stimulating clean energy opportunities for washington

Stimulating Clean EnergyStimulating Clean EnergyOpportunities for WashingtonOpportunities for Washington


Davis Wright TremaineDavis Wright TremaineFebruary 24, 2009February 24, 2009

Ross MacfarlaneRoss MacfarlaneSenior Advisor, Business Senior Advisor, Business

PartnershipsPartnerships




““A Crisis is a Terrible Thing A Crisis is a Terrible Thing to Waste” Rahm Emanuelto Waste” Rahm Emanuel

“What we have before us are some breathtaking opportunities disguised as insoluble problems.” John W. Gardner

A Defining Challenge …starring

REAL climate solutions

Sustainable prosperity

Clean energy leadership

Approaching the Tipping Point:Approaching the Tipping Point: Economics/Technology

Economic crisis drives need for job creation and rebuilding infrastructure

Clean energy coming of age as intensely competitive and fast growing global industry

Energy independence and securityEnergy independence and security Leak in economy > $50 million per day for > $50 million per day for

oil and gas (WA)oil and gas (WA) Fossil fuel price volatility worsens

dependency and economic disruption

Climate Disruption

Winds of Change --Winds of Change --Repowering AmericaRepowering America President Obama consistently links economic President Obama consistently links economic

recovery with investing in new energy future recovery with investing in new energy future and addressing climate change.and addressing climate change.

““Few challenges confronting America and the Few challenges confronting America and the world are more urgent than climate change. world are more urgent than climate change. The science is beyond dispute, and the facts The science is beyond dispute, and the facts are clear”are clear”

““Why wouldn’t we” invest in creating jobs Why wouldn’t we” invest in creating jobs that reduce energy costs, dependence on that reduce energy costs, dependence on foreign oil, and climate pollution?foreign oil, and climate pollution?

NW Priorities for a Healthy NW Priorities for a Healthy RecoveryRecovery Climate Solutions urged investments in Climate Solutions urged investments in

five key areasfive key areas Efficiency FirstEfficiency First 2121stst Century Grid Century Grid ““Ready to go” Renewable Energy ProjectsReady to go” Renewable Energy Projects Sustainable TransportationSustainable Transportation Green jobs – workforce trainingGreen jobs – workforce training

Clean Tech = Real ProductivityClean Tech = Real ProductivityHigh Priority for Stimulus InvestmentsHigh Priority for Stimulus InvestmentsClean Tech is about:

• ‘Building Things Right’

• Energy Efficiency and renewable energy provide job opportunities that can’t be outsourced

• Plugging leak in economy with clean, efficient energy, building and transportation systems

Will it Scale?Will it Scale?

The big question isThe big question is

Source: Pathways to a Low-Carbon Economy, McKinsey & Company (2009)

Clean Energy in StimulusClean Energy in Stimulus

Unprecedented investments in clean Unprecedented investments in clean and efficient energyand efficient energy $72 Billion in direct spending$72 Billion in direct spending $22 Billion in tax credits$22 Billion in tax credits

Federal spending leveraged to increase Federal spending leveraged to increase flows of private capitalflows of private capital e.g. $6 B in loan guarantees for e.g. $6 B in loan guarantees for

transmission line and renewable expected transmission line and renewable expected to support $60 B in private investmentto support $60 B in private investment

Clean Energy in StimulusClean Energy in Stimulus NW Priorities for A Healthy Recovery -- NW Priorities for A Healthy Recovery --

scorecardscorecard Energy Efficiency -- $25.8 B spending/ $2.9 Energy Efficiency -- $25.8 B spending/ $2.9

B tax incentivesB tax incentives 2121stst Century Grid -- $17 B spending and Century Grid -- $17 B spending and

borrowing authorityborrowing authority Clean and renewable energy -- $6.4 B Clean and renewable energy -- $6.4 B

spending/ $16.5 B tax incentivesspending/ $16.5 B tax incentives Clean Vehicles and Transit -- $21 B Clean Vehicles and Transit -- $21 B

spending/ $2.5 B tax incentivesspending/ $2.5 B tax incentives Green Jobs -- $500 M spendingGreen Jobs -- $500 M spending

