A Scottsdale-based investment fund is looking for mid-size renewable-energy projects in need of a loan, and is hoping to capitalize on incentives that utilities and the federal stimulus are pouring into such projects.
The Ethos Fund is targeting all types of renewable-energy projects in the Western states, including solar, wind, landfill-gas recovery and everything else eligible for big rebates.
Executives said such a fund is needed because while lots of public money is available for energy projects, few are being built because none of the incentives help developers with up-front costs, and the credit crunch has cut off most other funding.
“If you’ve tried to get a mortgage lately, you can imagine what it would be like for a renewable-energy developer (to get a loan),” said Adam Boucher, president of the fund planned at $150 million.
The Ethos Fund is looking to make short-term loans of six to 12 months to provide the up-front financing, with the energy projects and incentives serving as collateral.
Ethos is targeting projects that need between $250,000 and $5 million in start-up financing, or have an electrical-generating capacity between 100 and 200 kilowatts.
Most household solar systems or backyard wind turbines can produce less than 10 kilowatts, while solar and wind power plants produce several thousand kilowatts.
Boucher said mid-size projects are uncommon because there are few ways to finance them, a niche he wants to fill.
While federal and utility rebates can cover more than half the cost of renewable-energy projects, those incentives only are available once the projects are built.
“They will only be paying interest for a short period of time,” Boucher said.
Boucher has been putting the fund together for two years, but with the changes in the federal-stimulus package passed in February for renewable energy, Boucher expects to find many more eligible borrowers.
Many renewable projects are eligible for a 30 percent tax credit, but the stimulus allows projects to get that tax credit as a single payment in the form of a grant, so developers don’t have to wait until tax season to get their money back.
Boucher, who has been doing private lending since 2003 when he moved to Scottsdale from the San Francisco Bay Area, said he sees the most potential in alternative energy.
“I compare it to the race to the moon,” Boucher said of the nationwide alternative-energy push.
Small banks aren’t experts in renewable-energy rebates and credits, which gives Ethos an advantage, he said.
The fund intends to charge interest rates between 10 to 15 percent, and pay investors returns of 12.7 to 14.1 percent, according to the fund’s executive summary. Ethos is asking a minimum investment of $100,000.
But the fund needs to find borrowers, and has yet to make a loan.
The fund principals are renewable-energy supporters, including senior underwriter Larry Farris, who makes biodiesel fuel in his garage, Boucher said.
“Our underlying business model gives us a significant comfort level with these projects,” he said.
At least one executive who develops alternative-energy systems like those that Ethos is targeting said such financing is needed.
John Ellers is CEO of Solid USA, which sells large hot-water and air-cooling systems powered by the sun. Solid is based in Austria and is selling systems in the United States.
Even before the current credit crunch, large banks only wanted to lend to larger solar projects in the range of $20 million or more, he said, leaving the mid-size projects struggling to find loans.
“It certainly is something that is needed today given the dearth of traditional construction financing that is available,” Ellers said.
In some cases, Ellers has turned to Austrian banks to finance U.S. projects because American banks are unfamiliar with the technology, he said.
“The major banks in Austria look at these projects and are comfortable with the technology being used . . . so they can do the underwriting much more easily and cost-effectively and at a lower risk than other lenders,” he said.
“I’m hopeful that in the near term our traditional lending sources for construction financing will get back into this market.”