Solar returns beat Treasuries, drawing investors from Buffett to Google

As reported By Christopher Martin Bloomberg News 3/21/12

NEW YORK – U.S. solar developers are luring cash at record rates from investors ranging from Warren Buffett to Google and KKR by offering returns on projects four times those available for Treasury securities.

Buffett’s Berkshire Hathaway Inc., together with the biggest Internet search company, private equity companies, and insurers MetLife Inc. and John Hancock Life Insurance Co., poured more than $500 million into renewable energy in the last year. That’s the most ever for companies outside the club of banks and specialist lenders that traditionally back solar energy, according to Bloomberg New Energy Finance data.

Once so risky that only government backing could draw private capital, solar projects now are making returns of about 15 percent, according to Stanford University’s Center for Energy Policy and Finance. That has attracted a wider community of investors eager to cash in on earnings stronger than those for infrastructure projects such as toll roads and pipelines. “A solar power project with a long-term sales agreement could be viewed as a machine that generates revenue,” said Marty Klepper, an attorney at Skadden Arps Slate Meagher & Flom, which helped arrange a solar deal for Buffett. “It’s an attractive investment for any firm, not just those in energy.”

With 30-year Treasuries yielding about 3.4 percent, investors are seeking safe places to park their money for years at a higher return. Solar energy fits the bill, with predictable cash flows guaranteed by contract for two decades or more. Those deals may be even more lucrative because many were signed before the cost of solar panels plunged 50 percent last year.

Buffett’s MidAmerican Energy Holdings Co. agreed to buy the Topaz Solar Farm in California from First Solar Inc. on Dec. 7. The project’s development budget is estimated at $2.4 billion and it may generate a 16.3 percent return on investment by selling power to PG&E Corp. at about $150 a megawatt-hour through a 25-year contract, according to New Energy Finance calculations. It will have 550 megawatts of capacity and is expected to go into operation in 2015, making it one of the world’s biggest photovoltaic plants.

“After tax, you’re looking at returns in the 10 percent to 15 percent range” for solar projects, said Dan Reicher, executive director of the Stanford center. “The beauty of solar is, once you make the capital investment, you’ve got free fuel and very low operating costs.”

The long-term nature of solar power purchase deals makes them similar to some bonds. And because a solar farm is a tangible asset, these investments also function much like those for infrastructure projects, with cash flows comparable to toll roads, bridges and pipelines, said Stefan Heck, a director at McKinsey & Co. in New York who leads the firm’s clean-tech work. Once a project starts producing power, investors can earn a return that’s “higher than most bonds,” he said. “There are a lot of pension funds with long-term horizons that are very interested in this space.”

Governments remain the biggest backers of the solar industry; President Obama’s administration suffered criticism for investing in Solyndra, a solar manufacturer that went bankrupt last year. Worldwide, the U.S. Treasury’s Federal Financing Bank was the biggest asset-finance lender for renewable energy companies in the past year, arranging 12 deals worth $11.2 billion, according to New Energy Finance. The Brazilian development bank BNDES, Bank of America, and Banco Santander followed.

In 2009, solar technology was so unfamiliar that few banks would back projects that required billions in upfront investment and wouldn’t begin producing revenue for years, Klepper said. The biggest financiers for the industry that year were Madrid- based Santander, HSH Nordbank of Hamburg and Banco Bilbao Vizcaya Argentaria of Bilbao, Spain, New Energy Finance said.

That year, the Energy Department began funding a program to guarantee loans for solar farms and other renewable energy projects that supported almost $35 billion in financing before winding down in September. The government’s endorsement assuaged investors’ concerns and built up a bigger community of people who understand how to make money from solar deals, said Arno Harris, chief executive officer of Sharp Corp.’s renewable power development unit Recurrent Energy.

“Solar is now bankable,” Harris said. “When solar was perceived as more risky, it required a premium,” and now it’s “becoming part of a much broader capital market.”

Long-term power-purchase contracts are the key to making solar a reliable investment, Harris said. Utilities in sunny states such as California, Arizona, and Nevada have agreed to pay premiums for electricity generated by sunshine.

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New Jersey is now a true solar power

Thursday July 16, 2009

In just a few short years, the Garden State has become the Sunshine State

BY JOE TYRRELL

NEWJERSEYNEWSROOM.COM

As Congress wrestles with national energy policies and gubernatorial candidates tout their plans here, New Jersey officials say the state deserves credit as a leader in promoting solar power.

In just a few years of coordinated efforts, New Jersey has gone from a non-factor to number two among the states in solar installations connected to the power grid. While far behind California, New Jersey currently generates about twice as many solar kilowatt hours as number three Colorado.

While applauding the gains, many in the industry also say the state, like the nation, has fallen well short of performance goals. New Jersey rose to the top of solar charts in a period when there was little competition from other states.

Now, as the federal government begins to pay attention to renewable energy, New Jersey is in the midst of a challenging transition away from an easy to understand program, which gave rebates to install solar power cells.

The new program shifts the focus away from consumers to utility companies and investors by creating a marketplace for renewable energy credits. The concept has its supporters, though many are more hopeful than confident.

