An excellent overview of utility-scale geothermal and the lifecycle of various forms and stages of finance. We look forwards to the next installment of this fascinating subject - especially given the perspective from an investment professional.
Thank you for an excellent financial analysis of a key issue in structuring project finance for renewable energy projects. As a project sponsor, we've all too often encountered vendors attempting to sell cutting edge solutions as mature commodities - unwilling to share the key risks - ie their product and EDC (Engineering, Design, & Construction) risks - not to mention the long-term OAM&P (Operations, Administration, Maintenance, & Provisioning) issues. Most solar players don't have strong financial track sheets (if any at all), yet they expect project owners to invest millions to hundreds of millions into field trial/pilot projects - a ludicrous expectation.
It's absolutely refreshing to see a major brand, such as Siemens, picking up a fair and equitable share of the financial risk - it makes our banks and financial consortia and generally the entire structured project finance process infinitely smoother - almost teflon.
We look forwards to re-evaluating Siemens broad spectrum of energy solutions as viable alternatives to our reticent bevy of vendor/supplier wannabees.
While we can appreciate the sensationalist headline grabbing antics of the author, we neglect to appreciate the generally reliable, fixed-line infrastructures of the utility companies - all those kilometers of transmission lines and last mile step-downs into transformer distribution points, supplying consistent, reliable, monitored and administered power to high-rise, high-density offices, residential buildings and compounds, and of course, the unit or stand-alone residential property. Claiming the inevitable destruction and demise of a massive utility company and it's infrastructure due to residential solar (without going through the power generation, distribution, and loss numbers)...essentially without taking a broad look at the net power ECO-STRUCTURE (or eco-system) - not terribly responsible un-biased journalism - wreaks more of highly biased solar PV propaganda.
An ECO-STRUCTURE or ECO-SYSTEM is a reasonably well balanced system of buyers, sellers, finaciers, and government oversight/participation (not to mention fringe special interest groups).
Truthfully - without the need to supply fixed-line wired infrastructure and services to residences - utility company operating costs should drop dramatically.
Western countries persistently, pervasively, and gloatingly, like to point fingers at China's monstrous carbon emissions - but they neglect to mention that leading western firms moved their toxic operations to China and South Asia to avoid the heavy operational penalties in their home countries, not to mention labor laws, etc ad infinitum. China will move at China's pace, dependent on it's socialist structure as opposed to maximization of profits, etc. For China to truly develop a market oriented 'game changer', movement must come from the innovative public sector, demonstrating profitability within mature business models. This will trigger the copycat avalanche and eventual saturation of the RE market in China at a blistering pace, through private sector participation, quality and sustainability issues notwithstanding. A simple look at the mobile phone, ipad clone, and PC manufacturing sectors should provide ample evidence of China's appetite for new markets. Selling RE power alone is insufficient - as in the mobile industry - we need to learn how to cook our projects to generate multiple streams of revenues, reaching across diverse market segments, as opposed to dependence on ethereal, unsustainable, and unreliable government subsidies. Entry into China's RE or other markets is no more challenging than other countries - just different rules with different names. The key is finance and pilots. Entrepreneurs need to bring finance, as Chinese tend to be risk adverse, and instantiate pilots to demonstrate your business and especially profit models. Then it's just a matter of choosing a launch (pilot) site with the proper chemistry. Trying to launch pilots in Beijing is suicidal for entrepreneurs.
Solyndra's lawsuit should theoretically backfire horribly. The simple fact is the company blasted through a US government guaranteed USD 550 million loan within 12 months. An absolutely obscene and ludicrous financial gamble in an extremely volatile market, already engaged in aggressive price wars. Solyndra's legal activities are an attempt to point the popular finger at China for all its woes as opposed to acknowledging it's own incompetent, negligent, and potentially criminal (that kind of cavalier, arrogant stupidity should be criminal) management. Solyndra gambled heavily with US taxpayer money and lost. No sane, responsible construction company would construct a USD 550 million project without solid contractual revenues and solid demand in the pipeline. Solyndra's lawsuit can only reveal some of the massive US industrial frauds in this market sector and in Solyndra's case - we the US taxpayers are once again the losers. While I continue to applaud President Obama's focus on the renewable energy industry - the USA should have learned from its own contemporary history that throwing money without responsible accountability and controls is not a sustainable solution. I'm assuming Solyndra will rely on anti-China political rhetoric to win its case. It used political influence to seal its USD 550 million taxpayer backed loan (with no strings attached - what a fantastic deal) - however within the discovery process - lots of Solyndra's dirty laundry will become public knowledge - unless Solyndra has already destroyed all that condemning evidence. This will be an interesting brawl.
