Amid economic crisis, wind power spins more slowly

The critical short-term challenge facing wind power developers is financing. But with Wall Street plunging, the tax credit associated with wind power has lost some of its allure. Wind farms were financed symbiotically with investors who used the wind-production tax credits of 2.1 cents per kilowatt hour to offset profits elsewhere. The need to offset profits has dipped worldwide.

Until this fall, more than a dozen large investment groups actively financed wind power development. Only about half remain active, says Ethan Zindler, head of North American research for New Energy Finance, a London-based market research firm.

Lehman Brothers, one of five top wind-power lenders on Wall Street, is no more. Wachovia and AIG, have been sold and sidelined, respectively. JP Morgan and GE Energy Financial are question marks, Mr. Zindler says.

The industry was unsettled by news reports earlier this month that GE might pull back from wind-power financing. An official statement by GE to the Monitor seemed to rebut that. “GE has been – and will remain – a significant investor in renewable energy,” the statement read. Yet it also affirmed that a “core issue is the industrywide difficulty of committing to new investments in a period of high uncertainty about borrowing costs.”

Through a spokesman, JP Morgan managing director John Eber said: “We definitely are still actively investing in wind and will continue to do so through the remainder of the year, as we did last year.”

“It’s not that Wall Street is losing faith in wind power – Wall Street just doesn’t have as much money to play with anymore,” says New Energy Finance’s Zindler. “We’re going to see in the next six months a disruption in the way wind projects are financed.”

Who will get hit, and how hard? Industry experts say the impact will be felt most by “merchant power” – smaller, independent power developers who have been a key force behind wind’s recent growth. Many have relied on selling “tax-equity investing” deals – the term used to describe how Wall Street trades cash in return for valuable tax credits to offset profits. Profits are down, and roughly two-thirds (about $5 billion) of wind investment in the US received tax-equity investment from outside investors, Zindler estimates.

Until credit markets smooth out, tax-equity investment in wind power is likely to suffer.

But despite the doom and gloom, longer-term trends continue to push wind ahead.

Some 30 states now have renewable portfolio standards (RPS) that require utilities to purchase renewable power. Regulated utilities with a strong cash flow will continue to build wind farms, observers say.

“There are still strong drivers pushing in wind’s favor including the nation’s push toward energy independence and reducing carbon emissions,” says Keith Hays, a global wind industry analyst with Emerging Energy Research. “Both presidential campaigns are pushing hard on both of these issues.”

That’s good news for Cape Wind, the mammoth and controversial 130-turbine wind-energy project off of Cape Cod, Mass., whose cost has been pegged at around $900 million. A Cape Wind spokesman said last month that the bankruptcy of Lehman Brothers, which was to help provide financing, should have no major impact.

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