Published online 1 October 2008 | Nature 455, 572-573 (2008) | doi:10.1038/455572b


Credit crunch threatens US wind-energy projects

Tax incentives mean nothing if companies don't make enough profit.

Wall Street's woes may halt the wind-energy boom.Wall Street's woes may halt the wind-energy boom.S. PLATT/GETTY

Wind developers in the United States could be the first among the energy sector to fall victim to the global financial meltdown emanating from Wall Street.

The banking crisis that began with bad loans in the US housing sector has now brought down several commercial banks, one of the world's largest insurance companies and leading investment banks. These last have been particularly important in funding advanced energy technologies (through partnerships with wind developers) and in promoting international carbon markets.

The economic crisis could hit the booming US wind sector first, because the tax incentives designed to promote investment in the technology are meaningless for companies without sufficient profit. Current US law provides wind developers with a tax credit of 2 cents per kilowatt hour. That can add up to millions of dollars annually, but many wind operators do not have enough income to take full advantage of that type of tax credit.

Before declaring itself bankrupt on 15 September, US investment bank Lehman Brothers was one of several major firms that invested in wind projects in exchange for the tax credit, which they used to reduce their federal tax bill. The number of firms making such 'tax equity' investments has dropped from more than a dozen to five or six in recent months, says Ethan Zindler, who heads up North American research for the London-based consultancy firm New Energy Finance. "To use the tax credit, you have to have tax exposure, and to have tax exposure you have to have profits."

Congress is fuelling anxiety; it has so far failed to extend the tax credit, which expires at the end of the year. Companies are on track to secure as much as $8 billion–10 billion in tax-equity deals — up from $5.2 billion in 2007 — assuming they can find the investors. The tax legislation would extend the credit for wind by one year and solar developers would receive an eight-year extension of a separate investment tax credit.


Most expect that the credit will ultimately be extended, even if it is allowed to lapse, but Zindler says that companies are nonetheless rushing to get their deals done now. Forays into carbon markets could become more difficult across the board as banking institutions curb their appetite for risk. In particular, says Abyd Karmali, global head of carbon emissions at Merrill Lynch in London, the development of pilot projects using carbon trading to curb deforestation could get more difficult — at least until an international policy is put in place to guide such investments. Merrill Lynch, which is expected to merge with the Bank of America as a result of the ongoing crisis, is already developing one such project in Indonesia.

Harvard University economist Robert Stavins says that the financial crisis will probably have an impact on the voluntary carbon markets, especially if the economy dives into recession. But regulated markets, such as Europe's carbon trading scheme, will be fine, he says. "Compliance activity by business is immune to business cycles."


Some fear a prolonged economic crisis could make it harder for the United States to enact global-warming legislation owing to concerns about even higher energy prices to come. David Victor, an energy policy expert at Stanford University in Palo Alto, California, says the danger is real: people who are short on cash are less willing to spend money on dealing with distant threats such as global warming.

But Victor believes the fundamental drivers behind the renewed interest in clean energy — high oil prices and concerns about global warming — will remain. "We still have a whole bunch of renewable-energy technologies that are improving their performance," he says. "It's highly likely that people will find capital for these projects." 

See Editorial, page 565.

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