With Proven History, Solar Parabolic Technology Attracts Investors

Aug 29, 2007 - California Energy Markets - energycentral.com

The once-dormant solar-parabolic industry has shown robust signs of life, with investment banks underwriting solar-power plants and utilities signing titanic contracts.

Wells Fargo, JPMorgan Capital and Northern Trust announced last Thursday that they made an equity investment in Nevada Solar One, a 64 MW parabolic trough plant in Boulder City, Nev. The plant, developed by Acciona, a Spanish energy company, will have the first leveraged lease-structured financing arrangement for a concentrating solar plant in the United States.

"Historically one of the biggest challenges focusing on solar has been financing," said Barry Neal, environmental finance director for Wells Fargo. But solar-parabolic thermal parabolic trough technology "has been around for decades." The ability of investors to evaluate a renewable-energy project "with years of operational history of the same technology is critical in the evaluation process," he said.

Under the terms of the deal, Wells Fargo, Northern Trust and JPMorgan (the lead equity investor) essentially own the facility and lease it to Acciona. Debt partners in the deal include Banco Santander, BBVA of Spain and CAIXA of Portugal. Neal would not say how much of the $266 million plant represents debt versus equity.

California now has more than 350 MW of solar-parabolic projects operating in the Mojave Desert, under a contract with Southern California Edison. Most of the plants were built in the 1980s and early 1990s.

Recently something of a surge has erupted for solar-parabolic deals. Nevada Solar One began operating in June, and Pacific Gas & Electric announced a 553 MW solar-parabolic deal with Israeli firm Solel. PG&E is also separately negotiating a 500 MW parabolic deal with BrightSource Energy. The BrightSource contract is "being finalized as we speak," Keely Wachs, PG&E's environmental communications director, said Thursday.

Parabolic trough "is a proven technology," Wachs said, and the Solel deal "is cost-effective, it correlates well with our peak demand, and it connects with our distribution system."

Last September, Arizona Public Service completed the first solar-trough project in the United States in more than 20 years, the 1 MW Saguaro plant. "The infrastructure needed to be jump-started again," said APS spokesman Steven Gotfried. "As every state continues to put in renewable portfolio standards, the demand for renewable energy is going to increase."

Gotfried noted the solar-trough technology offers economies of scale and appears to be more financially viable than photovoltaic systems. Neal agreed that attracting institutional financing may still present a hurdle for photovoltaics, which tend to be smaller than thermal plants. But "one of the ways you can mitigate that," he said, "is to aggregate multiple projects."

Some PV projects are attracting commercial investment. SunPower Corp., a San Jose-based company with shares traded on Nasdaq, obtained financing for its photovoltaic project at Nellis Air Force Base in Nevada from MM Renewable Ventures. The 25 MW system will be the largest PV system in the United States, according to SunPower. It is scheduled for completion by year's end.

Gary Wayne, director of strategic projects at SunPower, said that European banks started backing renewable projects before their American competitors. U.S. commercial banks and investment banks, however, are willing to back solar projects if the developer can point to a track record of projects with predictable and reliable power production.

In addition to Wells Fargo and JPMorgan, Goldman Sachs and Credit Suisse are among the investment banks that have shown willingness to lend money for renewable-energy projects.

"This is actually getting pretty mainstream," said Wayne.

In 2005, Wells Fargo announced a $1 billion lending and finance investment goal for environmentally beneficial businesses. The company has invested more than $200 million in six wind projects (in Minnesota, Texas and Maine) and surpassed $1 billion in loans for Leadership in Energy and Environmental Design certified buildings.

"We have a mandate to pursue opportunities in the renewable energy market," Neal said, and solar thermal has growth potential. "It reminds me a bit of where the wind-energy industry was five or six years ago."

In addition to offering commercial proof, commercial solar-thermal plants offer tax advantages: mainly a 30 percent investment tax credit. The credit differs from a production tax credit offered to wind projects, and is based on the number of MWhs of electricity produced.

Parabolic troughs, which operate at around 30 percent efficiency, are supposedly less efficient than newer solar-thermal technologies, such as the Stirling dish. Edison and San Diego Gas & Electric both have contracts for 500 MW and 300 MW, respectively, with Stirling Energy Systems for dish power plants.

But the projects are not commercially proven. State energy officials have also questioned if the new technology will come in at cost. Stirling did not return a phone call seeking comment. But with solar thermal, "I don't think there's a rush for one technology over another," said Gary Ackerman of the Western Power Trading Forum, whose group represents independent power developers and financiers, including large banks [Chris Raphael and John Edwards].