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February 24, 2014

Solar Conquistador

by Debra Fiakas CFA

320px-PS20andPS10[1].jpg In the last post on Brightsource Energy and its Ivanpah solar thermal power plant in California, I offered no investment opportunity.  Brightsource’s colossal configuration of mirrors and boilers in the Mojave desert is not the first solar thermal power plant using the tower configuration.  The solar subsidiary of Spain’s power generator and transmission leader Abengoa S.A.(ABGB:  Nasdaq) was first to market with a commercial solar thermal tower power plant near Seville.

Since construction first started in 2004, Abengoa Solar has brought a series of solar thermal projects into operation.  The company has five solar thermal projects in Spain.  Abengoa partnered with Hassi-R’mel to build and operate an integrated solar combined-cycle plant in Algeria with a power output of 20 megawatts from a parabolic mirror and another 130 megawatts generated from fossil fuel.  Abengoa is in partnership Total, SA and Masdar in the operation of a 100 megawatt solar thermal power plant near Abu Dhabi.  In 2013, Abengoa went operational with a 280 megawatt installation near Gila Bend, Arizona in the U.S.  The Gila Bend plant relies on the largest parabolic trough in the world.

While NRG Energy may has some reticence about further solar thermal power investment, Abengoa is still moving full steam ahead.  The company has 150 megawatts under construction at two sites in South Africa.  At the beginning of this year the company announced plans to develop a 110 megawatt solar thermal power plant in Chile.  What is even more interesting is that Abengoa already building a 280 megawatt solar thermal power plant near Barstow, California just a few miles down Interstate 15 from the Ivanpah solar thermal power plant being operated by NRG Energy and Brightsource. 

Abengoa shares trade on the Nasdaq Global Select Market, making it enticingly easy to access this excellent Spanish company.  The stock appears dear considering reported earnings.  Yet the company earns a 7.3% operating profit and converts 11.7% of sales to operating cash flow.  Brightsource’s partner in Ivanpah and another operating utility, NRG Energy, earns about the same operating profit but only turns 8.7% of sales to cash.

Brightsource Energy plugged its Ivanpah plant into the electrical grid with some trepidation as the public questioned the economic viability of the plant.  Abengoa appears more confident in its designs and processes.  The corporate tone provides a clue for investors.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

Image: Abengoa's PS20 and PS10 in Andalusia, Spain . Photo by Koza1983.

February 19, 2014

Mirrors in the Mojave

by Debra Fiakas CFA

Last week the Ivanpah solar thermal power plant in California went operational last week.  Ivanpah is a marvel.  Located in the Mojave Desert, the power plant generators are driven by steam like any other.  However, at Ivanpah the steam is created by acres of large mirrors that reflect and concentrate the desert sunlight onto water-filled boilers.  The boilers tower 150 feet above the mirrors that are spread across 3,500 acres. 

Ivanpah scale has required the cooperation of a number of players.  Brightsource Energy is running the show with the power plant owner NRG Energy (NRG:  NYSE).  Google (GOOG:  Nasdaq) is a ‘relatively’ silent third owner that sent a ‘relatively’ impressive check for $168 million.  It is has taken big players like NRG and Google to get Ivanpah up and running.  The project has run up a tab close to $2.2 billion.


Ivanpah_Solar_Power_Facility_(2)[1].jpg
Ivanpah Solar Power Facility during construction, Dec 2012, photo by Craig Dietrich

Brightsource has backing from France’s Alstom S.A. and a gaggle of big name venture capital firms such as VantagePoint Capital Partners.  Interestingly, oil and gas players also have their hand in solar thermal project through their venture arms Chevron Technology Partners and BP Ventures.  Brightsource and its two partners have amped up their own investment in the Ivanpah project with a $1.6 billion loan guaranteed by the U.S. Department of Energy.

The verdict is still out on the economic viability of Ivanpah.  Much has changed over the five years the project has been in development and construction.  Power produced from cheap natural gas is casting a long shadow across alternative energy sources of all stripes.  Ivanpah’s three generating units have the capacity to produce 400 megawatts.  That means it is cost $5,500,000 per megawatt to build Ivanpah.  Thus the projects staggering cost puts the plant at a disadvantage compared to natural gas fired power plants or even nuclear projects.  A natural gas power plant costs around $1,000,000 per megawatt and a nuclear power plant costs a bit more at $1,100,000 per megawatt. Ed. note: the price of a nuclear plant seems low; the EIA puts a new nuclear plant cost at $5,530,000 per MW. The other prices are in-line]

Last week Brightsource Energy’s management put on a happy face for the Ivanpah debut.  They are certain once the project has proven out the phone will be ringing with parties interested in thermal solar power.  Just the same, we know NRG Energy is right in the thick of things at Ivanpah and yet has put a moratorium on additional solar thermal power investments.

In my view, there is no investment to be made here.  Shares of Google and NRG Energy reflect their principle businesses and not the Ivanpah project.  Brightsource Energy is a private company.  Even if it were to raise new capital, few of us would get a seat at the table with venture capital firms like VantagePoint.  However, it is worthwhile watching how this thermal solar plant plays out.  It will take a variety of power sources to replace fossil fuel.  Which ones have sustainability is yet to be proven.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

December 09, 2011

Cheap Photovoltaics Are Eating Solar Thermal's Lunch

Tom Konrad CFA

The falling price of photovoltaic (PV) solar is undermining the case for Concentrated Solar Thermal Power (CSP). 

According to a recent report from Pike Research, of the 6886 MW of CSP projects awarded in the United States since 2004, 36% have been replaced with PV.  That's more than the number which are actually under construction (1,532 MW, or 21% of announced projects), and all of those required the backing of the US DOE loan guarantee program.

Pike CSP Construction.png

With this recent track record, and no prospect for new approvals under the program since September 30th, it seems likely that less than half of 3400 MW of projects in the pipeline will actually be built as CSP projects.  In the worst-case scenario for CSP, DOE loan guarantees will prove to have been essential, and the entire CSP pipeline vanish or be replaced by PV.

It Wasn't Supposed to be This Way

Many renewable energy advocates (myself included) have long seen CSP as core to the decarbonization of the electric grid.  That's because CSP has something relatively unique among renewable power technologies: with the addition of relatively inexpensive thermal storage, it can be dispatchable.  Dispatchable power, usually provided by natural gas turbines on the current electric grid, is what allows utilities to match supply and demand.  The addition of variable sources of supply such as PV and wind only makes dispatchable resources more important.

CSP held the promise of squaring the circle: scalable, potentially inexpensive, dispatchable zero-carbon power.  Even PV advocates such as Ken Zweibel, now head of the GW Solar Institute, but then the President of thin film PV start-up PrimeStar Solar co-authored a "Solar Grand Plan" for Scientific American which relied on CSP as a key component in his vision of a solar powered North America.

