Drop In Oil Prices Dulls Enthusiasm For Renewable Energy

October 21, 2008

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As oil prices soared, investors looked into renewable energy. But now that oil prices have dropped below $70 a barrel, from $147 in July, the key rationale for investors to pump cash into alternative fuels has been removed, at least temporarily, Wall Street Journal reports.

New Energy Finance reported that global renewable energy stocks dropped about 45 percent, compared with a 23 percent decline in the Dow Jones Industrial Average over the same period.

At least in the short term, the drop may affect renewable-energy projects, because they may not be able to get funding as the credit market tightens.

Eric Silverman, a partner at law firm Milbank, Tweed, Hadley & McCloy LLP, told the Wall Street Journal that after the troubles at Lehman Brothers and AIG, both big lenders in renewable-energy sectors, U.S. wind-farm developers are scrambling for alternative sources of credit.

GE Energy Financial Services, another major investor in U.S. wind-farm development, is also cutting back spending amidst the credit crisis.

However, investors still see long-term opportunity to make money in renewable energy because governments in the U.S. and Europe are both working to reduce their dependence on foreign oil and GHG emissions. U.S. lawmakers recently approved a financial-bailout package, which included a provision to extended federal tax breaks for wind energy by one year and solar by eight years.

European leaders recently agreed to stick to its carbon plan and schedule, despite complaints from Germany, Italy and Poland that the plan would hurt their competitiveness.

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