U.S. Bancorp Bets Big On Renewable Energy Projects

February 6th, 2013 by Trefis Team
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U.S. Bancorp (NYSE:USB) may be one of the safest bets for risk-averse investors in the financial sector owing to its traditional banking- focused business model. But that in no way means that the bank is completely closed to new ideas. On the contrary, U.S. Bancorp is one of the forerunners among financial institutions when it comes to investing in renewable energy projects – both solar- and wind-driven. [1] And while the industry is not very keen on the solar sector since it went from boom to bust over recent years, the country’s fifth largest commercial bank seems to believe there is quite some value yet to be unlocked here – something that has clearly prompted it to commit over a billion dollars to renewable projects since 2008. [2] Quite recently, the bank announced its decision to invest $100 million along with SunPower (NASDAQ:SPWR) to install 3,000 solar-power systems across the country. [3]

In our opinion, there is considerable merit in U.S. Bancorp’s decision to pursue this investment option as it allows the bank to create a niche market for itself among bigger competitors like Bank of America (NYSE:BAC) and Wells Fargo (NYSE:WFC) while at the same time enjoying the tax credits benefits the government offers on these investments.

We maintain a $35 price estimate for U.S. Bancorp’s stock, which is less than 5% ahead of the current market price.

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U.S. Bancorp has invested $930 million in renewable energy projects since 2008. And the bank’s enthusiasm has been largely unaffected over the recent years despite the solar sector being in doldrums, notably the bankruptcy of Solyndra and Evergreen Solar among others. Between 2008 and 2011, U.S. Bancorp invested $680 million in solar and wind projects, with well over $300 million of this coming in 2011 alone. The investment figure for 2012 was $250 million. And with the recently announced joint investment with SunPower, U.S. Bancorp has set aside over a billion dollars in less than five years for such projects.

So what does U.S. Bancorp have to gain here?

First and foremost, the renewable energy sector may be weak at this time, but it is definitely not dead. So even if there are only a few projects actually being undertaken, they are a good business nonetheless. After all, renewable energy projects bring the unique advantage of being able to pay for themselves within a short span of time – something that reduces the lending risks involved.

Secondly, the government’s tax credit scheme still gives investors a 30% credit on their investment – something that U.S. Bancorp can put to good use to reduce its tax bills. To put things in perspective, for a billion dollar investment, we are talking about a $300 million tax credit. Spreading this across five years, that’s $60 million in tax savings each year – not a bad thing by any means.

And finally, the expertise U.S. Bancorp is gaining in renewable energy investment will become a source of strength and a major differentiating factor for it further down the line once the outlook for the renewable energy sector improves.

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Notes:
  1. U.S. Bancorp Plans to Invest in Solar, Wind Projects, The Wall Street Journal, Feb 2 2012 [↩]
  2. Renewable Energy Tax Credits, U.S. Bancorp Website [↩]
  3. US Bancorp, SunPower Invest $100 Million in Rooftop Solar Projects, Fox Business, Jan 31 2013 [↩]