What Happened

The difference between the grand visions and today's reality are legion.  First, as the Pike study points out,
The biggest threat to resumed growth in CSP is the dropping prices of PV modules. PV module prices continue to drop beyond 50% of their peak in mid-2008. In addition, the established track record of PV is more attractive to financial backers.
but the authors hold out hope that
CSP may overcome competition from PV by reducing costs as the result of bigger scale and two technology propositions that increase operating revenue and profits: hybridization with fossil fuel plants through a process called Integrated Solar Combined Cycle (ISCC) and utility-sized energy storage capabilities.
I'm less sanguine.  I now see four other difficulties for CSP going forward:
  1. Dispatchable carbon-free power may be essential to a carbon-free electric grid, but today we are at much lower penetrations. 
  2. Dispatchable natural gas generation is widely available and cheap to operate with today's low gas prices and the absence of any price on carbon. 
  3. Dispatchable generation is most useful for balancing load if there is a robust transmission link between the generation and the load in question.  Since CSP requires direct sunlight and considerable land areas, it is confined to remote parts of the arid Southwest, typically far from population.  Given the difficulty and long time lines required to build new transmission in the US, CSP's potential dispatchability remains limited. 
  4. Smart grid technologies such as Demand Response (DR) are advancing rapidly, and are, in many cases, able to match demand to supply at much lower cost than CSP.  Lithium-Ion and Lead-Acid battery technologies are also angling for a slice of the grid stabilization pie, especially in conjunction with better load forecasting techniques.  While DR and batteries have difficulty matching CSP for cheap mass energy storage, they have a competitive advantage when it comes to supplying power for short term grid stabilization

Conclusion

As long as there is cheap natural gas available for long term storage, and smart grid techniques filling in the short term gaps, CSP's high-energy thermal storage is a solution looking for a problem. This is especially true given that the "problem" (mismatch between supply and demand) occurs at the source of demand (population centers), not in the uninhabited desert where CSP plants are invariably located.

The Pike report forecasts that CSP construction will rebound by the end of the decade.  I'm not so sure.  Technologies improve and get cheaper as they are deployed.  With CSP deployment stalling, and smart grid and PV deployment accelerating, why should be assume that CSP will ever catch up?

If CSP development does stall, it will be a tragedy, because smart grid technologies will be less able to compensate for the variability of PV and wind as they reach high grid penetration.  At that point, mass energy storage such as that available with CSP will become essential, and if we have not been developing CSP technology along the way, mass energy storage may be much harder to implement than we would hope.

NOTE: This article was first published on Forbes.com. I also added some thoughts on what it might mean for electricity generation in general on my blog at Clean Energy Wonk.

April 27, 2011

Brightsource: New Tech is Filled With Failure

Dana Blankenhorn

If there is one thing I've learned as a tech reporter it is that failure is common, but what we learn from failure can often lead to greater success.

Back in 1984 I was asked to help write the manual for a start-up called The Promise. The Promise would offer home banking, home shopping, and information services, delivered to your PC.

The Promise failed almost before the lights went out on the press conference. It was at least a dozen years too early. There was no Internet, and I worked on a double-floppy IBM PC.

Fortunately its owner knew how to make lemonade from lemons. Recognizing that his programmers had just created a general-purpose engine for Electronic Data Interchange (EDI), he eventually turned that company into $6 billion.

Don't confuse the fate of a company with that of a technology. Sometimes the technology is being applied in the wrong way. Sometimes the company is trying to run before it can walk.

That's the important lesson in the Brightsource IPO. Brightsource is trying to go public because its private investors, including Google, can't take it past its Ivanpah solar mirrors project, a $1.6 billion effort to build utility-grade solar technology using mirrors in the California desert.

The project is risky as all get out. There are lawsuits aimed at stopping it , there are questions over whether they can get the thing built, and how they're going to maintain it.

It is, in tech parlance, a “moon shot.” High risk, high potential reward.

Personally I'm guessing FAIL. This is really old technology, it's scaled beyond what makes sense, most of the management team has more gray hair than I do.

But it's not my money, and in the end the fate of the company makes much less difference to the industry than analysts think. Solar power doesn't have to come from ginormous installations hundreds of miles away. Projects don't have to be utility-scale in order to work. Brightsource is building the tech equivalent of a Cray 1 computer  – it's interesting, and it might work, but in the end it's a niche product, and there are other ways of doing the same thing.

None of that means I'm rooting against Brightsource. If they're able to make a business with solar mirrors, that's great. But the credibility of the industry is not on the line here. And the lessons being learned in the attempt could prove invaluable down the road, both to the people running Brightsource and the rest of us.

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

April 26, 2011

The Brightsource IPO: By the Numbers

The article first published at this URL was originally attributed to Dana Blankenhorn by my mistake. It was in fact written by Katie Fehrenbacher, Editor at GigaOM and Earth2Tech. You can find the original article here: http://gigaom.com/cleantech/brightsource-energys-s-1-by-the-numbers/.

The article I had intended to publish is here: http://www.altenergystocks.com/archives/2011/04/brightsource_new_tech_is_filled_with_failure.html

My apologies, Tom Konrad, Editor, AltenergyStocks.

January 16, 2011

Solar Tracer at the Penny Stock Arcade

Dana Blankenhorn

Look up Solar Tracer Corp. on Google and you'll be asked if you really mean “solar tracker,” which sends you to a company called Opel Solar (OPL.V), which makes solar concentrators.

Sometimes you should listen to your Google.

But I wanted to learn about Solar Tracer, which says it was bought this weekend by Sector 10 (SECI.OB), a failing maker of emergency response equipment.

That last is not hyperbole – Sector 10 hasn't brought in any revenue for over a year. It's a stock market trick old as time, a shell buying an operating company so the latter can go public at low cost.

But why? Why would Solar Tracer want to go public sub rosa? (Full disclosure. I own no penny stocks. I did have some AIG once, before that went into penny territory. I bought in at $60. If you are looking for investment advice, move along.)

Turns out Solar Tracer is run by the Tedrow brothers of Florida. CEO Christian is a writer, CFO Tyler a venture capitalist. The two have been working on a thriller called the Judgement Trilogy  – they write under the name Thomas Tedrow.

Tyler is managing partner of HART Capital Management in Orlando, which describes itself as “a new kind of venture capital firm.” Among its listed investments is ChinaPharmaHub, for which Christian (left) sits on the business advisory board. ChinaPharma says it is interested in identifying and bringing to market interesting drugs from China.

Now that you know something about the management, what would you be buying, if you were interested in buying into this? Mainly Eugene Augustin, an expert on microwave antennas last seen in July selling his solar antenna expertise to Lady Bug Resource Group, a Kirkland, Washington based outfit that apparently held the URL Newsolartec as a subsidiary. Christian Tedrow was listed as the owner of that URL until last week, when it expired.

After buying Augustin's expertise, in November, LadyBug named a Thomas F. Krucker its new CEO. Krucker is a former Toyota executive. Inside of a month Krucker bought MAG International, which said it was developing electric off-road vehicles (its Web site was recently disabled.