Clean Energy in Stimulus -- Clean Energy in Stimulus -- New DirectionsNew Directions Not just moneyNot just money To qualify for funds, states mustTo qualify for funds, states must

Establish “decoupling” policies to ensure Establish “decoupling” policies to ensure utilities have incentives to invest in utilities have incentives to invest in efficiencyefficiency

Commit to and enforce tough building Commit to and enforce tough building codescodes

Unprecedented investments in science Unprecedented investments in science and researchand research

Clean Energy In StimulusClean Energy In Stimulus

Huge opportunity for Washington to get Huge opportunity for Washington to get a “leadership share” of stimulus dollarsa “leadership share” of stimulus dollars Washington’s potential share estimated at Washington’s potential share estimated at

ca. $ 2 – 4.4 Bca. $ 2 – 4.4 B Does not include opportunity for Does not include opportunity for

Washington companies to export goods Washington companies to export goods and services to address market demandand services to address market demand

Accelerated processAccelerated process Vision, coordination, and continued policy Vision, coordination, and continued policy

leadership will be needed to maximize leadership will be needed to maximize opportunityopportunity

Critical First Step, But we Critical First Step, But we need strong climate policyneed strong climate policy

CAP: Policy commitment to steadily reduce fossil fuel deendence

Unleashing powerful markets for clean

technologies

Critical First StepCritical First Step Recent study -- stimulus package will Recent study -- stimulus package will

reduce oil imports and emissions of reduce oil imports and emissions of global warming pollution, but is no global warming pollution, but is no substitute for climate policysubstitute for climate policy

Will lay groundwork for needed Will lay groundwork for needed changes, reduce costs, create jobs, and changes, reduce costs, create jobs, and help turn economy aroundhelp turn economy around

Climate policy will be needed for Climate policy will be needed for durable reductions and economic durable reductions and economic leadership in competitive marketleadership in competitive market

Peterson International Economic Peterson International Economic InstituteInstitute (2/10/09) (2/10/09)

2002 20062003 2004 2005 2007

$0

$100

$200

$300

$400

$500

$600

$700

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

25

20

15

10

5

0

30

35

Mil

lio

ns

Inve

sted

(B

ars)

Nu

mb

er of C

om

pan

ies (Lin

e)

Source: Cleantech Group

RPS Passed AB32 Introduced AB32 Passed

Post AB32:

98% CAGR (05-07)

Pre-AB32:

20% CAGR (02-04)

Green Investment in Green Investment in CaliforniaCalifornia

Cap makes it real:Get your wedge

on!

Every “wedge” is a global business opportunity

Clean Energy in the Clean Energy in the Stimulus and Washington Stimulus and Washington OpportunitiesOpportunities Summary report and spreadsheet Summary report and spreadsheet

prepared for Climate Solutions by:prepared for Climate Solutions by: Greg Papciak, corporate attorney. 206-499-Greg Papciak, corporate attorney. 206-499-

0824, 0824, [email protected]@gmail.com Daniel Malarkey, economist and clean tech Daniel Malarkey, economist and clean tech

consultant. 206-310-9385, consultant. 206-310-9385, [email protected]@gmail.com

mailto:[email protected]

mailto:[email protected]

Tax Provisions for Renewable Energy ProjectsAmerican Recovery and Reinvestment Act of 2009

Response to Market Conditions Shortage of tax equity investors

Important capital source for renewable energy projects (monetize tax benefits)

Few remaining active participants

Reasons Inadequate tax base to use existing tax credits and

deductions Economic issues (banks)

Proposals Extend credit carryback period Make credits refundable Expand Investment Tax Credit Cash grants in lieu of credits Allow “double-dipping” of governmental

incentives

New Investment Credit Election Energy Investment Credit now available for wind,

biomass, geothermal, landfill gas, waste-to-energy, qualified hydropower and marine/hydrokinetic projects in addition to solar and fuel cells

Expands structuring options Partnership Flip Sale-leaseback Lease

New Grant Program Cash grants mimicking Energy Investment Credit Facilities placed in service in 2009 or 2010 or

after 2010 if construction begins in 2009 or 2010 Regulations Timing Monetizing depreciation

Double-Dipping on Governmental Incentives

Production Tax Credit continues to be subject to 50% reduction when project receives subsidized energy financing or tax-exempt financing

