Back in October, Fortune's Todd Woody was one of the first reporters to point out the devastating threat the credit crunch posed to the renewable energy industry. A time-honored mechanism for government support of the industry was to give renewable start-ups big tax credits to apply against the huge cost of building, for example, a solar power plant. But these start-ups weren't profitable, so they didn't pay any taxes, so they couldn't use their tax credits. Instead, they joined forces with Wall Street financial institutions like Lehman and AIG that paid lots of taxes, trading their tax credits in return for the cash necessary to build out their facilities.
Enter the credit crunch. Suddenly all those financial institutions aren't making profits anymore, and have no appetite for acquiring tax credits. Funding for solar and wind and other renewable energy technologies requiring large capital outlays dropped off the proverbial cliff.
In the July Atlantic, senior editor Joshua Green has a superb story on the rise and fall and rise again of the renewable energy industry, from President Carter to President Obama. (Found via Environmental Capital.)
In the course of his very interesting history of how government policy toward clean energy has ebbed and flowed over the last 30 years, Green fills in the next chapter: how the Obama administration used the stimulus bill to fix the credit-crunch-induced funding gap.
To fill the tax-equity gap, the stimulus provides $32.7 billion in direct grants and another $134 billion in loan guarantees to attract new investors to large projects. To impose stability, it extends a variety of tax credits by anywhere from three to eight years. Most striking of all, it instructs the Department of Energy to invest directly in promising cleantech companies (though the payoff comes in jobs and environmental gains, not equity). By a stroke of his pen, President Obama made a federal agency the world's largest venture capitalist....
So far, so good. "The stimulus package essentially saved the renewable-energy industry in the United States," says Raj Atluru, managing director of the venture-capital firm Draper Fisher Jurvetson.
While economists on the right and left yell themselves hoarse arguing over whether we need a bigger stimulus or should just stop with the one we already have, it might be worth taking into account the possible enormous long-term benefits of keeping renewable energy technology deployment momentum moving forward. It could end up being one of the single most important achievements of the stimulus bill.