So what's going on?

Near as I can determine the Tedrows needed a new vehicle after LadyBug flew away. That's what Sector 10 is, a company that owns what was NewSolarTec but is now called Solar Tracer.

Back when the LadyBug deal got done, Solar Thermal Magazine ran a piece on the Tedrows, and New Solar.  In that piece Christian Tedrow described the Solar Tracer as a solar concentrator that can heat water into steam for generating electricity.

There's nothing new here. Solar concentrators are old tech. There are breakthroughs going on here but little evidence Mr. Augustin has one.

Still, shares in Sector 10 doubled in value, to 1.8 cents per share , on the day after the Tedrow news broke. OTC Picks featured the company without knowing they were out of the emergency response business. Their story paints the company as an emergency preparedness play.

I'm guessing this is another ride on the penny stock arcade that's going to end in tears.

But it would be so much fun to be proven wrong.

Disclosure: None

Dana Blankenhorn first covered the energy industries in 1978 with the Houston Business Journal. He returned last month after a short 29 year hiatus because it's the best business story of our time. In between he covered PCs, the Internet, e-commerce, open source, the Internet of Things and Moore's Law. It's the application of the last to harvesting the energy all around us he's most excited about. He lives in Atlanta.

December 31, 2010

A New Solar Fuel to the Rescue?

Cerium - an oil saviour? Eamon Keene

Making fuel from solar energy is the holy grail of the renewable industry. In 2008, David Nocera, an energy professor from MIT, gushed about a "major discovery" which would unleash a solar revolution. The MIT press reported on a "simple, inexpensive, highly efficient process for storing solar energy". Ostensibly this was a way to split water to store solar energy in the form of hydrogen and each house would have its own solar panel, which would mean that "electricity-by-wire from a central source could be a thing of the past". These fairly ludicrous assertions are debunked here, however this did not stop one news outlet proclaiming that this invention was "why oil really fell today - and could keep falling".

It was with this story in mind that I read of Caltech Professor Sossina Haile's claim in Science a few days ago to have tested a new way to produce a solar fuel which would "make a major contribution to global gasoline supplies" and was not "cost prohibitive" either.

This method uses concentrated sunlight to heat up microporous CeO2 (ceria) to 1600 celsius. The elevated temperature drives out the oxygen to leave Ce. An inert gas is subsequently pumped through the chamber to remove the oxygen. The cerium is then cooled down to 900C. H2O and CO2 are pumped in. The relatively cool cerium strips the oxygen from the water and carbon dioxide to leave a syngas of H2 and CO. This can be the feedstock to a Fischer-Tropsch or Mobil process plant to make diesel or gasoline.

cerium

The experiment was obviously lab scale, with an area of a few cm^2. The radiation was artificial, but was at an intensity of 1500 suns (1 sun = 1kW/m^2) to generate the high temperatures, which is allegedly typical of solar tower set-ups. The 11MWe PS10 tower in Spain, for example, only has an intensity of 645 suns, but I won't quibble with that. The achieved efficiency in this experiment was 0.8%, however this assumed no energy cost for the pure CO2, the H2O, the purge argon gas or the embodied energy of the setup, but not to worry. It is suggested that the CO2 would come from a  co-located CCGT. Where the water would come from in a desert location is not clear.

The paper states that with refinement the efficiency (narrowly defined) can approach 20%. This happens to be the same efficiency (electrical output as % of reflected solar energy) as the PS10. So conceivably this setup could generate syngas at the same cost as the electricity from the PS10. The PS10 cost €3m/MW and the electrical output has a levelised cost of about 25€cent/kWh. This translates to approximately $100/MMBtu. The PS10 outputs about 20GWh per year and operates at a 20% capacity factor. This setup would provide enough energy for a rather pathetic 33 barrels of oil per day. Assuming a 400MW solar site, this gets the output up to about 1kb/d. Gas to liquid plants are only economic at large scales in the region of 30kb/d (Sasol last week stumped up $1bn to buy some Canadian shale and is exploring building a 40kb/d plant which it estimates can produce a high quality gallon of diesel for $1.50). So faced with natural gas at a current input price of $4/MMbtu (although slightly higher due to energy loss in the gasifier), an unfeasibly large required solar site, and not even mentioning the intermittency of output, I think we can safely put this idea to bed.

So while this is very interesting science, I wish scientists could be reticent in claiming to have found solutions to the energy fix since it can be counter-productive if it leads to complacency. Perhaps I could have shortened this article by simply stating Upton Sinclair's insightful observation "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"

May 25, 2009

From Solar 2009: Investment Opportunities in Solar Stocks: Solar Millennium (SMLNF.PK)

Tom Konrad, Ph.D.

This is the third in a series of entries on opportunities in solar stocks, based on a panel at Solar 2009.  The the first article introduced the panelists, and took a look at the solar sector as a whole.  The second was about First Solar.

Allen Goodman  on Solar Millennium (SMLNF.PK)

"Project developers [such as Solar Millennium] stand out because of their ability to have a relationship with the customer."

Peter Lynch on Solar Millennium (SMLNF.PK)

"I liked Solar Millennium before it ran up to $90 last year, I liked it at $90, and I like it today at $16."

Investment Action

Solar Millennium closed on May 15 at $17.75.  That's over $16, but a lot lower than $90.  If you're looking to buy a solar stock despite the scary market conditions I discussed in the first part of this series, Solar Millennium should be at the top of your list.  Since it's a Concentrating Solar Thermal Power (CSP) developer, an exciting technology I recently highlighted for its ability to produce dispatchable power.  It's one of the rare developers that has show it can build real plants (that differentiating factor Allen Goodman spoke of.)

DISCLOSURE: None.

DISCLAIMER: The information and trades provided here and in the comments 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.

 

April 22, 2009

Letter to the Editor: Advantages of CLFR

                We appreciate AltEnergyStocks.com’s coverage of the CSP industry with its recent article, The Future Shape of CSP.  Unfortunately, the article fails to recognize that compact linear Fresnel reflector (CLFR) companies like Ausra are making tremendous progress in advancing the technology and creating new and diverse market segments for CSP. 

                 CLFR is already on a path to being commercially demonstrated in the U.S., as well as in Australia and Southern Europe.  In fact, Ausra recently commissioned the first major solar thermal power plant to be built in California in nearly two decades and developed and brought online the world’s first solar/coal-fired power augmentation facility in Australia�both CLFR installations are running now and performing as modeled. 

                 One of the key benefits of CLFR technology is the diversity of its applications.  Contrary to what the article’s anonymous “industry observer” asserts, Ausra serves more than just the process steam market.  Our solar thermal energy systems are also ideally suited for power augmentation and standalone power generation, as demonstrated at our two CLFR installations.   

