The smart grid sector was rightfully excited to hear the news about President Obama’s 2009 American Recovery and Reinvestment Act (ARRA).  The President’s tone was sharp and clear; cleantech would be in the spotlight, and more than $4 billion would be allocated to an updated energy transmission system.  As the weeks passed, it became evident that the controversial ARRA would not see an immediate doling-out of funds, frustrating many in the industry, while simultaneously presenting a unique opportunity. 

Enter IBM’s Global Financing (IGF) business and their subsequent $2 billion financing program, focusing on three main areas: health information technology, smart grid solutions, and broadband over power lines (BPL), as well as some transportation and “green” initiatives covered by ARRA.  While many cleantech projects may benefit from this program, smart grid initiatives, and more specifically utilities, will be the main beneficiary.

The central function of IGF is front-end funding, assisting their clients by providing immediate financial objectives and implementation.  The goal is to fast-track a utility’s smart grid implementation, as opposed to waiting for ARRA funds that will not be available until 2010 or 2011.  Furthermore, coming to light in recent weeks is the public dissatisfaction of utilities like Duke Energy and PSEG about the $20 million cap per smart grid project, as they believe it is not nearly enough to fund a large smart grid rollout.  While the DOE is listening, and quite possibly altering their initial guidelines, IGF sees another point of entry, as they can provide cash and credit to a utility now.

The sum of an IGF-accelerated project is comprised of several actions they take, including the funding of IT not covered by ARRA, long-term credit options, flexible payment options, and better cash flow.  Many utilities will find the deferred payment plan attractive, wherein there are no payments for the first six months, and for the next one to six months, only a small fee and interest would be due.  Additionally, IBM is not working altruistically, and beyond reaping benefits from financing, the Company sees the opportunity to introduce IBM products, with competitive rates on all IBM hardware, software and services.  In the current economic climate, this presents IBM with a great opportunity to strengthen their competitive position in the smart grid sector.

The malleability of IGF financing will also prove beneficial.  A utility will now have the ability to fund projects that are currently in a holding pattern, and get funding for what the ARRA will not cover, like IT.  Once the ARRA funding does come down the pipeline, IGF will incorporate those benefits into a new rate structure.  Yet, even if the utility does not receive intended ARRA money, IGF will structure an alternate plan as a result.

Cleantech projects will undoubtedly benefit from the IGF stimulus-focused financing.  The most meaningful impact will be seen in smart grid rollouts, as new projects can be planned and proposed projects can be more quickly realized.  IBM has high stakes in the smart grid, and rather than play by the government’s rules, they are actively defining the game.