Still, at a time when solar businesses believe the technology is on the verge of a belated boom in the United States, recent New Jersey statistics wowed some attendees at a recent industry conference in Philadelphia.

“Making this even more remarkable is that in 2001 New Jersey had only six” solar cell installations connected to the power grid, compared to more than 4,000 today, wrote Bob Haavind of Photovoltaics World.

His report can be viewed here.

During the session, the state’s top regulator, Board of Public Utilities President Jeanne Fox, proclaimed that when it comes to government policy, New Jersey is “the best place to do solar in the country.”

Around the country, many in solar trade groups and businesses credit New Jersey for showing what a small, partly cloudy state can do to grab its place in the sun.

“Obviously what they have been doing has worked,” said Monique Hanis, director of communications for the Solar Energy Industries Association in Washington, D.C.

“What makes New Jersey stand out is the specific language in the state’s energy master plan, calling for the generation of 2.1 percent of its electricity to be coming from solar in 2021,” said Neal Lurie, director of marketing and communications for the American Solar Energy Society of Boulder, Colo.

Closer to home, though, reactions are more muted.

The rebate program “came out of advocacy” by solar power proponents, “it was not a BPU idea,” said Delores Phillips, the society’s Mid-Atlantic executive director.

Even with improving technology and rising costs for fossil fuels, the cost of solar power remains higher than those dirtier energy sources. Solar advocates maintain other forms of energy benefit directly and indirectly from government subsidies, such as state funds to decommission nuclear facilities, or cleanups of coal ash landfills.

New Jersey’s small spurt of solar power materialized during a BPU rebate program that turned out to be too popular for the board’s limited financial commitment. The initial surge in applications eventually bogged down as the release of funds slowed.

So the board decided on an innovative approach, creating financial instruments, solar renewable energy credits, or SRECs. The idea is that investors buy credits from solar producers, each pegged to 1 megawatt of power. The investors help producers expand, while reaping benefits from energy sales to utilities.

“We’re all looking to see how it’s going to make out,” Hanis said.

Compared to the rebates, grants or tax credits offered elsewhere, New Jersey’s approach is more ambitious but “still a little bit vague for some people,” she said.

“It’s not really tried and tested,” Phillips said, adding it requires two inter-related factors to success.

To be attractive to investors, SRECs need to be based on reliable values, meaning utilities must contract for long-term power purchases, she said. To serve those utilities, the investments must finance enough power to meet their requirements for more clean power, she said.

Judged on that basis, “New Jersey’s program is good, but only half as good as they said it was going to be,” said Edward O’Brien, a partner in McConnell Energy Solutions of Wilmington, De. Last year, instead of a projected 90 megawatts of solar power, the state was at 45, the result of continuing uncertainty over credit values, he said.

The theory is simple, O’Brien said. While not completely supplanting the mom-and-pop approach to solar panels, securitizing the solar marketplace should put it on the same funding as other major energy sources.

“Why are you out putting solar panels up on your house, which is hard to do, instead of buying five kilowatts worth of solar power from some producer?” O’Brien said.

In practice, though, the SREC system “has not been fully thought out,” he said.

Added to the current recession, investors are cautious because of America’s patchwork of energy policies and regulations, which vary from state to state, O’Brien said. States have not helped by altering programs, he said.

“Every state is different, and every state has a bait-and-switch,” O’Brien said.

Still, he is optimistic that New Jersey will regain its momentum, and others in the field view the problems as a hiccough in the growth of solar power.

In the short-run, “there could be a shake-out” during the transition from rebates, said Rick Brooke of Jersey Solar in Hopewell. But 25 years in the business and a number of false dawns, this opportunity looks golden.

As long as the state SREC market allows small systems to participate, people who installed solar panels on the roofs of their homes or businesses still have a chance to participate, Brooke said.

Moreover, people in the industry are expecting good things from the energy bill making its way through Congress. Nearby states have launched incentive programs, whether inspired by New Jersey or California, which has roughly two-thirds of the nation’s grid-connected solar systems, Brooke said.

“It’s a good time to be in the business,” he said. “The state is committed to it, they have goals. People are moving ahead with it. Before, the interest came and went, but now it’s here.”

Rebates and SRECs are not the only way to support the growth of solar power. This month, Gov. Jon Corzine and Republican challenger Chris Christie each highlighted their support for renewable energy.

Democrat Corzine was able to announce the availability $20 million in federal grants for projects at public institutions in the state. Christie promised to create a new agency to promote clean energy technology and jobs, and would remove those functions from the BPU.

The Republican’s approach seemingly echoes Phillips’ complaints about the board’s “antiquated” procedures and primary purpose to regulate rates. But she said members of her association “were very underwhelmed by Chris Christie’s plan,” because it looks at the big picture and avoids the nitty-gritty.

While the Corzine Administration has set laudable goals for increasing clean energy, Phillips said most of the growth in solar power can be traced to his predecessor, former Gov. Jim McGreevey. There’s been “some stagnation” in state efforts since then, she said.

“Everybody likes to talk about clean energy job creation, but nobody explains how they’re going to do it,” she said.