                CLFR will continue to play a major role in helping advance the CSP market.  The following are just a few of the benefit’s of Ausra’s next-generation CLFR solar thermal energy systems:  

·         Simple, robust design for low-cost and durability

·         Most land-efficient solar technology (highest energy density)

·         Standard, common materials:  carbon steel pipe and structural components, flat  glass

·         Direct steam generation (150°C/300°F to 400°C/750°F) without heat transfer fluids, such as synthetic oils, thereby reducing expense and environmental risks

·         Rapid deployment and modular installation: high-volume, automated production (6-to-18 month field installation); regional and on-site manufacturing

·         Durable structure: 2-inch carbon steel pipe; horizontal mount solid piping; no moving joints; steel-backed reflectors rotate downward to protect the mirrored surface

·         Flexible steam generator flow: once-through or recirculating

·         Highly-automated computer controlled tracking

        In addition to the technical benefits of our CLFR systems, we continue to enjoy strong financial support from our investors, particularly through our most recent $25.5 million equity financing facility. We look forward to continuing our dialogue with AltEnergyStocks.com about our CLFR technology as we expand and accelerate our solar thermal energy equipment supply business.

William M. Conlon, P.E., Ph.D.

Vice President, Engineering

Ausra, Inc.

April 19, 2009

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.

April 16, 2009

The Future Shape of CSP

Parabolic Troughs have dominated Concentrating Solar Power (CSP) until recently, but several companies are vying to replace them. Will the upstarts succeed, or will incumbency and improvements to trough technology ward off the competition?

Dr. Arnold Leitner, CEO of Skyfuel, Inc., thinks the battle for dominance of CSP will be "winner-take-all."

The technology which can deliver power when it is needed at a reasonable price should triumph. Photovoltaic (PV) technologies are rapidly producing price reductions, and can be used almost anywhere, but only produce power when the sun is shining. In contrast, CSP is still cheaper than PV enables inexpensive thermal storage, with the promise of dispatchable power to compensate for the variability of other renewable power sources and demand. Dispatchability assures CSP with storage a place in the eventual energy mix.

Heat Transfer Fluids

The ability and efficiency of a technology to accommodate thermal storage (and provide dispatchability) is a function of the heat transfer fluid and working temperature.

Three heat transfer fluids have been demonstrated to date: Steam (in power towers and troughs) mineral oil (in most parabolic trough plants,) and molten nitrate salts (in power towers.) The working temperature for steam is limited by the potential for corrosion. Molten salts and oil break down at high temperatures, with molten salt and steam capable of achieving the highest temperatures (about 565° C for nitrate salts.)

Companies such as BrightSource and eSolar are currently working to commercialize supercritical steam in power towers.

Lower temperature steam is also the working fluid for Ausra, a company working to commercialize the Compact Linear Fresnel Reflector (CLFR) geometry. CLFR breaks up a trough into a series of narrow, nearly flat, reflectors saving on the high cost of carefully focused troughs.  Ausra recently announced that they were refocusing on becoming a technology and materials provider, rather than building solar farms on their own.  An industry observer who prefers to remain anonymous thinks that this will mean the end of the company for practical purposes, since the process heat market is very difficult to sell into, and few companies are willing to back expensive, untried technology, especially from a third party vendor. Ausra is hardly alone in grappling with scarce financing in a capital-intensive industry, and the same could be said about several competitors.

Oil is commonly used as the heat transfer fluid in parabolic trough systems because it does not freeze at night (nitrate salts freeze at 220° C) and operates at lower pressure than steam. According to Bill Gould, Chief Technical Officer of Solar Reserve, such systems have peak operating temperatures of 375°C.  Solar Reserve is working to commercialize the nitrate salt/power tower combination which was demonstrated at DOE's Solar Two in the late 1990s, for which Bill Gould was the project manager.

Nitrate Salt

Composition

60% NaNO3 and 40% KNO3 by weight.

Melting Point

221 °C

Boiling Point

Has very low vapor pressure, but begins to decompose around 600 °C

Cost

$90-$160/kWe (trough); $30-$55/kWe (tower)

Other uses

Fertilizer

Thermal Storage

The best established thermal storage system is two-tank molten salt, according to Greg Glatzmaier, a Senior Engineer II on the National Renewable Energy Laboratory's (NREL) CSP research team. Pressurized steam or oil have also been used, but at higher cost per kWh.  Pressurized steam is only practical for short term buffer storage, according to Greg Kolb, a Distinguished Member of Technical Staff National Solar Thermal Test Facility.

Commercial projects using oil as a heat transfer fluid and molten salt for thermal storage include Nevada Solar One and Solar Millennium's (SMLNF.PK) Andesol parabolic trough plants. Solar Millennium is currently the only pure-play publicly traded CSP company I'm aware of.) 

According to Gould and Glatzmaier, the thermal storage systems systems at the Andesol plants suffer 7%-10% round-trip energy losses in heat exchange. If molten salt is also used as the heat transfer fluid, then there is no need for heat exchangers, and no such heat loss. The lower working temperature of these plants also requires much more salt and larger tanks to effectively store the same amount of electricity as for a power tower, once the lower temperatures and  efficiency losses are taken into account..

Gould calculates that a trough plant will require three times as much molten salt (along with larger tanks to store it) as a power tower to store an equivalent amount of energy. With additional information from Glatzmaier, I calculate that, to store the equivalent of 1 kWh of electricity at a trough plant requires approximately $90-160 of capital cost, compared to about $30-$55 at a tower, with the variability arising from the commodity price of salt, which is mainly used as fertilizer.

The Shape of Things to Come

In terms of configuration, many experts see long term advantages in power towers. Nate Blair, a Senior Analyst at NREL says the underlying efficiency advantage of towers arising from higher working temperatures will lead to more power from a similar investment in hardware. A Rankin cycle turbine will operate at about 37% efficiency for troughs, or 41% for a tower, meaning a tower can produce approximately 8% more electricity from the same amount of heat.

The combination of energy storage using molten salt, no heat transfer losses, and the thermal efficiency of power towers, point to power towers with molten salts as the working fluid as the long-term favorite.

There are challenges. Only parabolic troughs are a proven, bankable technology. Dr. Leitner estimates that it will cost between $500-$700 million to commercialize a new technology. Solar Reserve plans to overcome this barrier with a performance guarantee from United Technologies (NYSE:UTX) up to the value of the contract, or $200 million, but in the current financial climate financing remains difficult.

SkyFuel has plans to use the innovative reflective film ReflecTech in a hybrid of parabolic trough and CLFR configuration called a Linear Power Tower (LPT). By increasing the diameter of the receiver they hope to reduce heat loss and allow the salt to stay molten for longer periods. ReflecTech enables relatively inexpensive, large parabolic mirrors to be used in the CLFR configuration, with 10 mirrors, each about 3 meters wide focused on each receiver. This should achieve 85x magnification, sufficient to reach temperatures comparable to those in a power tower.

SkyFuel hopes to commercialize the LPT incrementally, by first testing it as part of existing parabolic trough plants using oil as the heat transfer fluid. Might the parabolic trough triumph by incorporating the advantages of power towers?

Tom Konrad, Ph.D.  

