Cashing out on Mojave solar bonanza

BrightSource Energy — the Oakland-based builder and operator of California solar thermal plants — has filed for a $250 million IPO. The S-1 doesn’t say how many of the 94.3 million shares it plans to sell

According to its S-1, the company was losing $40+ million/year but last year losses rose to $71.6 million with cumulative net losses of $177.3 million. The company did end the year with $37.8 million in cash equivalents on hand. But the S-1 says “executing on our pipeline and expanding our business requires significant additional capital.”

The S-1 said that it‘s signed 14 contracts with PG&E and/or SCE to deliver 2.6 GW of solar capacity. The first of these is the Ivanpah project, with a gross capacity of 392 MW on 3,600 acres near Baker in the Mojave Desert, on the I-15 between Los Angeles and Las Vegas.

The S-1 says this is the first of the company’s projects, with construction begun in October 2010, the first phase due in 2013 and the remainder in 2014. The project received a $1.6b loan guaranteed by DOE, as well as $300 m in equity from NRG Solar, $168m from Google and $130m from BrighSource.

Veteran solar scribe Ucilia Wang sees this as a multi-million dollar bet on Ivanpah — and that seems like a good way to interpret it. The success of Ivanpah (and Coalinga Solar-to-Steam) are essential to getting financing for the remaining projects.

Some have questioned whether solar thermal (such as the BrightSource solar tower) can be cost competitive with PV in the long run. That’s not the real question: can BrightSource execute on its current plans (without internal or external delays) and deliver the contracted energy reliably?

Assuming there are no loopholes in the contracts, the Power Purchase Agreements are (by design) bankable revenue sources — representing the desperation of California utilities with the RPS gun to their head, buying from (thus far) the only gigawatt-scale game in town. Still, it’s hard to see how a successful IPO for BrightSource helps any of the PV companies, or for that matter those of the solar thermal operators who lag BrightSource by several years.

America's RE problem: consistency, not dollars

Over the weekend, the NY Times ran an article summarizing the great building boom of utility-scale solar projects for the Mojave desert that has been approved in the past 60 days.

It minimized the difficulties the developers have faced getting federal, state and local approvals, and instead focused on the gun to their head: the looming expiration of federal subsidies.

As reporter Todd Woody wrote:

The Ivanpah plant is the first of nine multibillion-dollar solar farms in California and Arizona that are expected to begin construction before the end of the year as developers race to qualify for tens of billions of dollars in federal grants and loan guarantees that are about to expire. The new plants will generate nearly 4,000 megawatts of electricity if built — enough to power three million homes.

But this first wave may very well be the last for a long time, according to industry executives. Without continued government incentives that vastly reduce the risks to investors, solar companies planning another dozen or so plants say they may not be able to raise enough capital to proceed.

“I think we’re going to see a burst of projects over the next two months and then you’re going to hear the sounds of silence for quite a while,” said David Crane, chief executive of NRG Energy, on Wednesday after he announced that his company would invest $300 million in the Ivanpah plant.
…
With both Democrats and Republicans promising to rein in the federal budget, it is unclear whether lawmakers will extend the programs in any form. “That could stall a number of projects and even lead to the failure of some,” said Ted Sullivan, an analyst with Lux Research, a consulting firm in New York.

Reading this in my Sunday Merc was eerie, because it exactly echoed what I read Saturday night about the beginning and end of the first wave of Mojave solar thermal development during the 1980s, where the nine plants of the Solar Electricity Generating Systems developed by Luz International once accounted for 95% of the world’s solar electricity generation capacity.

Writing in a technical report for Sandia National Laboratories, Luz’s former business development VP, Michael Lotker, summarized how the company was repeatedly forced to plan its projects in between the institution of subsidies (such as RE tax credits) and their expiration. Often this meant that a 18 month project had to be completed in ten months — and in one case seven months — as the company was squeezed between knowing that the credit was available and the deadline for generating electricity before the credit expired.

Knowing that Luz had a gun to its head, investors, suppliers and even the unions exploited the company’s desperation knowing that it had to agree to almost any terms to make the project happen. As a result, the company ran out of money, which helped discourage any future company from taking the risks that it did.

