(Photo of ethanol plant from Flickr and and photographer freddthompson, actor, senator and presidential candidate)
Weekly Angst: Because of the financial meltdown, ethanol companies are struggling and some are going under. Caught between corn contracts signed last summer when prices were sky-high and lower fuel prices, and with credit hard to come by, businesses are seeing the ethanol bubble of the past year burst. Investors have lost billions. VeraSun Energy, for example, expects to lose up to $103 million this quarter. Its stock is down 90% from its peak earlier this year. And ethanol companies in Kansas and Ohio declared bankruptcy last week. The Agriculture Department is considering loan guarantees to keep ethanol businesses afloat.
Mass transit hits trouble
Mass Transit agencies are also caught in the crunch. They face having to pay banks billions as old financing deals fall apart. The problem was triggered by the failure of insurance giant AIG, which guaranteed deals between the agencies and banks. Because of long-standing agreements to give banks tax shelters by selling them rail cars and then leasing them back, some 30 mass transit agencies around the country are now in danger of having to pay back their loans all at once. Washington, D.C.’s Metropolitan Area Transit Authority is the first to be hit. KBC Group of Belgium wants $43 million by next week. The feds may have to get in the middle of this one too – to keep the trains running.
Other repercussions include cancellation of a coal-to-liquid joint venture between Consolidated Energy and Synthetic Energy Systems and the delay of a SunCor Energy oil sands project in Canada. (No tears shed over those).
Major oil companies in good shape
So how is the meltdown affecting Big Oil? With prices dropping rapidly you might think they’re feeling the pain. But apparently not. With record profits last year, they have reduced their debt and are cash fat. So now they can buy up distressed smaller rivals and make deals with resource-heavy countries. Production may be down, but refining should be profitable this year. And they expect less pressure to pass windfall profits taxes. So lower prices and lower demand don’t really bother them. (No one ever said life is fair.)
On the bright side
The economic downturn could benefit green technology, though. It could give government a historic opportunity to climate-proof its infrastructure as part of a public works effort to generate jobs. This may translate into an investment opportunity, says a recent report from Deutsche Bank. The International Energy Agency has called for a $45 trillion investment in climate related technology by 2050. And Deutsche Bank says renewable energy investments have more promise in the long term than tradition energy sources.
At the same time, venture capital continues to flow into Silicon Valley and California in general. VC investments in energy and utilities were up in the 3rd quarter 90% over the same period last year, as investors pulled back from other sectors like information technology, media and financial services. Clean tech reported a record $1.08 billion in investments, most of it going to solar. In the Bay Area, which includes Silicon Valley, overall VC was up 22%, the highest single-quarter total since 2001. One benefit of green technology is most of it is tied to government policy so it’s not as vulnerable to swings in the market.
Observers are waiting to see the results of this quarter, however, anticipating that falling oil and carbon prices could have an impact. VC fell in the third quarter in other parts of the country.
And Neal Dikeman, of Jane Capital Partners, warned that a prolonged financial crisis could have an adverse effect on a 2012 post-Kyoto international agreement to fight global warming, by either delaying or weakening it.
For additional comments on the financial crisis’ impact on climate change see my earlier post.
(Sources: Greenwire, Washington Post, Wall Street Journal)
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