GE - not so passive in the selection process - they chose the lowest bidder without including due diligence on the company's financial statements - to ensure (as best as possible) a sustainable vendor.
We've been profiling solar power OEMs since 2011. MOST pretend to be selling toaster-like appliances, while supplicating for USD 100+million (200+MW) capacity plants, with alleged 25 year operational lifecycles. We've never seen, nor been offered any reputable and IV&V testing reports or info indicating operational lifecycles - aside from the ancient NREL reports - which are rather unflattering. When we ask OEMs for EPC referrals - the engagement drops into a black hole, so we drop the vendors. The IT services model came about because telcos were tired and frustrated with purchasing disparate systems with no systems integration. Each vendor would claim their product worked according to spec - but calls were being dropped, billing systems were malfunctioning, and service was nothing remotely close to the advertised technical specs. Even under NDAs - most OEMs cannot quote anything remotely close to a measurable (and measured) metric that can give our financiers any clue as to the gap between a 200MW rated plant and its actual operational performance. We see numbers like 80% bandied about - with no rational scientific method to justify this WAG (Wild _ss Guess). EPC firms on the other hand pretend to be simple builders - with no responsibility for the actual performance of the deployed products. As financiers - we see an utter lack of transparency at the technology edge - making solar energy projects seem more like fraud schemes than genuine technologies and businesses. Given the volatile historical lifecycle of OEMs - we perceive OEMs as 'hit & run' companies - dropping product bombs with zero responsibility or accountability for the alleged 25 year life-span of their products - trying to exit their positions with sales to utilities or other unsuspecting investors, before the operating capital runs dry. Worthy of a Madoff award for pyramid schemes. I look forwards to rebuttals.
Most of these alleged green energy projects are focused on utility scale grid operations - with dubious ROIs, massive debt-finance, transient FITs, and a plethora of other known but un-mitigated and un-addressed risks. Instead of focusing on mega-plants - perhaps the solar industry should focus on the agricultural and rural areas with grid-connected community based solar installations. The scale is considerably smaller - with the associated drop in risk and single project debt-based finance - but is eminently as scalable as utility grids. This has the added benefit of providing farmers a new sustainable and all-year long crop with considerably lower risk - harvesting the sun - not to mention the potential for poverty alleviation. This is merely changing the game from a centralized farm to a distributed farm model. NREL recently published a report on Community Solar Energy projects - A Guide to Community Solar: Utility, Private, and Non-profit Project Development This report offers an excellent menu of alternatives to the mega-grid attempts to eat the proverbial elephant in a single bite. LINK http://www.nrel.gov/docs/fy12osti/54570.pdf
@John Excellent and timely article. I completely agree with your alternative concept to utility scale projects, as I'm currently doing precisely this thing. Our goal is to launch 3-10 of these smaller municipality type pilots by the end of this year. It's more expensive on the OAM&P side, but the finance is INFINITELY easier and FASTER to get (like 20 minutes for verbal commitment).
China's labor population outnumbers the USA by roughly 4-1 (1.3 billion people vs 300 million). This is a simple fact. They can ramp up massive industrial scale plants in a matter of months, pushing out dubious quality products. Trying to compete toe-to-toe with a third world country on the basis of cost is moronic - yet that's what we're trying to accomplish with these pointless politically motivated tariffs. The Chinese solar pv engine is here to stay and the tariffs only delay the inevitable. This isn't rhetoric - but historical fact based on case studies of HP, Motorola, Lucent, Apple Computer, etc ad infinitum. All of our major industrial bases have moved critical manufacturing process to asia (to include China). Solar PV would naturally follow this trend as saving US manufacturing jobs is trendy and admirable, is not financially feasible. The oversupply provides an excellent opportunity for our nation to deploy private and community grids, providing opportunities for physical construction and management, however this will eventually cut into the utility companies' profits - perhaps significantly if allowed to follow its natural course. While flaming the author may be patriotic - his statements are factual and inevitable. Instead of tariffs - why not just subsidize our solar manufacturers. The USA has initiated a trade war it cannot possibly hope to win.
Funny thing about these highly touted government FITs - they generally don't last as long as the financed debt to build these systems. The results are imminent.