Ryan Tracy and Cassandra Sweet, March 14, 2013 (Wall Street Journal)
“The Obama administration and some on Wall Street are laying the groundwork for bundling renewable-power contracts into securities, part of an effort to make it cheaper to finance alternative energy…The initiative aims to extend to renewable energy a financial tool already used in the mortgage and credit-card industries. The securities could be sold to pension funds or other investors, who would receive a return funded by payments from users of electricity where solar panels or other equipment is installed… “Administration officials say they are approaching the prospect with caution, aware that mortgage-backed securities played a key role in the 2008 financial crisis and the ensuing recession. But officials view the financing structure as a possible avenue to lower the cost of buying renewable energy…The idea of securitization is to spread risk across hundreds of contracts and ensure a steady return for investors. That is much easier to do with home mortgages than it is with solar- or wind-power contracts, due largely to the relative immaturity and small size of renewable-energy markets. Also, doing a deal with the government might be trickier given the possibility that future power shifts in Washington bring different priorities concerning military spending…”
click to enlarge“…[An early focus is the military, which is preparing to spend billions of dollars on electricity from solar, wind and other renewable sources during the next decade. The military services can enter into electricity-purchase agreements without new appropriations from Congress. The] U.S. departments of Defense and Energy are exploring the idea and taking steps toward making it more attractive to investors, including standardizing the terms of power-purchase contracts…The Army is preparing to buy up to $7 billion of energy from projects that private developers build and finance, part of a goal to add 1,000 megawatts of renewable-electricity capacity by 2025…The Navy wants to add an equal amount of capacity… “Solar- and wind-power developers generally raise money for new projects through private deals with banks, insurance companies or corporations. But they are eager to tap public markets, where the pool of investors would expand to include pension funds or individual investors… Some in Congress have proposed changes that would provide favorable tax treatment and the ability to sell ownership shares publicly…[A]real-estate investment trust…could be available for renewable-energy projects if the Internal Revenue Service allows them to qualify…[A] master limited partnership…won't be available unless Congress passes new legislation…Bankers say a renewable-energy security would have to be considered fairly low-risk in order to earn a high mark from ratings firms and attract large, conservative investors like pension funds. The terms of each of the contracts involved also would need to be relatively similar so that investors could make an educated guess about the group's overall risk…”
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