Solar Development and Strategic Shifts in Solar Stocks

When Solaren announced they are seeking PUC approval for a power purchase agreement (PPA) with PG&E (PCG) for solar power from outer space, I wasn't too surprised. California utilities signing deals for large solar projects which quite likely may never be built is something of an industry trend.

At a Concentrating Solar Power (CSP) conference last fall, John White, the Executive Director of Cleanpower.org, said that competitive solicitations for power supplies in California are becoming a sideshow, and that the "Process lacks credibility among the most serious and qualified developers."

Rainier Aringhoff, the president of one of those serious and qualified developers, Solar Millennium (SMLNF.PK) agreed. "Building CSP plants with storage is only with in the reach of a few companies," he said, "and these companies require regulatory certainty." If the PUC is approving renewable projects that are unlikely to be built, how likely are they to enforce California's RPS if utilities fail to meet them because of developers' failing to deliver?

Sun, Sun Everywhere, But Not a Gigawatt Built

There are more than technical and financial barriers to development of large CSP projects. According to Aringhoff, the transmission regulatory bodies FERC and CAISO need to sort through all the interconnection applications and determine which are for otherwise viable projects. They should also create land use corridors along main transmission trunks throughout the western electrical system which can be more easily permitted for renewable energy. A full 5,000 MW of renewable energy projects are waiting on transmission upgrades.

Land use rules are also important. One of the best areas for solar development would be the Mojave Desert, given its high insolation and proximity to California's population centers. Unfortunately, the West Mojave Plan actively hinders renewable development, with only one percent of the land area set aside for renewable development. Five percent is dedicated to off road vehicle recreation.

As John White said, "It’s amazing that we can take a disturbed piece of ground where there is development across the street and the Mojave Desert commission will say 'No, we have to protect the Mojave ground squirrel.'"

Given these barriers, it's less surprising that PG&E is looking to space, where there are no endangered ground squirrels.

I'm not a space exploration expert, but solar from space seems fraught with technical risk, and Solaren seems to be planning to start with a commercial scale project (200 MW, to be scaled up to 1700 MW.) If the technical problems were solved, it would still be at risk of destruction by space debris and any country with a functioning space program. Assuming such a satellite could collect about ten times as much energy per acre as a ground-based plant, it would still need to cover 100 acres of increasingly cluttered space in order to produce 200 MW, or 850 acres for 1700 MW, making it likely to suffer regular impacts.

Would investors in any climate be willing to fund such an essentially unknowable venture? Perhaps they would if some deep-pocketed entity decided to take on much of the risk, as United Technologies Corp (UTX) is doing with Solar Reserve. But, according to Jonathan Marshall, a PG&E spokesman, "There is no risk to PG&E ratepayers for this." If there is no risk for ratepayers, there is no protection (at least from PG&E) for Solaren investors.

Of the companies that have signed PPAs with California utilities, Stirling Energy Systems' 1750 MW of projects have been most often cited to me as unlikely to be built. They have signed PPAs with San Diego Gas & Electric and Southern California Edison, but if these projects do not get built, they will probably not be alone in that.

Strategic Shifts

In contrast, Ausra, with their innovative Compact Linear Fresnel Reflector (CLFR) geometry, has not been signing PPAs they won't be able to fill. Seeing the harsh financial climate, they took the logical step and decided not to develop their own plants, but rather to sell equipment into the process heat market. I recently wrote skeptically about this while pondering the future of Concentrating Solar Power, but not because the move is foolish. The question in my mind is if the move will be enough.

Can a CSP equipment manufacturer be able to ride out the storm by selling equipment to power generators or industrial customers with other, less capital intensive options that work around the clock?

Other solar developers think so. They are following this path and choosing to reduce their financial risk and need for capital by becoming equipment suppliers. Skyfuel has always been a technology and equipment provider, rather than a developer. The recent announcement from GreenVolts shows a similar shift in emphasis to selling equipment (although GreenVolts is not quite comparable to Ausra and Skyfuel, being a CPV startup that sells electricity (not heat) producing equipment.)