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.

April 08, 2009

Why CSP Should Not Try to be Coal

Joe Romm, at the influential Climate Progress blog, has hit on a formula for countering the coal industry's claims that we need baseload power sources.  Since Concentrating Solar Power (CSP) in conjunction with thermal storage can be used to generate 24/7 or baseload power Joe has renamed it "Solar Baseload."   This is win-the-battle-lose-the-war thinking.  While it does neatly counter the argument we need coal or nuclear, since there are renewable power sources which can produce baseload, such as CSP, Geothermal, and Biomass.  I fell into this coal-industry trap myself in a 2007 article about Geothermal, as did AltEnergyStocks Editor Charles Morand in an article on CSP.

Dispatchable Solar, not Solar Baseload.

Continuous power from solar energy was first demonstrated at the Department of Energy's (DOE) Solar Two project in the late 1990s. I recently interviewed Bill Gould, CTO of CSP company Solar Reserve.  Solar Reserve is now working to commercialize the molten salt thermal storage and solar receiver technology demonstrated at Solar Two, where Bill Gould served as project manager.  

According to Gould, DOE's intent at the Solar Two project was to demonstrate dispatchable power, not baseload power.  Dispatchable power is power that can be called on when needed, in contrast to baseload power, which is essentially always on.  As a demonstration, Gould's team throttled back the output from Solar Two to 10% of capacity, and this allowed the plant to produce power continuously for a couple weeks until it was interrupted by several consecutive days of cloudiness.  But, in essence, it was a stunt: baseload power is far less valuable than dispatchable power.

The coal industry says that we need baseload power because our refrigerators still come on in the middle of the night.  This is like saying we should have the water running constantly in the kitchen sink because we may get thirsty at any time and want a drink.  Put in these terms, the assertion that we need baseload power is clearly nuts: what we need is controllable power that's there when we need it, but is not wasted when the lights are off and the fridge is not running.  

The Problem With Baseload

Last spring, I discussed one of the problems with baseload power.  The more baseload power you have, the harder it is to use variable generation such as photovolatic (PV) solar and wind power.  Or, from the baseload generator's perspective, the more variable generation on the grid, the less baseload power can be added.    This fact has not been lost on the UK's nuclear industry, which is fighting to get wind targets lowered.

To illustrate the incompatibility of baseload and variable energy sources, I downloaded 4 days of real demand data (January 1-4, 2008) from ERCOT's website.  I then simulated production curves for two variable sources, one designed to mimic solar PV (only on during the day, with some variability due to clouds) and a more random type of generation to simulate wind.  I then fixed the amount of baseload power at 25,000 MW (68% of demand) and 5,000 MW (14% of demand) in each of two scenarios, and saw how much wind and PV the remaining demand could accommodate with the constraint that total generation could not exceed demand.

wpe6.gif

wpe5.gif

As you can see, when I dropped baseload power from 68% to 14% of demand, I was able to increase the power of variable sources from 10% to 36% of demand.  Almost half of the drop in baseload power was filled by variable power sources, with the balance requiring an increase in dispatchable generation.  If you'd like to try your own scenarios, you can download my Excel spreadsheet here.

Better than Baseload

It should be clear that  dispatchable generation is a truly premium power source.  Dispatchable generation, like energy storage, long distance transmission, and demand response, all allow the grid to accommodate more variation in both power supplies and in demand.  In a carbon-constrained world, where we want to use as much variable generation such as wind and PV as possible, zero carbon, dispatchable power from CSP can do far more to help us decarbonize the grid than CSP baseload.

Baseload power is part of the problem; it's not the solution.  We should not denigrate CSP by pretending it is only a substitute for coal or nuclear.

Concentrating Solar Power is much better than baseload.

Tom Konrad, Ph.D.

December 11, 2008

Solar Stocks As the Best Play On The Cleantech Revolution? (Part I)

I just got around to reading a new report by Merrill Lynch (link at the end of this article) identifying cleantech as "The Sixth Revolution" (the other five being: Industrial Revolution; Age of Steam & Railways; Age of Steel, Electricity and Heavy Engineering; Age of Oil, the Automobile and Mass Production; and Age of Info and Telecommunications). Periodically, sell-side firms will release free cleantech/alt energy reports, which lay out their macro theses but stop short of providing stock picks to non-clients.

I don't generally pay these reports too much attention as I find they rarely - if ever - present new information or look at things in a different way (i.e. they are packed with existing and sometimes dated data and are quite predictable in their orientation). This isn't surprising, as their clients don't pay them to give away all of the goodies. This one, however, was quite interesting. The author, Steven Milunovich, is Merrill's "cleantech strategist." He comes from a technology equity research background and uses his knowledge of tech's historical development path, along with theories of disruptive technologies, to predict how cleantech might evolve.

In his view, once the current funding storm has passed, cleantech will enter a secular growth phase that will last many years, and that he calls nothing short of a revolution. While he likes energy efficiency applications like smart-grid, he points out that, somewhat paradoxically, greater energy efficiency will lead to higher absolute levels of energy consumption. This perspective, based on the Jevons Paradox, states that as efficiency increases and the energy intensity of a unit of output decreases, energy costs also decrease across the system, eventually boosting absolute demand because the increase in throughput outpaces efficiency gains. According to Milunovich, the "counterintuitive conclusion is that the ultimate goal of cleantech should be to provide essentially limitless energy that can be wasted."

Where does he think this energy should come from? Well, a variety of places, but he is particularly bullish on solar, for two reasons: (1) solar is by far the most abundant energy source on Earth, and (2) solar is on the steepest price-performance improvement curve. Interestingly, the author is also bullish on solar because he views the structure of the electricity market as eventually moving from vertical to horizontal, much like technology pre-1990s was dominated by large, vertically-integrated firms (e.g. IBM), only to be overtaken in the 1990s by small firms working on disruptive technologies. He thus sees a much greater role for distributed generation in the future, and it is therefore logical he should like solar given the degree to which solar can be deployed through the building stock as a load-abatement measure.

Here are a few interesting quotes:

"In our view, practical peak oil is real, so oil prices should eventually move back up."

"[U]pgrading transmission adds 30-40% to the cost of renewable energy."

"Energy storage is the holy grail of cleantech and a difficult problem."

"Huber and Mills point out that more than 85% of the growth in US energy demand since 1980 has been met by electricity."

"[O]ur early take is that increasing electrification of the economy will continue with solar the most promising approach."

"DOE's Pacific Northwest National Lab estimates that plug-ins would have to constitute over 80% of the coutnry's 220 million passenger vehicles before new base load plants would be needed."

Find the press release here, and the actual report here (PDF document).

 

Charles Morand                

October 05, 2008

Concentrated Solar Power and the New ITC

When the financial turmoil began, I sold my riskiest stocks.  Even a successful bailout bill is unlikely to return us to the heady days of 2006 and 2007.  Yet there is a bright side for clean energy investors.  Despite the recent evidence to the contrary, a financial crisis is likely to convince legislators of the importance of getting the economy going again, and of doing so with the least amount of public money possible.

