Project finance within renewables – solar in particular – has made great progress over the past few years with the introduction of the solar PPA, and with financiers developing longer term operating data from which to base their financial models. Educated guesses are more educated and less of a guess, and big money has entered the space as the financial model has become more credible.

Enter the 2008 financial crisis. Surely, the world’s worst financial crisis (and tightest credit market) since the Great Depression will impact renewable energy project development, which is an inherently capital-intensive industry. The question is, who will it affect, and how badly? I think it’s too early to know for sure, but without a doubt, investors will likely demand higher returns for both debt and tax equity (a special form of equity designed to maximize use of tax credits) due to a general scarcity of capital. However, I don’t think funding will dry up, as solar projects boast a very different risk-return profile than do other investments given that government subsidies constitute a large slice of the project’s value and project cash flows aren’t particularly risky.

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Since I just posted about my thoughts on sustainable energy in Africa, I might as well follow up with more musings on sustainable development there. Although most of my time in Kenya was spent in Nairobi, I also had a chance to explore Lake Naivasha’s industry and ecosystem. I met, for example, with the VP of Finance and Administration of Homegrown Ltd, a huge floriculture company specializing in roses, exporting hundreds of millions each year. A few things struck me from the encounter.

First, Lake Naivasha, the source of water for the entire local flower industry, is changing. It is drying up and its water is becoming more polluted. While this is partially due to natural cycles, it is mostly attributed to man. Homegrown and other florists in the Lake Naivasha Growers Group surprised me with their recognition of culpability and their proactivity in addressing the issue despite no government requirement to do so. For example, they have planted local shrubs along the banks to slow runoff and filter the water that enters the lake.

Second, Homegrown is committed to reducing its environmental impact through elimination of chemical-based pesticides. However, the need to reduce rose-eating pests remains. To strike this balance, Homegrown founded another company, DuduTech (“Dudu” means “insect” in Swahili.), which develops “pesticides” by using naturally occurring insects that prey on the pests. This includes predatory insects, parasitic bugs, and a host of other approaches that all have the same objective: neutralize the pests without introducing chemicals into the environment. Cool stuff.

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Tim Bond, head of Global Asset Allocation at Barclays, an investment bank, has put forth that the Swedish crisis of the late 80’s and 90’s will be a good model for the current, much wider, global financial crisis likely ensuing economic consequences.

In the Swedish example intervention was resisted, there was a tight downward spiral, there was a recovery, and while the economics caught up with the bailouts there was an extended period of negative growth as credit was tight and earnings declined. Whether the US and Global economy rebounds at the same rate or not, there are certain realities that will likely take shape – and a growing unemployment rate is most certainly one of them.

The G7 is working very hard on addressing our financial turmoil. I’ll leave much more qualified people to address the impact of the bail out packages on investment and more, and I hope to motivate someone to write about those effects here on CleanTechies. I will take a shot at suggesting implementing measures that address at least one aspect of the wide spread panic that is gripping so many these days – how this solution could have an effect on employment, education and the preparation of a grid more adequately equipped to accept electricity from intermittent and distributed renewable sources.

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Since Gary Zieff is in Africa, and I think his efforts with dissigno are critically important I will take the liberty of writing a bit him and forwarding an email or two while he’s there. The concept behind dissigno is simple – it’s execution is not. Gary and his partner David Williams have worked hard on a sustainable business model that will generate economic, environmental and educational rewards – they recently won a grant from the World Bank to bring sustainable power to Tanzania.

Here are the quick facts that prompted dissigno to action in Tanzania:
Candle provide 1.1 lumen and costs $58.40 USD a year to operate
Simple Wick provides 1.1 lumen and costs $8.92 USD a year to operate
Kerosene Lantern provides 182 lumen and costs $56.73 USD a year to operate
1 W LED provides 320 lumen and costs $4.38 USD a year to operate
Source: IFC Lighting at the Bottom of the Pyramid GEF Project March 2006

The opportunity was precisely what CleanTech is all about, providing a more ecologically and economically sustainable solution for a current problem.