In addition to the financial crisis, these shifts may have been encouraged by a recent change in the Investment Tax Credit rules which allows utilities to own projects and still gain the tax benefits. But unless someone is willing to take on technical and regulatory risk, we're going to see a lot fewer of these projects built than we would like.

If we can't build new transmission, and allocate more than 1% of the Mojave to renewable development, we may just have to hope for solar electricity from space. Unfortunately, as Brett Steenbarger said in a recent interview "Hope is comforting, but ultimately is not a particularly effective coping strategy."

Hope's not a good coping strategy for climate change, either.

Disclosure: The author has a long position in UTX.

Comments

[dicki31785]

Nice article mate...I do have to say though their is not one solar program out their that started without growing pains....lets exclude Spain from the conversation but even their program took some time to spin out of control...2.2 GW in 08 that was absurd...but it took a few years to get their...It is sort of like a huge stimulus package and the "reward" comes in a few years, in the case not proper mechanism are in place, when inflation spins out of control.

In any case my main point is that all programs have trouble getting started....The main issue lies of spreading the cost of solar power around OECD countries and a few others that can afford it, everybody has to chip in to get this technology rolling (which is certainly not the case but things are getting better)....And it shouldn't be too hard when one takes a closer look at the costs....

Everybody points at the cost of solar....But I would like to point to three things:


1. The potential of the technology (Now I can already hear the Americans scream but solar started in the 70's but still the technology is not ready...But the potential is huge....All those technologies that have come out just in the last year....Imagine five years from now....though the people that want to survive in the industry have to be ready in 3 yrs max (reach grid parity).

2. The subsidization of oil, coal, etc.l projects (I know oil does have much to do with the price of energy....but that is what people use as a reference and who am I to argue....). I am not even talking about the subsidies now, which are just way absurd to comprehend, but include past subsidies as well...only then do you get the true cost of electricity of today...

3. Future cost of electricity...Whoever thinks that $150 oil was a fluke is going to be surprised concerning the average oil price in the next few years....In the worst recession in a while the oil price is hovering around $50....that is sort of scary isn't it?!

4. Last but surely not least....The political costs of importing energy resources....Whether it being the EU which can't even cough without Russia (gas, oil, etc.) "agreeing", or the US which had to start a war for resources. The political costs are huge, just take a quick look at the US budget, not to mention future costs...(Iran etc.)

In conclusion when one considers all the costs solar is not that expensive....just a long term perspective is necessary....and in late 2009 or early 2010 I think a few companies can already produce at grid parity, even without considering these costs, FSLR and MAYBE a couple others....(Nanosolar?)

With Kind Regards from Germany,

CW

2009 Apr 20 06:18 AM

[dicki31785]

Corrections
1. Under point 1 after "still the technology is not ready" the second part of the bracket is missing
2. Under point 2 it reads "oil does".....it should read "oil does not".....(besides its obvious effects on commodities but did not want to get into too much detail because then the post would have been endless...)
3. Just the general reading flow....I guess it doesn't always flow well but I hope you all understand my main points:)...it is after all my 2nd language...

2009 Apr 20 06:26 AM

[john s. gordon]

given that we have a space station up there now, can't we pilot test a prototype CSP module attached thereto?
given the potential for various space objects crashing into each other, and/or damage/injuries on this planet caused by falling debris, do we need to consider another price-anderson type act to limit corporate liability & shift excess liability to the taxpayers?
> jack

2009 Apr 20 08:53 AM

[John Lounsbury]

Tom - - -

You wrote:

"But unless someone is willing to take on technical and regulatory risk, we're going to see a lot fewer of these projects built than we would like."


I find it disturbing that there is risk aversion when it comes to investing in things of economic utility after the disaster that has arisen through outrageous risk acceptance for financial derivatives that ended up bankrupting us.

2009 Apr 20 09:07 AM

[billp37]

"1. Of the 101 quadrillion BTUs of energy consumed in the United States in 2008, about half was used for industrial and commercial applications. (Source: Energy Information Administration, Annual Energy Outlook 2009)"

www.semiconductor.net/...

We're concerned that solar may not have the HEAT IN to make much of a practical difference in large scale electricity generation.

home.comcast.net/~bpayne37/pnmelectric...

