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Can private financing spur further adoption of renewable energy systems? Ask the military

Can private financing spur further adoption of renewable energy systems? Ask the military

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News & Events - Engineering News

December 1, 2011

The U.S. Department of Defense is one of the biggest users of renewable energy in the world, and it announced this week it is teaming with a California-based company in an effort to drastically reduce its reliance on fossil fuels. Though the federal government often helps finance such large-scale projects, private companies are stepping in, underscoring a significant shift in the clean energy sector.

Generous government subsidies helped prop up the fledgling U.S. alternative energy sector over the past decade. However, much of the federal government's support is scheduled to end over the coming year. Some analysts have questioned whether solar and wind power companies can compete against conventional energy companies, but the military is betting heavily on the future of clean energy companies.

Executives from SolarCity Corp. said this week the firm would install as much as 300 megawatts of solar panel systems on housing and office buildings the military either owns or operates. The scope of the project is significant, according to experts, as the work is slated to span across 33 U.S. states over the next five years.

The domestic renewable energy sector has expanded at a torrid clip over the past 10 years, but critics argue the government's tax incentives and subsidies have artificially fueled growth. This year, the collapse of clean energy company Solyndra – which received a federally-insured loan from the Department of Energy – enraged some politicians and ignited a quasi-controversy, prompting the department to overhaul its loan guarantee program.

As a result, SolarCity lost a loan guarantee from the government. However, Bank of America is financing its latest project with the military, Bloomberg reports. The company will use the funding to move forward with plans to install photovoltaic systems on 120,000 military homes, according to SolarCity chief executive Lyndon Rive.

Rive and other renewable energy experts contended one of the biggest obstacles preventing clean energy companies from accepting large-scale jobs was the lack of financing available. Though the government is scaling back its own financial backing of such companies, banks are loosening their lending practices, NPR reports.

"There really weren't a lot of financing tools available, so it was done one rooftop at a time," Bank of America Merrill Lynch energy team head Jonathan Plowe said.

The deal between the military and SolarCity is one of the biggest such agreements ever orchestrated without federal loan guarantees. Demand for solar panel arrays has been growing over the past few years, according to Plowe, and BoA and other financial institutions are increasing their exposure to the market, unveiling long-term financing structures.

BoA plans to provide $350 million, and SolarCity is in the process of attracting additional investors as it looks to raise enough funds to cover the project's estimated $1 billion price tag. With private firms supplanting the role historically played by the federal government, costs are likely to fall as researchers develop innovative new products, according to Plowe.

"As the costs of the systems continue to come down and the cost of the capital continues to come down, the industry will be able to continue to grow," he said.

The clean energy sector is maturing and adjusting to market conditions. Scientists have substantially increased photovoltaic capacity over the past few years. The Pentagon has invested heavily in solar and wind technology. Military officials serving in Iraq and Afghanistan asserted the transportation of oil is both costly and dangerous, and they have credited improved wind and solar panel technology with savings troops' lives.

SolarCity works with government, residences and businesses, and often installs solar panel arrays at no costs. The firm charges owners for the electricity they use, but it offers rates that are roughly 5 to 10 percent less expensive than those of local utilities.


 



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