Whether the New Jersey approach catches on remains uncertain. Around the nation, some communities are coming up with their own answers. Many solar advocates are looking beyond America to more successful programs abroad.

For more information on state incentives for renewable energy, visit njcleanenergy.com.

Our Perspective:

NJ has made great strides to join the alternative energy evolution. Not to say it is perfect, but for the first time people can see an acceleraed return on their investment that makes sense.

Rebates for systems under 5okw and the REC program has allowed funding to help underwrite these investments. Add the Federal incentives of a 30% tax credit and accelerated depreciation and the market is positioned to take off.

Would you like to know more? Contact us 856-857-1230 or email george@hbsadvantage.com.

We can provide an overview of your return on investment and help to develop the opportunity and make it become a reality.

Visit us on the web www.hutchinsonbusinesssolutions.com

Obama Tours Solar Array At Las Vegas Air Force Base

CHARLES BABINGTON | May 27, 2009 06:26 PM EST |

President Barack Obama on Wednesday hailed solar energy as a cost saver for a major Air Force base, one stop on a Western trip devoted to raising political money and promoting his economic policies.

Obama’s aides had mocked reporters for making a fuss over his first 100 days in office, but the president was eager to assess the first 100 days of his $787 billion economic stimulus package.

It has “saved or created nearly 150,000 jobs,” he said, including “jobs building solar panels and wind turbines; making homes and buildings more energy-efficient.”

The White House job claims are difficult to verify because they are based on estimates of how bad the economy might have been without the stimulus rather than actual employment data. The country has lost 1.3 million jobs since February, a figure the Obama administration says would have been far higher if not for the recovery effort.

Obama also announced more spending for renewable energy after touring a large field of solar panels at Nellis Air Force Base, near Las Vegas. The sun-powered cells provide a quarter of the base’s power needs, Obama said, speaking in a large hangar warmed by the desert heat.

“That’s the equivalent of powering about 13,200 homes during the day,” he said, and it will save the Air Force nearly $1 million a year.

Obama said more than $467 million in stimulus money will be used “to expand and accelerate the development, deployment and use of geothermal and solar energy throughout the United States.”

The president sandwiched the midday event between two political fundraisers: one on Tuesday night in Las Vegas for Senate Majority Leader Harry Reid, D-Nev., and one set for Wednesday night in Los Angeles for the Democratic National Committee.

At Nellis, Obama addressed 400 people, including Air Force personnel, civilian workers and families living on the base.

The base’s $100 million public-private solar power system covers 140 acres and generates more than 14 megawatts of electricity.

As he departed the hangar, Obama bypassed his limousine and walked a quarter-mile along the tarmac to examine fighter jets, chatting with Air Force personnel as he went.

Our perspective:

Solar is the new energy growth maket. For the first time, with Federal and State incentives, the investment is solar finally makes sense.

To find out more how you can make solar your solution email george@hbsadvantage.com  or call 856-857-1230. We will review your opportunity and discuss the financial options available.

EPA: Recession Won’t Stop Clean Energy Revolution

ANGELA CHARLTON | May 28, 2009 05:01 PM EST |

PARIS — The top U.S. environment official says it’s time for the United States to shed its energy-wasting image and lead the world race for cleaner power sources instead.

After several years with a relatively low profile under President George W. Bush, the U.S. Environmental Protection Agency “is back on the job,” EPA Administrator Lisa Jackson told The Associated Press on Thursday during a trip to Paris.

What the EPA does domestically this year will be watched closely overseas. Nations worldwide are working toward a major meeting in Copenhagen in December aimed at producing a new global climate pact. The U.S. position on curbing its own pollution and helping poor countries adapt to global warming is seen as key to any new pact.

Jackson was in Paris for international talks on how rich governments can include global climate concerns in overall development aid.

She dismissed worries that economic downturn was cutting into aid commitments or investment in new energy resources. She said the United States should take the lead on clean energy technology, recession or no.

“We have to get in the race now _ and win it,” she said. “I don’t expect a moving backwards because of recession.”

At climate talks in Paris earlier this week, European environment ministers welcomed greater U.S. commitment to environmental issues under the Obama administration _ but said it still wasn’t aiming high enough in its targets for cutting U.S. emissions.

Jackson said a shift in the American mindset is only beginning.

Talking about energy efficiency and saying companies should pay to pollute _ “that’s a revolutionary message for our country,” she said.

For a long time, she said, “People didn’t even expect the EPA to show up” at events, much less set policies that could be seen as examples for the rest of the world.

“Now it seems like every day we’re rolling back or reconsidering a Bush era policy on clean air,” she said.

She said it was time for the United States to take a more active role in limiting chemical pollutants, after falling behind Europe in that domain.

The U.S. also has lessons to learn from countries such as the Netherlands, she said, after visiting its low-lying, flood-prone lands to study ways cities like her native New Orleans can better manage water.

Our Perspective:

It is good to hear the administration making positive comments about our energy’s future. Alternative energy is a growth business and the correct path for insuring our future energy indepenence.

Let us know your thoughts? You may leave a comment or email george@hbsadvantage.com

Would you like to know more about the financial opportunities that drive this investment. Feel free to contct us.