Big Banks Invest in Renewable Energy (BAC, C, WFC, GE, SPWRA, WFR)

For several years, investing in large alt energy projects depended on large commercial banks being able to profit from the tax equity generated by a project’s developer. That investment strategy began to wither away in 2009. The Recovery Act of 2009 replaced tax credits with grants and loan guarantees, and several banks have responded by putting up large sums to bolster the development of alternative energy sources like wind and solar power.

Bank of America Corp. (NYSE: BAC), Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), and the GE Capital division of General Electric Co. (NYSE: GE) have been the most active investors in alt energy. Google Inc. (NASDAQ: GOOG), though not a bank, has invested about $850 million in a variety of alt energy projects over the last couple of years as well.

Citi claims to have committed $30 billion of the $50 billion clean energy initiative it launched in 2007. At the end of July, the bank committed $80 million to a $105 million fund to be used for residential solar lease projects with SunPower Corp. (NASDAQ: SPWRA). The bank also put $40 million into a similar fund in February in conjunction with SolarCity and another $50 million into a residential solar lease fund with solar PV installer Sungevity.

BofA has put up $1.4 billion, of which 80% will have federal guarantees, for rooftop solar project aimed at industrial and commercial businesses. The bank committed $20 billion in 2007 to a 10-year initiative similar to Citi’s. The bank had committed $8.4 billion of that by the end of June 2011, of which about $5.4 billion was directed to lending and investing programs.

Wells Fargo last week announced that it has provided more than $200 million to finance a 53.5-megawatt solar project being developed by the Sun Edison subsidiary of MEMC Electronic Materials Corp. (NYSE: WFR) in New Mexico. The bank claims that it has invested about $2.2 billion in 35 wind and more than 220 solar energy projects since 2006.

GE Capital has invested $6 billion in renewable energy projects in 14 countries. The investments include 95 wind farms and 40 solar installations. Unlike the bank investments, GE often takes equity positions in its investments. At the Shepherds Flat wind farm project in Oregon, for example, GE won a contract to supply $1.4 billion in turbines and made an unspecified investment in the project.

The rooftop leasing business is getting the most attention right now because it offers homeowners and commercial property owners the ability to install a solar system with little or no immediate outlay of cash. Depending on the particular deal, the homeowner agrees to buy just the electricity or to pay a rental fee for the solar PV system or some combination. For the banks, this is practically risk free, especially if federal loan guarantees back up the initial purchase cost of the systems.

While some might consider these investments to be greenwash, they are meaningful to a sector that is just getting off the ground. The $40 billion or so already invested is likely to grow if public policy support doesn’t disappear.

Paul Ausick