CSP Special: Interview with Mathew Meares, assistant vice president, HSH Nordbank


The US House of Representatives recently passed the revised Emergency Economic Stabilization Act of 2008, which contains measures to extend the solar investment tax credit (ITC) by eight years.


The landmark legislation is part of H.R. 1424, the Emergency Economic Stabilization Act of 2008, designed to address the US financial crisis. It is being considered to be the most significant federal policy ever enacted for the solar industry.


Prior to such landmark decision, Mathew Meares, assistant vice president, HSH Nordbank, in an interview with CSPToday.com had categorically mentioned that such verdict was coming.

Speaking with CSPToday.com ahead of
CPV and CSP Investment & Finance Summit USA 2008, recently held in San Francisco, Meares had said: "They (incentives) will most likely be renewed. However, the timing is uncertain. Before then nothing is really going to happen (in the context of development in the US vis-à-vis incentives for developing solar in many European markets arising from the significant feed-in tariffs that solar generators can collect from utilities to which they sell electricity)."


This viewpoint was shared by Meares when he was asked to comment on the prevalent situation in the solar industry in the US, which had witnessed the US Senate's failure to extend solar tax credits for the eight time prior to the favourable decision.


Even as the US industry has got a major fillip, some of the European investors acknowledge that solar is now a proven industry, even though it has not yet reached grid parity and it has still a huge potential for growth. A section of the industry points out that there is a natural fit between solar companies and PE companies. CSP and CPV are at a stage of maturity where it fits better VC than other PE/project finance companies. And in terms of risk diversification, investors are opting for different technologies and different segments of the value chain in the solar industry.


For his part, Meares had also exuded confidence in terms of availability of capital for the sector.


On what makes project finance a viable option for solar energy especially CPV and CSP projects, he said there is plenty of project finance for "good" projects.  


"There has been very little margin expansion thus far, though there could be some in the near future.  I in general expect capital to be available. Interestingly for CPV and CSP, it remains to be seen how much financing is available as technology risk is in general higher.  To the extent the CSP is similiar to the original SEGS (solar electric generating system) projects, capital should be available. CPV will be relatively easy since the actual cells are based on technology used in space craft for year and mirrors are very standard. Also you can test full scale prototypes very easily.  This will convince the market fairly easy that CPV is a good technology."


With reference to the development of technologies for CSP and CPV, an expert in Europe recently told CSPToday.com that not all of the system costs of developing "an industry" can be driven out "in the laboratory". He had said, "We need a thriving global marketplace, which has sufficient volume and activity to attract competing firms and talent into the race to lower cost systems. This I believe is happening due to the leadership, and investment through tariff regimes, of selected European Union countries. For project finance, the predictability and certainty of long-term tariffs is a clear benefit."


Sharing his viewpoint regarding the same in the US, Meares said there is a huge expansion going on in the US also.


"In reality, the US is a far larger potential market. The fact of the matter is the US has chosen to use tax credits as its incentive mechanism. Therefore, "tax equity" effectively replaces project finance as the means bringing in lower capital for most projects.  There are therefore limited opportunities for traditional PF as compared to European projects.  Most US financings are construction and back leveraged type deals," pointed out Meares.


When it comes to assuring banks about the feasibility of any project in this sector, he acknowledged that in reality most of the projects are far from being completed. What matters is some sort of authentic or seemingly positive development rather than just floating an idea.


"There are many press releases.  Most don't say the projects will not be completed until 2010 or later. This means very likely there is nothing to the project other than an idea.  It is far more important to have legal documents and real sites than to have great press releases. Therefore it is important to be real," he said.


It is acknowledged that the success or failure of solar projects depends not only on getting units installed, but learning how best to financially structure your project.


Commenting on how companies are currently proving that unproven technology works or how are they evoking optimism in the wake of rising need for renewable energy across the US to get project finance for their projects, Meares said, "Honestly, I don't think companies are proving unproven technologies in a good way in CSP. These projects are going to cost hundreds of millions of dollars. At the same time, the technology is very new with only IE reports and maybe a test facility.  Therefore, the cost of capital is going to be high.  CPV can best tested relatively easily because it comes in smaller sized projects and will be exactly the same. Therefore, small risk initially and much larger can be take later on."


Finally, talking of CSP and CPV separately, assessing opportunities from HSH Nordbank's perspective in these two renewable offerings, considering typical structuring, criteria for bankability and overall project economics, he had said in reality nothing is going to happen in the US until the ITC is extended.  


 "CPV is in much better shape relative to CSP. CPV can be installed in smaller chunks quickly with less initial risk. In reality, nothing is going to happen in the US until the ITC is extended. Therefore, real projects are several years away."