Tight credit market unplugs renewable energy construction

Renewable energy plans in Arizona and across the country are grinding to a halt as plans for expansion run into credit markets unwilling to lend to fledgling projects

Plans are on hold for Arizona’s largest solar plant, the Solana Generating Station, and for future renewable efforts by utility companies because funding is no longer available from traditional sources.

“Certainly everyone is worried,” said Lori Singleton, manager of environmental initiatives at Salt River Project. “Getting financing for renewable energy products has become a lot tougher.”

Fred Morse, senior adviser for Abengoa Solar Inc.’s U.S. operations, said funding has dried up for major utility projects across the board — including Solana.

“Today, you cannot finance a power project, whether it’s solar, wind, geothermal, natural gas, coal or nuclear,” he said.

Abengoa is slated to build the roughly $1 billion Solana facility near Gila Bend. The 280-megawatt generating station using concentrated solar power will be the largest of its kind in the world. It is scheduled to be finished by 2011, but Abengoa so far has been unable to secure funding for construction.

Arizona Public Service Co. spokesman Steven Gotfried said the utility, which will buy the power produced by Solana, is not expecting a delay in the plant’s construction.

Other challenges for both SRP and APS in the renewable energy field come from Tempe-based Renegy Holdings Inc., which has been building and purchasing biomass power plants in the Western U.S. In its third-quarter report, the company said it was having difficulty finding financing and was looking at alternatives, including a potential sale of the company if other efforts are unsuccessful.

Renegy operates the 24-megawatt Snowflake White Mountain Power biomass generating station, from which APS and SRP each buy about 10 megawatts of power. Neither utility is interested in purchasing the plant, which runs on waste wood to produce energy.

Scott Higginson, senior vice president of Renegy, said the situation with financing is related to three biomass plants it has committed to buy in California, but cannot get the financing to do so. Those deals are pending until funding becomes available.

Most utilities aren’t interested in running the biomass or renewable energy plants. Higginson said it’s only a matter of time before the market begins to free up, particularly as President-elect Barack Obama’s administration pushes for more alternative energy.

“I think our crystal ball is as good as anyone else’s, that it will start up eventually,” he said.

SRP officials have met with Renegy and are pleased with the Snowflake plant’s operations. They don’t expect the lending crunch to affect the plant or the power it receives, Singleton said.

The industry was hit by the dual problems of banks locking up their lending and the collapse of equity partners such as Lehman Brothers Holdings Inc., which filed for bankruptcy protection under Chapter 11, and American International Group Inc., which is getting more than $100 billion in federal loans to keep it afloat.

The financial carnage has changed the landscape for companies looking to fund large deals in the future, Morse said.

“It will be a different world for a while,” he said.

Funding for the renewable energy projects is paramount because most states have enacted standards for utilities to produce a certain amount of their power through renewable sources. The Arizona Corporation Commission, for example, has set a mandate for the state’s utility companies to have 15 percent of their energy come from renewable sources by 2025.

Funding is particularly important for solar and wind projects to receive funding because those are the avenues most utilities are pursuing to meet such mandates, Singleton said.

The funding challenge won’t affect the commission’s stance on renewable energy or change the deadline for its standards.

“The fact that funding is becoming more scarce is a huge concern, and we’re going to have to react to it,” said Commissioner Kris Mayes.