Energy Investment Credit no longer subject to reduction for receipt of these other governmental benefits

Treasury grants also should not be subject to reduction

Clean Renewable Energy Bonds Authorizes additional $1.6 Billion Qualified tax credit bond Public power providers, governmental bodies and

electric cooperatives Projects eligible for Production Tax Credit

Business Tax Provisions Bonus depreciation extended Debt restructuring

Appropriated Funds for the Energy Sector under theAmerican Recovery and Reinvestment Act of 2009 February 24, 2009Craig Gannett & Dan AdamsonDavis Wright Tremaine LLP

Overview Benefits for energy sector come in two forms, tax

benefits and appropriated funds. Obtaining appropriated funds can be more

challenging than obtaining tax benefits due to need to work through the selection process.

Funding AvenuesThree main avenues for appropriated funds: U.S. Department of Energy State Energy offices Local governments

Energy Efficiency and Conservation Block Grants ($3.2 billion)

Grants to states, local governments, and tribes to reduce fossil fuel emissions and energy use, and improve energy efficiency in the transportation and building sectors.

$2.8 billion will be provided to states (28%) local governments (68%), and tribes (2%) under the formula in Energy Independence and Security Act of 2007 (EISA).

$400 million will be awarded on a competitive basis to states, local governments, and tribes.

Weatherization Assistance Program ($5 billion) Payments to states for home weatherization for

low-income households. Eligibility threshold increased from 150 to 200%

of federal poverty level. Per home maximum increased from $2,500 to

$6,000. Will be done through existing funding and

program mechanisms at the state level.

State Energy Programs ($3.4 billion) Funding to state energy offices for energy

efficiency and renewable energy programs. Portion of funds only available if state agrees to

update building codes and take other energy efficiency steps.

Dramatic increase in funding to state energy offices.

Electricity Delivery and Energy Reliability ($4.5 billion)

As to $4.2 of the $4.5 billion, USDOE has broad discretion to allocate funding among different activities to modernize grid.

Possible funding for smart meters, transmission, energy storage, and other purposes.

DOE staff intend to provide $100 million to rebuild domestic transformer industry.

$100 million for worker training. $80 million for transmission study/planning.

Fossil Energy Research and Development ($3.4 billion)

$1 billion for fossil fuel R&D. $800 million Clean Coal Power Initiative. $1.520 billion for carbon capture and reuse. $50 million for storage site characterization. $0 for nuclear.

Renewable and Transmission Loan Guarantees ($6 billion).

Loan guarantees for renewable generation projects and transmission systems, including upgrades.

To be eligible, construction must start no later than September 30, 2011, at which time authority to enter into guarantees expires.

DOE has yet to issue a single loan guarantee under the Energy Policy Act of 2005, but Secretary Chu is working to reform the process.

BPA Borrowing Authority ($3.25 billion)

BPA has broad authority to use its borrowing authority for transmission, efficiency, renewable energy, and fish and wildlife projects.

The pockets of a classic New Deal agency are made deeper

BPA moves deliberately and must comply with NEPA before green-lighting a project.

WAPA Borrowing Authority ($3.25 billion)

WAPA serves most of the West outside of the NW.

Authority can be used for transmission only and includes the ability to build a line from WAPA service territory into the NW.

This is WAPA’s first experience using borrowing authority

WAPA has many transmission lines in areas rich in renewable resources, particularly wind.

Advanced Battery Manufacturing ($2 billion) Grants for manufacturing of advanced batteries

and components. DOE has lots of experience with this type of R&D

funding; likely to be a competitive solicitation.

Conclusions/Recommendations Obtaining appropriated funds requires

persistence and savvy. Step 1: identify those funding sources that you

may qualify for. Step 2: contact the agencies responsible for

those funding sources. Step 3: if possible, participate in the process of

making the rules (e.g., criteria, timelines)

Conclusions/Recommendations Step 4: be ready to respond quickly once

process is established Step 5: consider seeking political support

w w w . c a s c a d i a c a p i t a l . c o m

Expertise. Discipline. Results.

Columbia Center701 5th Ave, Ste 2600

Seattle, WA 98104

43

Cleantech Industry Overview

2008 represents new record for annual investment total $9.2B globally

$5.3B in North America – almost 60%!