Concentrating Solar Power

It was with this thought in mind that I attended CSP Today's Second Annual CSP Summit US in San FranciscoCSP, or Concentrated Solar Power, is a proven technology.  Several CSP plants have been operating reliably in the California desert since the late 1970s.  The technology uses mirrors to concentrate the sun's heat, and that heat is used to create steam to run a turbine, just as the heat from fossil fuels is used to create steam to run a turbine in a conventional gas or coal fired power plant.

What do utilities like about CSP?

  • Steam and turbines are familiar technologies.  It's hard to underestimate the attraction of the familiar, especially in a conservative industry like electric utilities..
  • The generation profile of CSP is an excellent match for load shape, especially in the sunny locations where CSP works best.  In this aspect, CSP is a better match for load shape than even photovoltaic solar power, because the thermal latency of the system means that, even without storage (see below), CSP tends not to be subject to temporary losses of power each time a cloud passes over (cloud transients.)
  • Thermal Storage.  Unlike chemical storage (batteries) which degrade when charged and discharged, thermal storage such as the commonly used molten salts are unchanged when they are heated and then cooled.  While these salts (a mixture of ammonium nitrate and potassium nitrate, both also used as fertilizer) are expensive in the quantities used in CSP, expanding storage capacity on a CSP plant is just a matter of building bigger insulated storage tanks and buying more fertilizer.  This means that a CSP plant can be built to be a nearly perfect match for a utility's load, and even used for voltage support and load following.
  • Price.  According to California's Renewable Energy Transmission Initiative (RETI) report [.pdf], referenced by Mark Rawson of the Sacramento Municipal Utility District as an accurate analysis of cost figures, the levelized cost per MWh for CSP varies from $140 to $190 per MWh (or 14 to 19 cents per kWh.)  This makes CSP price competitive with natural gas peaking turbines, and although these prices are more than twice the prices usually quoted for wind power, this is not a barrier for power which fits a utility's load.  Hal LaFlash of PG&E  mentioned that the most recent RFP from San Diego Gas and Electric was offering four times the price for power produced in the afternoon compared to power produced at night.  In markets like that, firm, dispatchable, on peak power at three times the price can easily out compete power from wind, which tends to be anticorrelated with load.

As with all new energy, there are barriers.

  • Incentives.  The nearly  universal refrain at the conference was that CSP needs an 8 year extension of the Investment Tax Credit (ITC.)  The complex permitting issues, transmission connection times, the large size of the plants, and wait times for the turbines mean CSP has a longer development cycle than most other renewables, hence the need for the 8 year extension of the ITC.   Since an 8-year ITC extension for solar was included in the financial "rescue" package which was just signed by President Bush, and this bill also makes the ITC exempt from the Alternative Minimum Tax (ITC), CSP was a big winner from the delay of the rescue package.   The first version of this bill did not contain the tax credit extension.
  • Transmission.  CSP is not a distributed technology, and it relies on direct ray radiation, and project sizes running into the hundreds of MW.  We currently have no national transmission planning, and only a few states have gone through a process of locating renewable energy resource zones and have a plan to get the transmission to where the power is needed.
  • CSP, like all thermal electric technologies, uses water for cooling, unless designed for dry cooling.  But dry cooling comes with a penalty of about 15% higher capital costs and about 9% lower efficiency of power production.  Despite the efficiency hit and added costs, most CSP projects in California are looking at dry cooling.
  • CSP is land intensive, producing only 4 to 6 acres per MW (according to Michael DeAngelis of SMUD).   According to Rainer Aringhoff of Solar Millennium, the current West Mojave Plan strongly hinders CSP development.  Even though the Mojave Desert has the highest direct ray radiation in California (and the world), the West Mojave Plan allocates only 1% of the land area to renewable energy... less even than the 5% allocated to off-road recreation.  This is only dramatic one of the many environmental barriers to CSP development, but the consensus at the conference is that CSP faces a regulatory thicket which must be dealt if CA will be able to bring on the 800 MW of CSP a year it needs to meet its recently passed goals in AB 32.  (Numbers also according to Rainer Aringhoff.)
  • Financing.  Especially for newer technologies, banks are uncomfortable financing a project they are not certain will work.  The companies which will have an advantage getting financing will be the ones with technology that banks and tax investors can be confident the power plant will continue to operate long enough to pay off their investment.

The Light at the Other End of the Tunnel is the Sun

Overall, CSP is likely to be a relatively calm place for investors during the coming years.  The financial rescue package is not going to make the underlying problems which cause the current financial turmoil go away... it will simply smooth the current market and probably avoid the collapse due to loss of liquidity of many financial institutions.  But this does not change the fact that Concentrating Solar Thermal Power is the only renewable energy resource that is can deliver dispatchable, firm power and also has the scale to meet a large percentage of our electricity needs.  In the Southwest US, which does not have the wind resource of the Great Plains, solar is the only renewable option which states can use to meet renewable portfolio standards once they get into the double digits.  Since CSP costs considerably less than PV solar technologies, and can match local peak demand with just a few hours of storage, CSP is likely to be a large share of it.

Investing in a Shifting Landscape

All Renewable technologies are likely to benefit from the ITC and PTC extensions in the recent bailout bill. But the big winner is Solar, and specifically large scale CSP.  The scale, permitting, environmental, and interconnection issues of these giant plants mean that without the long term certainty that the 8 year extension of the ITC, the plants would have had trouble getting financing.  

The good news for CSP does not stop there.  With the ITC exemption came two changes to the current ITC.  First, the tax credit has received an AMT exemption, which, according to Michael Bernier, and attorney at Ernst & Young, this allows a much broader class of investors to invest in CSP for the tax benefits, and allows existing investors to invest more.  This new source of funds will be critical for CSP given the gigantic capital costs for the projects.  Where previously the only major tax credit investors were investment banks and General Electric (NYSE:GE), new investors such as Property and Casualty insurers will become interested.

The second change in how the ITC work was the lifting of the "Public Utility exemption."  Previously, a utility could not own a solar plant and take advantage of the ITC.  Now they can.  Since many utilities would prefer to own generation so that it can be incorporated in the rate-base and earn a return on equity, vendors of CSP technology and developers who can sell a turnkey plant to the utilities will gain an advantage over developers who want to own the plants and only sell the power to the utilities.

The changes also mean that developers with proven technology, who already had an advantage getting financing, have an even greater advantage because the new tax investors will not know the industry as well as the current investors.  This means that developers will need to spend more time assuring investors that their technology is reliable, and a long track record will be an advantage in doing so.