I got this email from Gary a couple days ago:

Figurative tears run down my cheeks. After 5 days, 3 planes, 3 continents, many taxis, buses and cars myself and my precious cargo is a mere two hours jeep ride from the final destination. In this modern age, it really hasn’t been difficult, but rather time consuming to get the pedal generator, a bunch of supplies, and all the cargo to keep my mortal coil spinning here on African soil. Cynthia (Joel’s girlfriend) and I step down from the 19 seater turbo prop plane onto the red dirt runway of Bukoba and are greeted by Joel and William. The flight was exciting over Lake Victoria. The more so as we neared Karagwe dragging the large metal container carrying the pedal generator. It is nearing the end of this leg of the journey, but also the start of something new and exciting.

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Back in June I was in Kenya to learn about the business challenges they faced there–especially after all the post-election violence. It was a very eye-opening trip in many ways; I had the opportunity to meet everyone from the most notable dignitaries and business leaders to the poorest slum residents. Each of the meetings was very interesting, although I didn’t find the one with the executive director of Climate Network Africa to be very productive. She was full of climate change blame for the US/Europe, didn’t offer any constructive solutions, and demanded reparations for the damage that would surely come to the African environment. I found this unproductive for several reasons.

First, her supporting data were misleading. She drew facts and figures from several years ago, when the US and Europe were way ahead of everyone in carbon emissions. Don’t get me wrong; the US and Europe are still way ahead, but the gap is closing a little and the trends, which show developing nations like China overtaking them in the future, reveal that the problem must be addressed globally, not just in a few countries. She also used exclusively per capita carbon emissions statistics, which are irrelevant. The environment doesn’t care how many people are producing the emissions; it just cares that they are being produced! By her logic, the US could become a better global citizen just by increasing its fertility rate instead of reducing its emissions!

Second, she was all problem and no solution. Yes, we all know that the industrialized countries have been the greatest emitters, but it is unproductive to rehash this over and over and over again. Yes, we screwed up. No, we didn’t know the consequences industrialization would have until relatively recently but yes, we accept responsibility for it. Now let’s stop playing the blame game and all work together to find a solution!

Finally, her antagonistic “The West is evil” presentation isn’t likely to motivate any action. A large organization exhibits a collective subconscious that behaves in a very irrational, human way. Attacking developed countries is likely to induce defensiveness, not action. A collaborative approach would be much more constructive.

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Energy, Healthcare and Entitlement Reform (social security benefits) were clearly at the top of the list of tonight’s discussion. Unfortunately the format was a bit ridiculous in that it limited the answer to such weighty questions to a mere 120 seconds.

Tom Brokaw asked each candidate to address and prioritize these three issues. Senator McCain felt that all three were priorities that could and should be addressed simultaneously. He may have a point – all are clearly needed, and different departments of the executive cabinet are available to deal with them. While this may be the case, his follow-up was weak. He did not present an executable roadmap for how he was going to have his staff address these behemoths (any of them). We are one month away from the election of the President of the United States and there was no mention on how he proposed to change the abysmal track record the United States has on all three of these issues. Unfortunately for him I do not think he did elsewhere in the debate either.

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By now you should know that on Friday the extension of the renewable energy ITCs (investment tax credits) were signed by the executive office of the United States after the Senate and the House approved the bailout bills.

Over the course of eight weeks the entire renewable energy industry in the United States had just about come to a standstill for reasons that did not involve the financial crisis that brought Lehman Brothers to its knees (see Tax Credits are in serious jeopardy… so is scaling the renewable energy industry).

What changed since the last time it went to vote in late July? Well, it is directly tied to the state of the current US economy and the $700 Billion congressional bailout. The extension of the ITCs were wrapped up in the bill – here are the pertinent points that relate to the Renewable Energy Industry.

• Extension for eight years of the 30% tax credit for both residential and commercial solar installations.
• Elimination of the $2000 monetary cap for residential solar electric installations, creating a true 30% tax credit
• Elimination of the prohibition on utilities from benefiting from the credit.
• Allowance for alternative minimum tax (AMT) filers, both businesses and individuals, to take the credit.
• Authorization of $800 million for clean energy bonds for renewable energy generating facilities, including solar.

The gist of it is that renewable energy investors can now make projections for the investments that they are considering. The big kicker is that third bullet point – because now, large utilities like PG&E, SDG&E and others can take advantage of the tax incentives and we can truly begin to scale these technologies by producing massive solar and wind farms to produce carbon free, locally generated power.

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