Talking point: The credit crunch
I want to know what readers of Clean Break think about the credit crisis and its impact — existing or potential — on the development and deployment of renewable energy and clean technologies.
One could argue it might help, because big-budget nuclear and clean coal projects will have more difficulty raising the money — i.e. debt financing — to push these megaprojects forward. In such a situation, renewables, conservation and combined heat and power projects could be viewed as the least risky and therefore most worth pursuing. On the other hand, the credit crunch could hit big wind and solar projects with equal impact, and force governments to make a greater commitment to backstopping nuclear and other conventional projects with taxpayers’ dollars.
And what do venture capitalists think about all this? Does the crunch affect how they allocation money, or their ability to raise it? Does it make life more difficult for cleantech startups in need of financing?
If you have any insights or opinions to share, I welcome it…
Tags: cleantech, credit crunch, financing
Tyler Hamilton is associate publisher and editor-in-chief of Corporate Knights magazine and former business columnist for the Toronto Star. This blog is a personal project started in April 2005.
September 28th, 2008 at 12:47 am
Tyler,
We are finding that lenders were tight, but in the past week the have closed the doors entirely (on a few equipment financing deals for us for example). This means that we are having to do a lot more work to get financing for manufacturing equipment, project financing and working capital — this will slow our growth rate, and debt will certainly cost us more. I suspect that for many manufacturers like us, that equity will have to be used to raise capital.
September 29th, 2008 at 12:37 pm
1) The spread for all debt has increased due to perceptions of increased risk. However, the spread for utility debt has increased the least of all sectors in the market. So will it be harder to get financing for large scale projects? A little. But investors and lenders are viewing utilities as a safe harbor in rough waters, so big plants will get built
2) As stated already, revolving credit facilities (short term stuff) are getting harder and harder to come by at decent rates. This drives up the cost of manufacture. When we’re talking about a unique product like a fuel cell (not that any are in full production right now) then it shouldn’t be too much of an issue. However, in markets such as the commoditized solar wafer and cell market this will compress already tight margins. Look for consolidation.
3) Will governments be willing to throw big bucks at renewables projects as a jump start to the economy? Or will it be back to bridges, schools etc… I wouldn’t bet on renewables.
4) No exit opps for renewables companies. This has been the case for a year, but now it’s the worst it’s been for a while. Look for large firms to scoop up innovative renewables and cleantech companies on the (relative) cheap as owners are looking to cash out.
So the long and short? I think this is a positive for utilities and large scale traditional projects, and it actually hurts renewables and cleantech. However, it’s also a great opportunity for large companies looking to buy into cleantech & renewable expertise to make their move.
October 15th, 2008 at 7:01 pm
I’ve worked for 3 of Canada’s financial institutions and currently have a finance role with a private company.
With recent market events, it doesn’t matter whether you are a large utility or small renewable company, capital markets are in a state of uncertainty, and the the credit markets have come to a grinding halt. Banks will continue to work with existing clients, however new business or material increases will be extremely difficult obtain (I speak from experience). Increasing credit spreads are making projects less economic and will impact one’s ability to bring in equity investors.
This type of market is probably the worst thing that could have happened to renewable start-ups. Capital is very tight and it will take some time until it flows to the higher risk plays. In my experience, the high R&D companies will take the hardest hit, but as well all know its these companies, particularily renewable companies (my opinion) that will provide Canada the greatest economic growth for the future.
Its good for personal investors as there are some great bargains, but as to how many will be around in the next few years is the greater question. I hope its not a case of us taking a few steps back!
December 20th, 2008 at 8:21 am
Toronto 19th December 2008. With credit cards being withdrawn, limits being reduced and security breaches of personal information making the news regularly, it would seem that retailers online maybe in for a bleak 2009.
One site that aims to spread a little cheer for online retailers this Christmas is http://www.checkoutwithcash.com. This innovative idea is likely to become a favourite of many sectors of the web community.
The facility allows users to pay cash through a specific payment code in 48,000 offices through America and then receive a virtual debit ‘card’ in their mail. The online card, replete with name, card number, SVC code and expiry date can be used in the vast majority of online retailers to, affectively, pay with ‘cash’ on the web.
The facility has been operating since the summer of 2008 and has already gained a loyal following of users attracted to the low $4.95 charge (to deposit $500 on the card) and its ease of use.
David Bradley, who heads up the marketing of the site, said “Prepaid cards are expected to have $200bn loaded onto them by 2010 which, in anyone’s language is a huge amount of money. The problem for users, however, is the wait which can be up to a week and some cards have large fees for setting up the account with checkoutwithcash.com the card is delivered instantly online and the set up fee is less than 1% per $500.”
In an age where credit card debts have soared Bradley believes it is a great way of managing finances too “The initial deposit is $500 and you are restricted to what you can top up in a month which allows for users to budget, there are no bills no interest and therefore managing online purchases is easy”.
Asked why restrictions are made on deposits Bradley responded “We wanted to make sure the card had other features than just being a debit card. The restrictions allow for extra levels of flexibility, for example there are no credit checks, no identification checks and no age verification. This flexibility allows customers to retain ownership of their details; if you do not want your real name on the card then you don’t have to. The age verification issues allow parents to give their sons and daughter’s cash to buy goods online such as music and games rather than using their parent’s cards which we found is something that parents are not keen to do.”
With no age verification and no ID verification isn’t there issues of money laundering? No says Bradley “You may load $500 onto an account and no more than $950 on multiple accounts. There is also a load limit per month of $2,500. Account are monitored electronically and any suspicious activity is flagged.”
Timely and simple ideas are often the most successful. Although the project was developed in the height of a bright period for the economy the recent downturn and subsequent squeezing of consumer credit could just make this project one to watch for the future.
December 22nd, 2008 at 5:50 pm
When a new government goes in everything is in flux including credit. Is lending going to change for the better? Who knows. It can not get much worse.