Banking Crisis Could Raise Costs for US Clean Tech Sector

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The collapse of Silicon Valley Bank (SVB) is unlikely to have a direct impact on many clean energy and climate technology start-ups, but experts are wondering if it could alter the financial environment for the emerging sector, and impact the energy transition.

The SVB crisis might be an early sign of "dominoes starting to fall" after more than a decade of "extraordinarily aggressive fiscal and monetary policy," asset manager BlackRock CEO Larry Fink warned last week in his annual letter to investors.

Along with rising interest rates, the banking sector's struggles are likely to make funding costlier and more difficult to find in every corner of the economy, but especially for the riskiest investments such as tech start-ups.

A downward cycle for US tech companies had already begun a few months before the collapse of SVB, according to Julien-David Nitlech, managing partner at French venture capital fund Iris, deflating what some experts had described as a tech bubble. So far that downturn has manifested in a slowdown in financing rounds and lower stock prices for listed companies. But Niltech believes the tech sector "won't collapse" and that its outlook remains quite positive.

In the short term, established players such as Stem and Fluence Energy in the energy storage sector, and First Solar and Maxeon Solar in the solar energy sphere are more likely to be favored by investors, Morgan Stanley analysts wrote in a recent report.

Solar Slowdown

SVB was more involved with smaller US clean energy developers, notably rooftop solar installation firms, which largely depend on regional banks such as SVB or First Republic Bank, another troubled California institution.

Sunlight Financial, another major lender to small rooftop installers, warned investors last week that it was facing serious problems that could lead to "selling the company, raising additional capital to finance its operations, implementing cost-saving measures to preserve cash or a restructuring […] through a privately negotiated transaction or a court process."

These developments could slow solar growth in the US in the near term, but might also lead to industry consolidation, which could prove beneficial further down the road. Due to sector fragmentation, solar installation costs are higher in the US than in many OECD countries — for example, costs per installed kilowatt are 30% higher in the US than in Spain and more than 50% higher than in Germany, according to the International Renewable Energy Agency.

Beyond rooftop solar systems, Morgan Stanley said it does not expect demand for utility-scale projects to be negatively impaired given "continued attractive economics, ongoing utility support from decarbonization targets and dedicated capex plans anchoring the next several years of demand." More generally, as renewable energy costs continue to fall, "we see continued economic savings from the energy transition in most geographies around the world," the bank said.

Energy Intelligence calculations show that a 1% increase in financing costs translates into a 10% increase in investment costs for most power generation technologies, or an 8% increase in lifetime generating costs — the levelized cost of energy — for solar and wind.

This means that, with a 1% rise in financing, solar costs in the US would rise from $39 per megawatt hour to $42/MWh, and onshore wind from $44/MWh to $47/MWh. By comparison, a combined-cycle gas turbine currently generates at $64/MWh.

SVB's demise was mostly due to the combination of rising interest rates and poor balance sheet management — plus, arguably, a lack of oversight by US regulators. A law passed in 2018 under President Donald Trump relaxed capital and liquidity requirements for banks with less than $250 billion in assets, including SVB, up from $50 billion. SVB CEO Greg Becker actively lobbied to raise that threshold.

Equity and Debt Markets, Emerging Technologies, Renewable Electricity
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