2009 Apr 20 09:45 AM

[CoinMiner]

Good write up. Another very important point to add is that vast areas in the Mojave Basin and Desert are managed by the Department of Interior - mostly the Bureau of Land Management but also the National Park Service. The NPS director in the Region, Jon Jarvis, is actively opposing use of water cooled solar technology and instead proposes that firms use air cooled technoloyg, which requires an additonal 10% land an additional capital investment. Something to keep in mind when doing your due diligence.

You need land AND water permits, and not everything is as it appears...

2009 Apr 20 11:59 AM

[Tom Konrad]

Good point CoinMiner. If you're looking for CSP technologies which take lower penalties for air cooling, then you'll want Dish-Stirling (but note what I said about Stirling Energy Systems in the article... Infinia however is reputed to have a more reliable (if smaller) engine) or Solar tower technology, which, because it operates at a higher temperature, carries less of a penalty for air cooling.

Tower Tech is my fave, because it also incorporates storage, which dish Stirling does not.
www.altenergystocks.co...


On Apr 20 11:59 AM CoinMiner wrote:

> Good write up. Another very important point to add is that vast areas
> in the Mojave Basin and Desert are managed by the Department of Interior
> - mostly the Bureau of Land Management but also the National Park
> Service. The NPS director in the Region, Jon Jarvis, is actively
> opposing use of water cooled solar technology and instead proposes
> that firms use air cooled technoloyg, which requires an additonal
> 10% land an additional capital investment. Something to keep in mind
> when doing your due diligence.
>
> You need land AND water permits, and not everything is as it appears...

2009 Apr 20 10:15 PM

[Fred W]

Don't lump all "Americans" together so readily. I don't think you would appreciate similar treatment given Germany's history.


On Apr 20 06:18 AM dicki31785 wrote:

> Nice article mate...I do have to say though their is not one solar
> program out their that started without growing pains....lets exclude
> Spain from the conversation but even their program took some time
> to spin out of control...2.2 GW in 08 that was absurd...but it took
> a few years to get their...It is sort of like a huge stimulus package
> and the "reward" comes in a few years, in the case not proper mechanism
> are in place, when inflation spins out of control.
>
> In any case my main point is that all programs have trouble getting
> started....The main issue lies of spreading the cost of solar power
> around OECD countries and a few others that can afford it, everybody
> has to chip in to get this technology rolling (which is certainly
> not the case but things are getting better)....And it shouldn't be
> too hard when one takes a closer look at the costs....
>
> Everybody points at the cost of solar....But I would like to point
> to three things:
>
>
> 1. The potential of the technology (Now I can already hear the Americans
> scream but solar started in the 70's but still the technology is
> not ready...But the potential is huge....All those technologies that
> have come out just in the last year....Imagine five years from now....though
> the people that want to survive in the industry have to be ready
> in 3 yrs max (reach grid parity).
>
> 2. The subsidization of oil, coal, etc.l projects (I know oil does
> have much to do with the price of energy....but that is what people
> use as a reference and who am I to argue....). I am not even talking
> about the subsidies now, which are just way absurd to comprehend,
> but include past subsidies as well...only then do you get the true
> cost of electricity of today...
>
> 3. Future cost of electricity...Whoever thinks that $150 oil was
> a fluke is going to be surprised concerning the average oil price
> in the next few years....In the worst recession in a while the oil
> price is hovering around $50....that is sort of scary isn't it?!
>
>
> 4. Last but surely not least....The political costs of importing
> energy resources....Whether it being the EU which can't even cough
> without Russia (gas, oil, etc.) "agreeing", or the US which had to
> start a war for resources. The political costs are huge, just take
> a quick look at the US budget, not to mention future costs...(Iran
> etc.)
>
> In conclusion when one considers all the costs solar is not that
> expensive....just a long term perspective is necessary....and in
> late 2009 or early 2010 I think a few companies can already produce
> at grid parity, even without considering these costs, FSLR and MAYBE
> a couple others....(Nanosolar?)
>
> With Kind Regards from Germany,
>
> CW
>

2009 Apr 21 12:25 PM

[Dave Marsh]

I just want to commend dickie in Germany for writing better in his second language than most English-speaking posters, and even correcting himself on grammar!

