The press has recently carried multiple articles on the adverse climate for renewable energy. The combination of falling fossil fuel prices, economic recession and the credit crisis is leading to dire prospects for the more expensive renewable energy technologies -- whether they are for biofuels or electric production from wind, solar, geothermal or biomass. Some even forecast a return to the dark days of the 1990s for renewables -- an era when the first generation of renewable energy installed in the 1980s died a slow death as the memories of the gas lines of the 1970s faded from mind and natural gas and oil sank to record lows.

While this maelstrom of disaster works well for those shorting the stocks of renewable energy companies, is this really the true state of affairs?

First, let's review what drives the renewable energy business. The sector does receive a healthy dose of policy support through renewable portfolio standards mandating utility purchases and federal and state tax credits. The sector also receives significant market support from non-mandated buyers. What underlies both policy and market support? Three issues: energy security, energy cost and global warming. Are these issues now a relic of some former, pre-crisis era? I don't think so.

With respect to energy security, the world is not a demonstrably safer place now than it was a year ago. Oil remains in the hands of the same regimes and national oil companies. The reliance of the U.S. on foreign produced oil remains the same. Prices have fallen, but is our view of security a purely economic one? Stated differently, are we OK buying from oil-producing nations at $70 a barrel but not at $100? That seems like a strange policy.

Oil and natural gas prices are down, principally as a result of reduced demand in the face of economic recession and the persistent high prices earlier in the year. We have demonstrated that the market works. But the forward curves for these commodities remain at higher levels, and -- even more to the point -- the longer term challenge of meeting the rising demand from industrializing nations with a static or falling supply of natural gas and oil results inevitably in the upward pricing trend. That may not be this week's trend, but it is the trend of this decade and of this century. And the costs for renewables, especially those with no fuel cost, such as solar and wind generators, trends down over time. They are effectively a hedge against fossil fuel prices.

Finally, global warming isn't going away. We may think less about it today than of our diminished 401(k)s. But the problem remains as intractable as ever, with the developing nations and China in particular continuing to pile on coal burning infrastructure. The solution is, and will remain for the remainder of this century, the implementation of non-CO2-emitting, and preferably non-carbon-using energy infrastructure.

What about the financial crisis? The renewable energy sector does use a lot of capital -- this is heavy stuff, consisting of concrete, steel, and machines that produce electrons or fuel. Much of the technology is implemented through projects using both debt and "tax equity." The latter is geared to monetize tax benefits related to these projects. The debt market has been dominated by European banks based on their experience with the sector in Europe (while we bought sport utility vehicles and bigger houses in the 1990s, the Europeans developed the most advanced renewable energy infrastructure on the planet). The tax equity market has consisted mainly of U.S. tax-paying financial institutions, investing in project companies and receiving the lion's share of the depreciation and tax credits. The deals have been relatively conservatively structured project financings, with most having creditworthy suppliers of equipment guaranteeing the performance of their equipment and investment grade customers for the energy produced by the project. This market advanced steadily through the credit crisis until September of this year -- something of a tribute to the credit structures when compared to the demise of the LBO, CDO and other credit markets last year.

In September, the game was up, at least for a while, as tax equity participants Lehman Brothers and American International Group Inc. experienced their much publicized demise, and as other investors like as Morgan Stanley and even General Electric Co. pulled back from new deals. The debt market slowed as the banks closed their doors to many new deals until liquidity returned to the financial sector. While accurate numbers are difficult to come by in this sector, New Energy Finance reports that renewable energy project financings fell from $23.2 billion in the second quarter to $17.8 billion in the third quarter. Tax equity market participants have estimated that the volume of tax equity deals in 2007 was on the order of $6 billion, but would not reach that level in 2008.

Amid this apparent carnage (and with the short sellers pounding madly at their keyboards about the demise of the entire sector), a number of institutions in fact remain in business, and deals are getting done. We are, for example, closing tax equity deals for Union Bank, J.P. Morgan Chase, Bank of America, Citibank, MetLife and New York Life, and closing debt deals for both German and Spanish banks in the U.S. market. Yes, the pricing is higher and the terms are tougher. But is the sector closed for business? No way.

There are challenges, of course. The potential growth of the sector is limited currently by availability of tax equity capital in particular. The IRS rules regarding the use of the tax credits make these generally only usable by large U.S. corporates, so the class of potential investors starts with some limitation on size. Most of the investors have been financial institutions and given the chaos among financial institutions, we can safely assume that a number of these institutions no longer need tax credits -- they have used the old fashioned way to reduce taxes -- having losses. The economic downturn also won't help with generating taxable income at these institutions. On the other hand, we are already seeing new entrants eyeing the tax equity market and its now more robust returns. More utilities, and even non-energy companies (Google Inc. is the most notable example), are looking to invest. Also, the industry is promoting changes to the limitations on the use of the tax credits to expand the base of potential investors to smaller companies and individuals.

So what is the forecast? I expect the credit markets to recover relatively quickly in this sector. In the electric power sector, the deals are well structured, present little market risk, and deliver a basic service to load serving utilities. Capital will flow first to that which presents the lowest risk and the renewable energy space can make a case for itself in that regard. Regulatory policies will stay in place and continue to promote renewables. That could change with a complete collapse of oil prices, an extended deep recession, destruction of demand for energy and electric power. But if that happens, we can bank on being restricted at a future date by the oil producing nations, not to mention the prospect of palm trees in Vermont.

Edwin F. Feo is co-chair of the global power, energy and utilities group at Milbank, Tweed, Hadley & McCloy LLP.