Betting on Green

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The importance of oil independence may soon be underscored in the latest World Energy Outlook report from the International Energy Agency (IEA), which is expected to suggest that oil production could decline more rapidly than previously thought unless new investment is made. The importance of renewable energy to the United States is already reflected by government involvement in renewable energy, including state and federal mandates for alternative-energy use, as well as subsidies and tax credits.

Charles Gassenheimer, chairman and CEO of Ener1, which makes lithium-ion batteries for the car market, says that his firm had planned to expand the capacity of its Indianapolis plant to meet growing demand. "All the major car companies have made the strategic decision to move forward [with battery power]," he says. That should make his firm a low lending risk, compared with other alternative-fuel companies. But since the credit market has dried up, Ener1 will instead use a loan program sponsored by the Department of Energy.

It might not be an easy few months for any alternative-energy company, especially those that have reached the stage where they need a few hundred million dollars of investment, but this doesn't mean that things will come to a standstill. "The best projects will get done," says Erik Straser, a general partner at Mohr Davidow Ventures, "but with tremendous scrutiny."

Even the more established solar-energy industry is expected to run into problems. Zindler says that large-scale solar projects have tended to be financed via tax equity, which means that banks have invested in exchange for tax credits to offset their profits. But banks that aren't making profits don't need these tax credits. So Zindler expects a "temporary disruption" in the market until other firms start funding solar projects.

One consolation is that renewable-energy firms aren't the only ones facing financing troubles. "If you want to build a coal plant, you have the same problem [getting capital]," says Ron Pernick, founder and principal of Clean Edge, a clean-technology research firm based in San Francisco.

"This is not the end of the world," adds Zindler. "It's a market disruption, and the smaller guys will sell their projects or themselves to the bigger guys."