Q3 ’08 represented new quarterly investment record, $1.8B in North America

2008 Global total investment far surpassed the estimated range of $7.5B - $8.0B


Global Annual Cleantech VC Investment

$9.2

$4.4

$6.1567

410355

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$9.0

$10.0

2003 2004 2005 2006 2007 2008

Inve

stm

ent($

in b

illion

s)

0

100

200

300

400

500

600

700

800

900

1,000

# of

Dea

ls

$ Invested # of Deals

44

Current Situation & Trends

In 2008, Solar was King

Investors believe solar will continue to drive efficiency and adoption

These improvements will help deliver grid-parity pricing

Annual and quarterly investments have steadily increased, with the industry really picking up pace in 2006

This investment profile follows a similar pattern in cleantech focused venture and private equity fund raising

2008’s total investment of $5.3B represents a robust year-over-year growth rate of ~33% from 2007


North America Quarterly Cleantech VC Investment

1.2

$279M

$708M

$477M

$753M $883M $912M$1.3B

0.5 0.9 0.6

0.7 0.8

1.5

1.8

1.0 1.3

0.5

1.2

$4.0B

$2.8B

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

$5.5

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Annual Q1 Q2 Q3 Q4

($ billions)

$5.3B


45

Cleantech is actually 6 to 12 different markets

Renewable Energy

Water

Energy Storage

Solar

Wind

Biofuel

Biomass

Geothermal

Wave / Ocean / Hydro

Waste to energy

Desalination Purification / Filtration/ Detection Remediation Wastewater Treatment Water Management

Fuel Cell Battery Technology Ultracapacitors Power Management Nanomaterials Battery Management Technology

Smart Grid

Energy Efficiency

Green Building

Energy Infrastructure

Intelligent Network Devices

Grid Management

Advanced Components

Software Applications

Load Management

Optimization / Storage

Lighting

HVAC

Power Optimization / Consumption

Monitoring, Metering & Control

Design / Build

Green Building Materials

Biopolymers

Systems Optimization

Retrofit / Refurbish

ESCO’s

Facility Management

46

Global Cleantech Investment by Sector for 2008

$3,300

$904

$502$364 $289 $286

$148 $148 $54

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Solar Biofuels Wind Green

Buildings

Advanced

Batteries

Recycling Water Agriculture

Technology

Fuel Cells

Solar Biofuels Wind

Green Buildings Advanced Batteries Recycling

Water Agriculture Technology Fuel Cells

47

Global Cleantech Investment by Sector for 2008

56%

15%

8%

6%

5%

1%2%2%5%

Solar Biofuels Wind

Green Buildings Advanced Batteries Recycling

Water Agriculture Technology Fuel Cells

48

Clean Tech VC Growth: 2009 Market Environment

Market for growth equity and VC financings has slowed down

January cleantech financings totaled $710 million

But, 5 deals in January comprised $243 million of the total January cleantech financings

Investors are looking for differentiated technology, not just the ability to ride the cost curve

Investors looking for capital efficient companies that can get to cash flow positive on less than $30 – 40 million in capital

Investors looking for companies that are in subsectors with established market ecosystems

49

Investors had been gravitating towards smart grid and energy efficiency

“High in the stack” technology

Capital efficient business models

The government stimulus “turbocharges” the ecosystem and demand side of the energy efficiency and smart grid markets

Investors want to go with the Washington, D.C. capital flow

Clean Tech VC Growth: 2009 Market Environment

50

Solar, wind, biomass, etc. pretty much came to a standstill in the fourth quarter of 2008.

No project finance debt

No tax equity

Economics vs. fossil fuels less compelling

Credit markets remain frozen in January 2009

Q4 2008 & January 2009 Project Finance Market: Renewable Energy Projects

51

February 2009 Project Finance Market

Flurry of activity upon announcement of stimulus bill

ITC grant fills significant void in capital structure

Is ahead of reality perception

A rush for gold

Big question is how money reaches projects

Projects need to be completed by end of next year to qualify for ITC grant

For Northwest and California projects, if a project is in the idea stage, it likely will NOT be completed by end of next year, given permitting challenges.

stimulating clean energy opportunities for washington

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