A large portion of the energy and ag sectors cleantech targets are strongly backed by liquid and well developed debt markets and lending practices. But in cleantech, basic nuts and bolts debt has been scarce or weird.
- We have cleantech companies, venture capitalists and pundits babbling self servingly about a “gap in the capital markets” that we need project finance to fill. (Why because since it’s a bad deal for you it’s a great one for a lender?)
- We have government loan guarantees in the US crowding out venture capital.
- We have cheap loans in China creating accusations of “venture capital dumping” in cleantech causing analysts to ask how a US firm can compete.
- We have project financing, which began with tax equity crowding out project debt in US.
- We have debt structures behind FITs in Europe.
But where is the basic stuff? Term debt, mezzanine debt, credit facilities? For example I know of no significant mezzanine lenders with a focus in cleantech.
Is it scarce because it’s been crowded out? Have the capital markets failed, despite being awash in cash and yield hungry? Are lenders just too wary still post GTC – an argument I just don’t buy? Do the companies and their venture capital sponsors not understand it?
Perhaps the good lending deals aren’t so good. Perhaps cashflows are too weak, and projects too early and risky. Perhaps the policy risks are higher than we believe.
It’s not a simple question, but one worth exploring without jumping to the knee jerk reaction that the lending markets don’t get it and have failed. They generally get risk very well. And the fact that venture markets have such a high percentage of capital allocated to such capital intensive industries, yet the debt markets have yet to follow – suggests that risk is getting mispriced on at least one side of the equation. And that spells danger and opportunity.