. But with the banks in so much trouble, that number has dropped to four, according to Keith Martin, a tax and project finance specialist with the law firm Chadbourne & Parke.

Wind and solar developers have been left hunting for capital.

"It's absolutely frozen," said Craig Mataczynski, president of Renewable Energy Systems Americas, a wind developer. He projected his company would build just under half as much this year as it did last year.

The effects of the banking crisis were also being felt in Europe, although industry groups said it was too soon to tell what effect the credit freeze would have on the fast-growing sector.

"There are examples of smaller developers and independent power producers, relying on banking finance, that are affected by the general reluctance of banks to provide liquidity," Christian Kjaer, chief executive of the European Wind Energy Association, wrote in an e-mail message. "This may postpone some of these projects."

He added that big utilities, which have large cash reserves to tide them over during the crisis, could emerge with more projects. "We may see some of the smaller projects, which have turbine delivery contracts but are struck by the banking liquidity freeze, being taken over by the larger power companies," he said.

Solar experts also report that demand in Europe has softened, a combination of a seasonal slowdown for winter and a recent cap on solar installations in Spain.

"A large amount of product, much of it Chinese, remains unsold," and prices are dropping, Ray Noble, a photovoltaic specialist with the Britain-based Renewable Energy Association, wrote in an e-mail message.

China, a fast-growing wind market, has so far shown no signs of a slowdown, according to Steve Sawyer, secretary general of the Global Wind Energy Council.

"The government stimulus package targeted investment in grid infrastructure, which is an important part of maintaining the rapid growth of the Chinese industry," he wrote in an e-mail message. "We are expecting another year of rapid growth in the Chinese wind market in 2009. In India, the picture is more complex, and varies state by state. It is too early to tell with the minor markets in Asia yet."

In the United States, the two industries are hopeful that Obama's economic stimulus package will help. But it will take time, and in the interim they are making plans for a dry spell.

Solar energy companies like OptiSolar, Ausra, Heliovolt and SunPower, once darlings of investors, have all had to lay off workers. So have a handful of companies that make wind turbine blades or towers in the central United States, including Clipper Windpower, LM Glasfiber and DMI.

Some big U.S.-based wind developers, like NextEra Energy Resources and even the Texas billionaire T. Boone Pickens, a promoter of wind power, have cut back or delayed their plans for wind farms.

Renewable energy sources like biomass, which involves making electricity from wood chips, and geothermal, which harnesses underground heat for power, have also been slowed by the financial crisis, but the effects have been more pronounced on once-fast-growing wind and solar sectors.

Because of their need for space to accommodate giant turbines, wind farms are especially reliant on bank financing for as much as 50 percent of a project's costs. JPMorgan Chase, for example, which analysts say is the most active bank remaining in the renewable energy sector, has invested in 54 wind farms and one solar plant since 2003, according to John Eber, the bank's managing director for energy investments.

In the U.S. solar industry, the ripple effects of the crisis extend all the way to the panels that homeowners put on their roofs. The price of solar panels has fallen by 25 percent in six months, according to Rhone Resch, president of the Solar Energy Industries Association, who said he expected a further drop of 10 percent by midsummer.

For homeowners, however, the savings will not be as substantial, partly because panels account for only about 60 percent of total installation costs.

After years when installers had to badger manufacturers to ensure that they would receive enough panels, the situation has reversed. Bill Stewart, president of SolarCraft, a California installer, said that manufacturers were now calling to say, "Hey, do you need any product this month? Can I sell you a bit more?"

The turnaround reflects reduced demand for solar panels, and also an increase in supply of panels and of polysilicon, a crucial material in many panels.

On the wind side, turbines that once had to be ordered far in advance are suddenly becoming available.

Banks have invested in renewable energy, lured by the tax credits. But with banks tightly controlling their money, the main task for the energy companies is to find new sources of investment capital.

In Europe, renewable energy incentives are structured differently, often through "feed-in tariffs" - a fixed-rate payment, set high, for electricity generated from renewable energy. Developers are guaranteed a good return to help defray the expensiveness of renewable projects.

Nick Medic, a spokesman for the British Wind Energy Association, wrote in an e-mail message that while Britain still had a "healthy pipeline of projects" and did not want to become reliant on government subsidies, "it could perhaps be welcome for the Government to reassure lenders by underwriting loans, or act in a way that could encourage lenders to free up funds."

Wind and solar companies have urged the U.S. Congress to adopt measures that could help revive the market. But even if a favorable stimulus bill passes, nobody is predicting a swift recovery.

"Nothing Congress does in the stimulus bill can put the market back where it was in 2007 and 2008, before it was broken," Martin, the tax lawyer with Chadbourne & Parke, said. "But it can help at the margins."

Over the long term, with Obama focused on a concerted push toward greener energy, the industry remains optimistic.

"You drive across the countryside and there's more and more wind farms going up," said Mattern of West Fargo. "I still have big hopes."

World Business Council for Sustainable Development
Demand for Solar and Wind Power Drops as Banks Stop Financing Related Projects
Environmental News Network, February 6, 2009

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