Rightside Up and Upside down on Clean Energy

What harmed clean energy development more than anything was the financing structure set up for it. The challenge in coming years is going to be financing development of a clean energy infrastructure. Rather than treat it like infrastructure, which requires heavy up-front government investment, clean energy was always regarded as something better left to entrepreneurs. The government helped by providing them with tax credits, but tax credits don’t really work unless you’ve got tax liability, and most startups in clean energy don’t have liability because new technologies often take years to develop and still more years to start showing profit; it costs millions, tens of millions, and sometimes even hundreds of millions to build wind farms or large solar projects. On top of this, Congress was always fickle about extending the tax credits from year to year, giving them out one year, eliminating them another year, and this caused many promising ventures to go out of business.

Enter Wall Street—because that’s where the money is, and while Wall Street banks might have found it cool to invest in clean energy, fighting global warming wasn't their primary interest. They were rolling in big money by bundling subprime mortgages into mortgage back securities. Along with that big money came big tax liability, and so that’s where those tax credits for clean energy came in handy by reducing their overall liability.

It’s interesting to see what was happening here. What I was saying earlier about what's wrong with the U.S. economy comes back in the picture now. In the old days, finance was where you went to get money to invest in production, but in this upside-down version of the economy, the production of clean energy was really just a means of growing the finance sector.

The thing that no one’s talking about – a few people are, I guess, but not nearly enough to focus the public – is the financing structure of clean energy basically remains the same. The American Recovery and Reinvestment Act, aka Stimulus Package, invested more than $100 billion in clean energy growth, a recognition you might say that its time to start treating clean energy as infrastructure, but what happens after this money is spent? Will this be enough to build a new clean energy infrastructure? Hardly. Maybe by the time stimulus money runs out Wall Street banks will be flush again and can go back to being the sugar daddies of the clean energy business, but what if they’re only hobbling along, and moreover, do we really want to go back to this upside-down economy?