For public company investors, the options for CSP investments are still slim.  Acciona (ACXIF.PK) is a diversified Spanish renewable energy company with a strong presence in CSP, and United Technologies (NYSE:UTX) has a small exposure to solar thermal through their investment in solar tower vendor Solar Reserve.  On the bright side, both of these companies have what it takes to reassure a new crop of tax credit investors.  Acciona built the only recent full scale CSP plant in the United States, Nevada Solar One, while Solar Reserve's less proven but more efficient power tower technology was demonstrated by the same engineers now working for Solar Reserve demonstrated the technology (and thermal storage with molten salts) at Solar Two in the Mojave desert in the late 1990s.

For investors willing to take a less direct approach, we can be certain that a large build out of CSP plants will have to be preceded by a large build-out (or at least upgrading) of transmission lines in the desert Southwest.  I discuss several transmission stocks which should benefit in this entry on renewable energy and transmission.

DISCLOSURE: Tom Konrad  and/or his clients have long positions in GE, UTX, ACXIF.

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.

February 03, 2008

Ten Solid Clean Energy Companies to Buy on the Cheap: #10 United Technologies

Like most conglomerates, United Technologies Corporation (UTC), (NYSE:UTX) won't be found in any of the Clean Energy indices, but its growing portfolio of clean energy businesses makes it fit well into a diversified portfolio with a clean energy tilt.  A conservative capital structure and solid earnings and cash flow, and a decades long history of constantly increasing dividends make this a company that I'm comfortable holding for the long term.  

In terms of sustainability, the company has been recognized by Dow Jones as in the top 10% of the world's most sustainable companies.  Long before it became fashionable for companies to greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce their power and water usage by 25%, and they have met these goals while growing their business.  Their long track record of reducing their energy usage gives them a significant head start against rivals who have only recently jumped on the climate change bandwagon.

Of the company's eight major business units,  UTC Power and Carrier are both crucial to how we generate electricity and how we use it.  Carrier has a history of pushing for more stringent energy efficiency and environmental standards for air conditioning, a strategy which helps their business strategy since UTC's scale and research allow them to remain on the technological forefront.

UTC Power has a large portfolio of products which will help modernize our energy infrastructure.  They supply microturbines and Solid Oxide fuel cells, as well as integrated combined cooling, heating, and power products, which I feel are likely to become much more popular as more companies seek ways to lessen their environmental impact and energy bills at the same time.

With their PureCycle binary cycle turbine, UTC introduced the benefits of volume production to geothermal power by making slight modifications to an existing line of Carrier's industrial chillers which allow them to operate in reverse.  Raser Technologies (RZ) plans to use this technology in their aggressive plans to develop a large number of lower temperature geothermal resources throughout the Southwest.  According to a personal conversation I had with a Raser employee. UTC's ability to deliver the turbines quickly, and willingness to guarantee performance was key to Raser's selection of that technology in preference to rival products.

One other technology likely to be of great interest to clean energy investors is their molten salt storage technology, which provides a rare opportunity for a US-based public investor to participate in what I consider to be one of the most promising solar technologies: Concentrating Solar Thermal Power (CSP).  The thermal storage provided by molten salt gives CSP the potential to provide power on a dispatchable basis, allowing it to compete directly with expensive electricity from natural gas turbines.

Other divisions of UTC, such as the Sikorsky helicopter division, are major military suppliers, so traditional socially conscious investors may wish to avoid UTC.  On the other hand, the short supply of helicopters needed in modern warfare (as well a a large backlog in their Otis elevator division) have propelled strong earnings growth, while even relatively efficient air conditioners could not prevent Carrier from being hurt by the housing slowdown.  Such are the benefits of diversification.

At roughly $74, and a 17.3 P/E, UTX is not currently cheap.  I currently have only some out-of the money short puts on the company, but it's one that I intend to continue writing puts on until the stock falls and I'm assigned shares.

Click here for other articles in this series.

DISCLOSURE: Tom Konrad and/or his clients have long positions in UTX, RZ.

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.

December 16, 2007

CSP: The New Baseload Kid On The Block?

Regular readers know I'm a big fan of wind power, especially in North America. I like the fact that the technology and business model are well understood, that most wind projects have good forward revenue visibility, and that wind is close to being competitive with conventional power generation without subsidies. Wind combines the best of both worlds: stable cash-flows and rapid growth.

Over the past few months, concentrating solar power (CSP), a form of energy that is about as ancient as humanity, has begun appearing in the media and across the blogosphere with increasing frequency. What's the hype all about? CSP has all that wind does plus one important characteristic: it's ability to store energy makes it viable as a source of baseload power. This gives CSP a big edge over wind and solar, for which variability and thus reliability are important concerns. It's no wonder, then, that we like CSP at AltEnergyStocks.com.

A New Study

On Tuesday, Emerging Energy Research (EER) released a study on CSP (this is a link to the press release's PDF - the actual study must be purchased). EER argued that CSP is now the fastest growing utility-scale alternative energy source after wind, and expects US$20 billion to be poured into the sector over the next 5 years.

The 2 hottest markets at the moment, according to the study, are the Southern US and Spain. These 2 markets alone will install about 7,500 MW of CSP between now and 2020, while other southern European nations will install about 3,200 MW over the same time period.

In the US, c consortium of southwestern electric utilities recently put out a Request For Proposals for what would be the largest CSP facility in either Nevada or Arizona. On the federal side, the DOE recently announced a $5.2 million investment in CSP.

Much potential also exists in North Africa and the Middle East. As a matter of fact, it has been argued that the Maghreb region could help meet a significant portion of Europe's electricity needs cleanly and renewably through CSP. This could also be an attractive means for Israel and other middle eastern nations to generate the power needed to de-salinize large amounts of sea water.

The Competitive Landscape

Two main types of players are currently hustling it out in this space, according to EER. First, CSP pure-plays (for lack of a better term...) that are seeking to leverage their technological advantages. Second, established electric utilities with good access to prime sites and plenty of capital. Here we find the usual suspects: Iberdrola (IBDRY.PK) (which is looking to partially spin-off its renewables unit), FPL (NYSE:FPL) and Acciona (ACXIF.PK) Looking out a few years, I wouldn't be surprised if once credit markets are back on their feet the latter looked to gobble-up some of the former. For a list of the biggest players in the US, Spain and the rest of the world, have a look at the table at the bottom of the press release.

For those looking for more background into the technology itself and how investors should think about the market, Tom wrote a useful piece this past September comparing CSP and solar PV.


DISCLOSURE: The author does not have a position in any of the firms discussed in this article.

DISCLAIMER: I am not a registered investment advisor. The information and trades that I provide 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.

September 30, 2007

A Solar Technology for Every Application

Acciona's financing of Nevada Solar One, and a recent series of a financing, a prominent hire, and a big announcement from Concentrating Linear Fresnel Reflector (CLFR) developer Ausra has been keeping long-underappreciated Concentrating Solar Power (CSP) technology in the news recently.  I consider this great news, because the potential for cheap thermal storage of CSP and the gigantic size of the available resource means that CSP is likely to provide the backbone of reliability for any future decarbonized electric grid [Word Doc] where the clear skies which it requires to operate properly and sufficient transmission are available.

