Risk & Compliance

Some CFOs Are Ignoring the Credit Crunch

The CFOs of two start-up energy companies have a lot of issues to fret about, but the tightening credit market isn't one of them.
Marie LeoneApril 7, 2009

Some CFOs aren’t losing sleep over the credit crunch, at least not yet. For now, finance chiefs of start-up energy companies are more worried more about equity financing and rolling out new technology than they are about borrowing.

Eventually, “we may have to cross the valley of death into commercial financing,” said Daniel Goldman, the finance chief of GreatPoint Energy, at a recent industry meeting. But for now, he’s focused on developing the company’s first commercial project, a clean-energy gasification plant that uses a technology known as hydromethanation to convert coal and petroleum coke into natural gas.

At last week’s CFO Green Conference: Making Sustainability Cost Effective, Goldman told attendees that GreatPoint Energy is counting on its equity investors, as well as strategic partners like Suncor, AES, Dow Chemical, and Peabody Energy, to help get its first project off the ground. The gasificaiton plant is slated to start construction during the fourth quarter of this year. At this stage, “we are not dependent on the credit markets,” added Goldman, who has helped raise $140 million to date at the 5-year-old company.

Similarly, Jack Jenkins-Stark, CFO of the 3-year-old BrightSource Energy, remarked that the economic downturn isn’t affecting his start-up company the same way it affects older companies that rely on the credit markets. He ought to know. Along with being the former finance chief of SVB Financial and GATX Capital, Jenkins-Stark spent more than 20 yearsin finance, risk management, and operations at one of the nation’s largest power companies, PG&E Corporation.

BrightSource develops, builds, owns and operates large-scale solar energy plants. In the near-term, the start-up is focused on raising equity, showing off the its demonstration facility, and building a $2-billion large-scale solar project with help from the Department of Energy and the new stimulus package, Jenkins-Stark told the audience.

By his calculations, 50% to 60% of the solar project’s total will likely be eligible for the DOE’s loan-guarantee program, while another $500 million may be financed with a cash grant equal to the value of a related federal investment tax credit that the project garners. The rest of the cost will hopefully be covered by Blue Chip partners over a 3-year period.

While the credit markets don’t make these CFOs toss and turn at night, regulatory nightmares do cause sleepless nights. “There is no clear information about [the stimulus package benefits] from DOE,” complained Goldman. Further, he said he’s “uncomfortable” with the pace of change in Washington, adding that he is “discouraged” about how long it’s taking DOE to get its staff in place. Without the correct staffing levels, Goldman claims, it will be tough to get the stimulus money to the market quickly.

Jenkins-Stark agreed, noting that when it comes to stimulus package funds, “the devil is in the details.” That’s true of plant construction in general, however. Jenkins-Stark quipped that the company’s current demonstration project is in “the 18th month of a 16-month siting [phase].” He explained that the project is in the desert on DOE land, and BrightSource is being extremely careful regarding state and federal requirements. “No one wants to make a mistake on this first [project].”

Goldman said he moved beyond a capital rationing mindset at GreatPoint Energy during the construction of the company’s $30-million Mayflower Clean Energy Center, a feedstock testing facility in Somerset, Mass. By his lights, it was more important to complete the Mayflower project on time to prove that the company’s technology was viable than to worry about whether the plant would run over budget, said Goldman.

With the facility now in operation, Goldman must change his mindset once again. Now he needs to concentrate on such issues as setting the future R&D budget, protecting the company’s intellectual property, and figuring out whether running the Mayflower plant—which is an expensive job—should be turned over to a third party. As a result, Goldman estimated, he spends up to 15% of his time on non-traditional CFO duties.

Jenkins-Stark says Goldman “does better than me,” when it comes to the time he spends on traditional corporate-finance task. But like Goldman, he has his hands full with R&D spending and protecting IP, as well as tracking public policy and regulatory issues.

On the plus side, job creation is an added bonus of the new renewable energy projects, noted both finance chiefs. Those jobs include construction jobs “that are not necessarily specialized,” said Goldman. Also on tap: higher-paying research and development jobs, including many related to environmental cleanup.