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Renewable energy country attractiveness indices: Country focus - US - EY - Global

Country focus: US

End of loan guarantee exacerbated by solar sector woes

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Solar bankruptcies

The US solar sector has been dominated in Q3 by bankruptcies, corruption theories and accusations of international trade law violation. Q3 saw Evergreen Solar, SpectraWatt and Solyndra declare bankruptcy, each citing Chinese competition as a major factor.

Solyndra’s failure attracted the most attention – in 2009, it was awarded a federal loan guarantee worth US$535m (€393m) to build manufacturing capacity, and its Fremont plant even received a visit from President Obama last year. Following its bankruptcy filing, it was raided by the FBI as part of an investigation into whether it misled the Government about its finances. The Obama Administration has also been criticized for failing to vet it closely enough.

These events have raised other questions about the Government's support for clean energy and the fairness of Chinese competition. The investigation could represent a lethal blow to the image of US renewables and support for public investment in the sector.

Democrat Senator Ron Wyden has asked President Obama to consider imposing “anti-dumping” duties on Chinese solar equipment and file a complaint against it at the WTO, claiming Chinese solar panel imports are set to triple in the current year, from 2010 levels. The Administration has yet to take any action but the question remains whether US technological excellence can compete against China’s low prices and economies of scale.

Section 1705 Loan Guarantee program

Given that Solyndra received a US$535m (€393m) loan guarantee, the Department of Energy’s Section 1705 Loan Guarantee is now under scrutiny. The attention has forced it to increase the program’s requirements and in some cases, these, applied to previously approved programs, are derailing projects. Q3 also saw the program close and the additional scrutiny has increased concerns over its renewal.

It was, however, successfully applied to a number of projects, with nearly US$5b (€4b) finalized on its last day, including guarantees for Abengoa’s Mojave Solar 250MW CSP installation (US$1.2b (€0.9b)), and SunPower Corp’s 250MW California Valley Solar Ranch PV project (US$1.2b (€0.9b)).

Q3 sees record investment

According to Bloomberg New Energy Finance, taking financial new investment as a whole, the US was dominant worldwide in Q3, accounting for US$16.9b (€12.4b), up 37% on Q2 and 156% on Q3 2010, compared to US$13b (€10b) in China over Q3.

It is likely this is a result of investor concerns that Congress will allow key clean energy support programs to expire at the end of the year and not renew them. The Government has been moving to complete loan guarantee work ahead of expiry at the end of September, and developers and investors have been rushing to finance projects to ensure construction begins before the Treasury grant scheme for wind and solar ends in December.

Expiration of the 1603 Program

Once the program expires, project developers will once again have to use traditional tax credit monetization structures, which is expected to force them to only consider projects of a size that can absorb the associated, often prohibitive, transaction costs.

With no short term certainty on the program’s renewal, the US is likely to see a shrinking project pipeline. This will be particularly noticeable in wind, which will now be looking to make decisions on projects operational post 2012, when the PCT will expire.

Solar project approvals

Companies looking to build large-scale projects on federal lands falling outside the Bureau of Land Management’s “fast-track” zones in a number of southwest states may have to wait twice as long for project approval. Developers are concerned, by the agency’s announcement that it plans to reduce the size of, or eliminate entirely, some of the 24 zones identified in earlier environmental impact assessments.

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