WEALTH - Seeing the Light
Investing successfully in renewable energy demands rigorous due diligence
Every month the Coachella Valley Economic Partnership hosts a Renewable Energy Roundtable at the UCR Palm Desert Campus. Participants include renewable energy experts, entrepreneurs, policymakers, and elected officials. Attendees are updated on the status of proposed and under-construction projects, including wind, solar, geothermal, and biomass within an hour drive of the Coachella Valley.
“We started this in summer of 2009 and had four people at our first meeting,” recalls Wes Ahlgren, CVEP’s chief operating officer. “Now we have between 80 and 100 people at each roundtable.”
CleanEdge.com reports that global investment in clean energy set a record $260 billion in 2011 and CleanTech launched the industry’s first real estate investment trust to invest in property used to generate alternative energy sources. Most of the private investment opportunities in the Coachella Valley exist in the rapidly growing small-scale solar industry.
“Experience really counts in this business,” says Al Nagy, president of PsomasFMG, one of Southern California’s largest solar developers. Nagy develops solar projects for the public sector, including school systems, municipal buildings, and public agencies. “I caution investors to invest with people who have been successful with previous businesses and put their own capital at risk. That includes both public and private companies.”
Fred Bell, chief operating officer of Palm Desert-based Noble & Co., brings in private investors typically in the $1 million to $3 million range. Noble builds and operates commercial and industrial “behind-the-meter” power generation. “We can give investors returns more attractive than they can get in the stock market if the projects are structured right and it all works,” Bell says. “Industrial and commercial users want predictability in their power costs.”
Controlling costs upfront is a key risk in a solar project’s early stages. “Whoever is installing a solar farm must work within certain cost parameters,” Ahlgren says, noting that CVEP is an excellent resource for due diligence on most of the area’s solar companies.
When investing in solar projects, make certain the developer has the required county and municipal zoning permits. A signed power purchase agreement with a utility is a must, as are transmission lines to distribute that power to the grid, since that is how these deals pencil out for profitability. “It’s a challenge to tie all these pieces together,” Nagy says. “Not having all of them settled before you begin construction is a red flag.”
Dr. Peter Gevorkian, president of Vector Delta Design Group, an electrical engineering and solar power design consulting organization in La Cañada Flintridge, is an internationally recognized solar industry expert. “Any investment in solar will be a poor investment if it is not designed, installed, and maintained properly from the beginning,” says Gevorkian, who recently spent a month in India consulting with the government on the country’s solar industry.
Capitol Hill is said to be slowing industry development. “Critical cash grants that are part of the American Recovery and Reinvestment Act of 2009 are no longer available for renewable energy projects. In addition, tax credits already in place are collapsing, and they were relied upon when developers worked up a project pro forma,” explains Emily Murray, a partner at the Allen Matkins law firm in Los Angeles. Projects whose success depended on these tax credits and crash grants should be avoided.
Timing is everything on Wall Street and Main Street. Jim Estes, professor of finance at California State University, San Bernardino and a partner of Alpha Wealth Management, tells clients, “This isn’t really the right time for investments in renewables, because they need federal incentives to work for investors.”
For information about solar energy, please visit these websites:
Coachella Valley Economic Partnership: www.cvep.co
Renewable Energy Marketers Association: www.renewablemarketers.org
Solar Electric Power Association: www.solarelectricpower.org