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Bragawatts

Tom Konrad, Ph.D.

When Solaren announced they are seeking PUC approval for a power purchase agreement (PPA) with PG&E (NYSE: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.

DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.



was posted on AltEnergyStocks.com.


       

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