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Creating Investor Certainty in Large-Scale Solar

Helped by government loan guarantees and growing investor confidence in the technologies, large-scale solar PV and CSP developers have made some headway in recent weeks. But there are plenty of headwinds too.

The U.S. Department of Energy announced three major loan guarantees totaling $4.5 billion for large projects in the Southwest, including Solar Millenium's 1-GW parabolic trough project in California; BrightSource Energy's 392-MW power tower project, also in California; and SunPower and NRG's 250-MW solar PV plant in Arizona.

In addition to these funding announcements, BrightSource filed for a $250 million IPO last Friday – just a month after securing hundreds of millions of dollars from Google, Alstom and NRG Energy. (For a story on the IPO, read yesterday's REW piece from Ucilia Wang.)

Outside of the U.S., Areva Solar was awarded a contract to develop a 44-MW compact linear fresnel (CLFR) CSP plant at a 750-MW coal plant in Southern Australia. That project will be the world's largest “solar booster” plant using superheated steam to supplement an existing power block at a coal facility.

While developers of large-scale CSP and PV projects still have major issues with siting and financing, there are clearly more technologies of interest in the market.

“Investors are getting more comfortable with these projects because we have more in operation, more data and more experience,” says Jayesh Goyal, Areva Solar's VP of sales.

The strength of the companies backing projects is a major factor. Areva, known primarily for building nuclear power plants, acquired the financially-struggling CLFR developer Ausra in February of 2010, thus forming Areva Solar. The company gives a strong performance guarantee, which Areva's Goyal says makes the company “extremely competitive” with more established technologies like parabolic troughs and solar PV. (Also, by siting this direct-steam technology with existing coal power plants, Goyal says they can bring costs down to $1.5 to $2 a watt, which is lower than PV.)

Other industrial heavyweights like Siemens, Alstom and NRG are acquiring or partnering with CSP developers, providing additional assurances to financial institutions willing to risk backing such large, first-of-a-kind projects.

And there are still a lot of risks.

According to various reports, BrightSource has been ordered by the Bureau of Land Management to halt construction activities on sections of its Ivanpah project due to displacement of Desert Tortoises, a threatened species. Ivanpah had already been delayed due to lawsuits over the project's impact, forcing BrightSource to redesign the facility last year.

Also, in many cases, the steep drop in PV prices and the rapid nature of PV development has made that technology more appealing. Last summer, NRG Energy decided to abandon CSP technologies in favor of PV at two sites in New Mexico. And in the last five months, Tessera Solar, a company focused on CSP plants using a sterling dish engine technology, sold development rights for the 709-MW Imperial Valley solar project and 850-MW Calico project to developers that will use mostly PV, rather than CSP.

At a recent roundtable on solar financing at the PV America conference, leading investment bankers agreed that most of the growth in the near-term will be on the PV side. Although there's far more capital available to project developers today than there was a couple years ago, the risk profile of PV is often more attractive to investors.

“In the PV world, there's lots of financing available because most of [the technology] is generally established,” said JP Morgan's Manager of Energy Investments John Eber. “A lot of CSP technologies are new...and that's why they've been struggling to get financing.” (JP Morgan was an investor in the 64-MW Nevada Solar One plant, a parabolic trough project completed in 2007.)

The problem with PV, however, is that there's a much lower barrier to entry. In many cases, the developer isn't mature enough to attract the attention of a large investment bank, which can also limit the number of financeable projects.

“The money is available. The question is, do you have good projects?” asked Barry Neal, head of environmental finance for Wells Fargo during the PV America roundtable.

The entrance of established project developers like NRG, Seimens, Alstom and Areva into the CSP sector has brought more credibility to emerging technologies. But this first phase of commercial development – which includes the projects now backed by the DOE – will determine how quickly investors move from PV into CSP.

In BrightSource's recent S-1 filing, a statement about the possible risks associated with the Ivanpah project illustrates this point exactly:

“Our future success depends on our ability to construct Ivanpah, our first utility-scale solar thermal power project, in a cost-effective and timely manner,” wrote the company. “If the construction and operation of Ivanpah are not successful, we may be unable to grow our business to a sufficient scale necessary to improve our results of operations and achieve profitability.”

For a detailed conversation about how investors are approaching the PV and CSP sectors, listen to this week's Inside Renewable Energy podcast linked above.

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