With renewables portfolio standards enlarging markets in 14 states?with California leading the pack?the industry has to come up with $1.5 billion in new investment money every year. In response, a growing number of lenders are putting their money where the alternative energy projects are. ?We are seeing a groundswell of environmental investment,? Sean Harrigan, the California Public Employees? Retirement System board president, said during a renewable energy finance forum sponsored this week by the American Council on Renewable Energy (ACORE) and Euromoney. ?Renewable energy is central to our financial future, our quality of life, our health, security, and environment.? CalPERS, the country?s largest pension fund, and its sister agency, the California State Teachers? Retirement System, each recently announced they have invested $250 million in the clean power and energy-efficiency market. CalPERS expects to invest an additional $500 million in the sector, according to Harrigan. The two are the first pension funds to make significant financial commitments in this area and are expected to motivate other pension funds to invest in this market. The lending universe for renewables via both debt and equity is expanding to include mutual funds, hedge funds, and other institutional investors as well, including those that fund green companies that are below investment grade. A big plus is the sector?s overall healthy returns, largely attributed to an expected boom in renewables and the liability associated with the dirty fossil-fuel industry. ?Green screening actually enhances returns,? said Jackson Robinson, president of Winslow Management. ?It is the second wave,? said Bill Ross, Cantor Fitzgerald?s manager of renewables markets, formerly with Calpine. ?Let?s hope we don?t screw up this time.? The enthusiasm displayed by Ross and others during the June 23-24 conference in New York City was tempered by painful lessons, which include failed technologies and projects and huge loss of capital. Problem areas include the federal tax credit awaiting reauthorization, as well as utilities and green power producers not understanding each other?s needs. ?They see us as competition and an annoyance at best,? noted a participant representing a solar company The federal production tax credit (PTC) for wind, solar, geothermal, and biomass projects, which is included in the pending energy bills, is seen as a mixed blessing. On one hand, it lowers the cost of a project, and many lenders are strong proponents because they can monetize the credits. On the other hand, it is risky to rely on tax advantages subject to the political winds. Some also question the wisdom of subsidizing wind energy, which reaps the majority of the PTC benefit, which is competitive without the federal credit. ?Is this what we want to do with tax policy?? asked Ed Feo, partner at Milbank, Tweed, Hadley & McCloy. He noted that wind power is ?hyper-competitive? in many regions; in Texas, it costs 2 cents/kWh. ?Why are we subsidizing consumers in Texas and California?? he asked. Because the renewables renaissance will include technology without a long track record, creative financing will be required to get the projects on line, noted financial analysts. Another problem area for the U.S. renewables market is the Bush administration?s refusal to acknowledge the need to reduce greenhouse gases. ?Climate change should be a motivating factor and spur new financial mechanisms,? said Christopher Flavin, president of Worldwatch Institute. ?This subject pulls renewables and energy efficiency forward,? added Michael Eckhart, ACORE president. He noted that the financial community is wise enough not to wait for the federal government to set policy on climate change. <b>Renewables by Any Other Name</b> Not touched on during the two-day conference in the Big Apple was the definition of renewables. It is particularly significant because the bipartisan Western Governors? Association announced June 22 it had unanimously adopted a proposal put forward by Governor Arnold Schwarzenegger and Bill Richardson, governor of New Mexico, to have the West produce 30,000 MW of clean energy by 2015. By 2020, energy efficiency would grow by 20 percent under the plan, expected to take at least two years for the 17 states to implement. ?California has historically been very aggressive in promoting renewable energy and the highest energy-efficiency standards,? Schwarzenegger said. ?We have proven that cost-effective efficiency programs can help reduce overall energy use, protect our environment, and save consumers in the long run.? ?This is for real. It?s me and Arnold,? Richardson, a Democrat, said. Contrary to earlier indications, clean coal and nuclear power would not be included in the green mix, he added (<i>Circuit</i>, April 16, 2004). There are unanswered questions, particularly about whether big hydropower would be counted. ?It is up for grabs,? said Marcus Wood, partner of Stoel Rives. Impacts on fisheries and habitats are major issues. California?s definition under the renewables portfolio standards law appears to be the most stringent of the states with renewables standards. Or as California Energy Commission member John Geesman noted, it is ?politically correct.? It excludes hydro that produces more than 30 MW and restricts certain kinds of biomass. Geesman, however, was quick to point out to the nearly 400 renewables conference participants, ?I am not suggesting that California be a model for anything, but like it or not, the Golden State is the largest renewables market in the country.?