If the government is paying for something — whether directly via procurement contracts or indirectly via tax subsidies — it has a strong interest in helping its suppliers (in this case of renewable energy) improve their efficiency. More efficiency is a win-win — either the government can get more of it supplied or it can get the same quantity at a lower price. So with the unpredictable, irregular or erratic policy — such as “temporary” credits renewed one year at a time — pushes up costs both for the firms and the society that is subsidizing those firms.

Both Woody’s story and the earlier report by Lotker highlight an important point for US renewable energy policy: the most important thing (as with any policy that impacts business) is consistency and predictability.

End to solar thermal? Not so fast!

September and October have been great months for utility-scale solar thermal projects in California, as the state (with cooperation from the Feds) approved six projects with 2.8 gigawatts of capacity in the Mojave desert. Five of these are proven trough systems, while the sixth plans to use a Sterling engine.

However, Michael Kanellos and Brett Prior of GTM speculate it’s the beginning of the end for solar thermal. Their argument is sound in principle, but I wonder if their timing is premature.

Most of the advantages of the solar trough systems are also its disadvantages: it's low tech, decades-old proven technology that works well at scale. For years, the world’s largest solar facility — and California’s entire utility scale solar capacity — consisted of the nine SEGS sites totaling 354 MW in Eastern Mojave. The GTM argument is that the main solar thermal systems — both trough and tower — are about to lose to PV on cost per watt and LCOE, and that the price of PV technology will continue to improve more rapidly than that for thermal.

I think the latter is certainly true — PV costs have been coming down for decades, while many of the thermal parts are mature and proven. Also, the moving parts on heating water and running turbines guarantee significant operating costs that are not seen by PV, which are essentially semiconductors covered by glass windows that need to be washed.

Has it crossed over yet? I think the crossover is coming, but the fact that all six utility scale systems are thermal rather than PV suggests it’s still a ways off — or at least that PV manufacturers can’t ramp up production capacity quickly enough to generate gigawatt-capacity plants.

While the costs are attractive, PV clearly has more risk in the short term than the proven thermal technology. That (as they argue) other utility scale systems plan to use PV suggests the crossover is coming, but I don’t think we’re there yet.

The other thing about the argument is that it says little about the economic viability of thermal systems either operating or under construction. If utilities have signed a PPA with the RPS gun to their head, they still need the contracted capacity at the agreed-upon price.

In fact, if both Jerry Brown gets (re) elected (even odds) and Prop. 23 fails (it’s outspent 3:1), then utilities are going to need whatever capacity they can get to meet the RPS standard of 33% by 2020. Keeping the 33% requirement will give an extra 2-5 years of life to the solar thermal market (beyond whatever its natural lifespan is) as buyers wait for PV manufacturers to ramp up capacity to meet a global — not just California — demand for renewable energy.

Renewable energy is a capital-intensive commodity business. At some point solar thermal companies will have a hard time competing for the bulk of the market, but for now they can — in best Monty Python fashion — note that “I’m not dead [yet].”

Temporary pause in policy schizophrenia

On Wednesday, the California Energy Commission approved the 250MW Beacon solar plant . This 2000 acre project about 17 miles north of Edwards Air Force base is in Kern County, at the West edge of the Mojave Desert.

The plan is the first utility-scale solar thermal project approved in California since 1990, and when complete would nearly double the 350 MW of solar thermal capacity near Kramer Junction.

On the one hand, I’d like to be encouraged. The CEC claims to care about greenhouse gasses, renewable energy, keeping generating capacity (and operating jobs) in state, etc. etc.

On the other hand, it’s far easier for a government agency to say “no” in our litigious, regulation-driven society. Whether it be the impact of wind generation on luxury home views or migrating birds, competing values often are used to sabotage reasonable efforts to create long-term green energy infrastructure.

The CEC is hardly done, as there are many other projects planned for the Mojave, with ideal insolation due to low humidity and low latitudes, and located near the demand (and transmission facilities) of the LA metropolis.

Even if the CEC is reasonable, there is still the threat of federal regulators (or politicians) making land use decisions to rule out these ideal locations for what should become gigawatts of RE capacity.

So this week's outcome is a step in the right direction. But it’s only one step of many.