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The Green Life: Lehman Bankruptcy Puts Squeeze on Clean Energy

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September 16, 2008

Lehman Bankruptcy Puts Squeeze on Clean Energy

Wind_farm Wall Street took its biggest dive since 2001 yesterday as Lehman Brothers--the 158-year-old investment bank--filed for bankruptcy, Merrill Lynch succumbed to a forced sale, and insurer A.I.G. teetered on the verge of meltdown. By day’s end, the Dow Jones industrial average plunged more than 504 points, or 4.4 percent. What does this red inky mess mean for green energy, which despite billion-dollar venture capital investments and pending government incentives, still relies on big loans from Wall Street’s troubled financial institutions?

Angus McCrone, chief editor of research firm New Energy Finance, said Lehman's bankruptcy removes an important provider of what's called tax equity financing for U.S. wind farms. As one of the three most active providers of this kind of investment (behind JP Morgan and General Electric Financial Services), Lehman essentially helped fund new projects in exchange for tax benefits linked to clean energy generation.

Lehman's holdings in companies like Clipper Windpower and geothermal developer Ormat Technologies are now likely to sell at "rather low prices" as energy companies scramble to get money back to creditors, said McCrone. "It's just another downward push for clean energy share prices in the short term." That could make companies working with wind, solar, energy efficiency, and other green technologies think twice about going public: "It puts a big question mark over some clean energy companies' plans to have IPOs in the next couple months."

Financial challenges exacerbated by the credit crunch are not limited to the U.S., according to experts at a renewable energy conference held yesterday in London. Reuters reported that in Europe, the sector can expect a $29 billion debt financing shortfall by 2020. That’s the year EU legislators have established as the deadline for at least one-fifth of European energy to come from renewable sources—a pace that would require investment of about $120 billion (85 billion euros) per year in a time when lenders are growing increasingly averse to long-term investments.

This trend could hit renewables especially hard, said Guy Turner, director of New Energy Finance's carbon market research service. As high-risk, high-reward investments, alternative energy companies "tend to do even worse than the market" as a whole when things turn south. Describing investment banks' ability to take those risks in the near future, Turner said "their wings are certainly going to be clipped."

In addition to the short-term challenge of finding funding for renewable energy projects, Turner said the credit crunch and this week's banking crisis could have long-lasting effects on the environment because of the political implications of recession. "It could make it difficult for politicians in the U.S. to come up with policies that ostensibly will add to costs to the economy," he said. "It's easier to make these decisions when things are going well." Still, there's a green lining: "If economies slow down," Turner said, "they're burning less fuel."

Share your stories: How has the credit crunch impacted your life? Have changes in the economy (or your own finances) made you rethink your stance on climate change policies? Have you started using less energy? Tell us how.

Read more about clean energy and environmental economics:

Google Goes Big for Geothermal
Environmental Cost of Foreclosures
No Recession for Organics
Carbon and Cents in California
Tanking Real Estate Market Makes Room for Conservation


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