2009 Apr 21 03:44 PM

[dicki31785]

@FredW

I don't think at any point of my post I lumped "Americans" together...The only point I wanted to make that Americans are not as educated about Solar in comparison with Germans. I Do not know what that has to with my country's history. (or was it the Iraq comment that got you upset, then I am sorry, but I think that point that the "second gulf war" was for resources is in my humble opinion undebatable).

And that "Americans" are not as knowledgeable in comparisons to Germans is not all too surprising considering we are the leader in PV installations around the world, don't mind Spain's one year of glory, so obviously one would have less understanding in general. Not to say their is not plenty of people out their that have a very fine understanding of the subject matter. But obviously in Germany a lot more people come to see the payoffs, and talk to other people who have already installed PV on their houses, factories, etc. So it was not meant as an insult, just an obvious deduction.

Once a wider range of understanding for the technology comes around PV will be supported much more (check out Gainesville for example with the first feed in tariff, in the US, though it is only 5MW or was it15MW but still....it is a step in the right direction). Especially when you consider the rapid fall in PV prices that we have experienced in the last 6 months. This crisis is, in effect, the biggest opportunity ever for Solar to finally claw itself out of there niche and go mainstream. Poly prices are falling rapidly and are continuing to do so. Bringing about the most rapid cost reductions Solar has ever seen.

PS You absolutely have no class. That was your only comment to the whole post I made, scared of me lumping together "Americans". Pointing to my countries history, instead of focusing on the discussion about solar.

Should I get started on the dictators that you "Americans" placed around S.A. throughout the 20th century (one prominent ex. would be Pinochet) the pain and suffering you "Americans" have caused their. Or should we talk about Vietnam and what crimes were committed their (napalm) or should we just talk about the abuses going on in Iraq NOW, not 60 years ago. I also really like pyramids of naked people mate, or just girls being raped and to cover it up the whole family being killed. Or the 500,000 Iraqis dead in a war for resources.

So please let it go, we are very much so conscious of what happened and are still confronted with the subject more or less every day.

It is comments like that, which only come only from a certain small crowd, why most people around the world can't stand you "Americans" anymore. Being the moral apostle but having "s***" to back it up. Nothing but hot air. You should have just discussed my post instead of worrying about things that have nothing, and absolutely nothing to do with the subject matter.

@Dave Marsch

Thank you, I enjoyed a few great years in the states which helped me learn the language. I am Actually thinking about buying a house again as a holiday destination. I love Florida:).

2009 Apr 23 05:24 AM

[dicki31785]

It is true most German companies just produce normal mono or poly cells that they have been producing for years....and are just optimizing that process....Instead of creating technologies that seem to be better fit, and are breakthrough technologies (which could be the case for nanosolar for example but one hears way too little about them to believe them...but also FSLR)

But I would like to say that I am unsure if FSLR can command that pricing advantage (when taking into consideration the conversion efficency) if polysilicon prices continue to erode....because if we have spot poly prices at around $50 I could imagine FSLR's margins significantly squeezed....Though they are a company that one can just praise....

In solar we always talk about scale....but is that really the right way?FSLR has three different locations of production (Germany, USA and what is it Malaysia or the Philippines....I forgot)....maybe that is the right way to go about innovation...instead of centering everything around one major headquarter....where I suppose you would only have very similar thought processes....

In any case this quarter is going to be a tough one when looking at SPWR's numbers....I for one like the Chinese producers....And I swear on the fully intergrated model...because I think companies like SOL and LDK which more or less just cover a couple of steps in the supply chain are in deep trouble....Maybe LDK and Q-Cells will accomplish something together when pooling their expertise....but I consider companies such as STP and TSL as future winners...TSL is offering the cheapest module on the German market right now....The question is does that speak for their ability to cut production costs or is that done in order to lower inventory levels....I guess we will know when they present numbers...with kind regards CW

Long ABX, AUY, CSIQ, ESLR, TSL, SSL

2009 Apr 24 02:04 AM