But CSP is only one of a broad range of Solar technologies, and here I will outline the framework which helps me understand and predict which ones are likely to be most successful.

To understand the future of any technology, you first need to understand its applications, which will lead to an understanding of the characteristics necessary to meet them.  Broadly, solar power is used to produce heat for climate control and process heat, and for electricity, both on the grid and off.

Daylighting

The oldest solar application is daylighting, the use of windows and other means allowing indirect sunlight to provide effective internal illumination inside buildings.  For individual homes, window and skylights are usually sufficient for the job, but there also exist architectural features such as light shelves and even active sun tracking systems which combine with fiber optics or mirrors [pdf]  to provide light to the interior of large buildings.  Such systems can provide significant energy and maintenance cost savings, as well as increase worker productivity.  They are particularly popular in schools because of studies which show enhanced student learning under natural light.

Thermal Applications

Solar thermal, when used for space heating is needed mostly in the winter in cold and temperate climates.  Because of the fact that it is only useful for part of the year, it needs to be simple and inexpensive to be practical.  Here, passive solar design and proper orientation of buildings is the hands down winner, because passive solar measures are inexpensive to free, with one of the most expensive steps being adding extra thermal mass, something which greatly enhances performance where daily temperature swings are large, and tends to remain fairly inexpensive given its low tech nature.   Passive solar design is almost certain to be a long term winner, although it is unlikely to be a big winner for investors because it does not require special products or materials.   Active solar thermal systems are typically too expensive to economically be used for only the part of the year when the heat is necessary, although when the heat from the system can be switched between multiple applications, such as domestic hot water or electricity generation, it can be economic for an active solar thermal system for at least part of a building's space heating load.  

For process heat, which includes solar domestic hot water, as well as heat for industrial processes [pdf], the active solar thermal systems shine because year round usage can make these still relatively inexpensive systems easily economic.  These systems tend to be either flat plate collector systems, which circulate a working fluid under a black heat collector, or evacuated tube systems, which are somewhat more expensive, but can reach higher temperatures because the heat collector is a solid wire, which avoids problems with boiling the working fluid.  Solar parabolic trough systems are also sometimes used in large scale, high temperature industrial applications.

Electricity Generation

With electricity generation, both time and location become important.   Electric transmission is constrained by infrastructure, and and electric storage is often more expensive than the power being stored, leading to large price premiums for power delivered where and when it's needed most.

The right place

For off-grid applications flat plate photovoltaic (PV) panels, which can be either thin-film or the more traditional crystalline silicon with a battery backup tend to be suitable despite the relatively high cost of power because of the scalability, relative simplicity, lack of moving parts, and low maintenance of the systems.  Concentrating photovoltaic (CPV) is seldome used in off grid homes to reduce up-front costs, because it tends not to work as well as flat plate collectors when there are clouds, and the need for a solar tracking system adds to maintenance costs which can be especially critical in the remote locations where off grid power is usually needed. Another form of practical off grid application is small scale power for lighting or equipment in areas where the grid is available but where the savings from avoided wiring make an investment in PV and a battery pack economical.  A common example of this are the now ubiquitous solar garden lights.

Photovoltaic technologies also have an advantage in distributed generation: placing the power source at the point of use.  The main advantage here is in their simplicity (which allows for low maintenance) and scalability, allowing the sizing of the power source to fit the need.  For instance, an electric utility might place west-facing PV on a transmission base station which is near capacity during times of peak load, thereby meeting a portion of that load and avoiding an expensive upgrade to the base station.

The right time

Since electricity typically requires expensive batteries for storage, technologies which can have inexpensive, built in storage have a cost advantage over ones that only produce power when the sun is shining.  Most solar electric technologies conveniently produce power on sunny summer afternoons, a time which normally corresponds to peak load in climates where air conditioning drives peak load.  This effect can often be enhanced by orienting the panels towards the west or southwest so that they are producing their greatest output in the afternoon.  This produces intermediate power, which is available when electric demand is high, but is also often available at non peak times, such as during the day in the winter.  Although such power is more valuable than other forms of intermittent power generation, which often have no correlation with the load profile, they also cannot be relied on to be available when needed, and are less valued by utilities which are responsible for providing power whenever customers want it. 

Dispatchable power is the most valuable form of generation (per kWh) on the electric grid, because the utility can use it only when demand is high and cannot be met with cheaper resources, while utilities also value base load power, which is almost always available and can be relied on at any time.  Since the sun is not always shining, these forms of power require some form of storage, and this means that they are best met with Concentrating Solar Power, which can be built with thermal storage, a much less expensive way to store power than batteries and other forms of electric storage (with the possible exception of Pumped Hydro, which is limited in its available capacity and location.)

Thin film vs. CPV

The incumbent photovoltaic technology, crystalline silicon is typically very expensive per watt, and there are two approaches currently being taken to cut costs: thin film and concentrating PV.  Thin film is another form of flat plate PV that requires much less and less specialized materials but typically has lower conversion efficiencies and durability than crystalline PV, which makes it inappropriate for applications that require a large amount of power generation in a small area, while concentrating photovoltaic (CPV) uses lenses or mirrors in to focus sunlight on small but very high efficiency cells to generate power at a lower cost.  CPV usually requires the ability to track the sun and few clouds, which means that it is unlikely to be as economic in distributed applications, although some companies are working to overcome these limitations.

Central Power Generation

For central power generation, the main factor in choosing between technologies is cost.  Here, the concentrating technologies (CSP and Concentrating PV) tend to have the advantage, and the ability to use transmission to bring the power to the point of use means that the generation can be placed in areas with a lot of sun and very few clouds where these technologies perform best.  The need for additional maintenance for solar trackers is less of an issue at a central solar plant, and this also give and advantage to the concentrating technologies.

Concentrating Parabolic Trough plants, Solar Tower, and Concentrating Linear Fresnel Reflector generators need large scale (in the hundreds of megawatts) to achieve their superior economics, while Dish Stirling and Concentrating photovoltaic (CPV) technologies achieve their economies of scale at less than a megawatt.  The superior scalability of Dish Stirling and CPV is largely negated by the cheap thermal storage (referenced earlier) available with the first three technologies which is not available with Dish Stirling or CPV.

Conclusions

Whenever a company announces a new technology with higher efficiency, lower cost, or better storage, it's easy to get carried away and think that that one technology is destined to win out over all the others.  I hope you now appreciate that there are as many or more applications as there are technologies, and which technology has the upper hand will depend on the intended use.  When evaluating companies, it's most important to consider the target market, and compare the technology to its true competitors.  This article and the following tables should provide a useful cheat-sheet when you do so.

National Solar Tour LogoIf You Want to See it in Action

Next Saturday (October 6) is the National Solar Tour in the US.  Click here to find a tour near you and see many of these technologies in people's homes.

Application Table

Application Category Dominant/Best Technology Other Technologies
Daylighting Lighting Windows, Skylights Light Shelves, Active systems
Space Heating Thermal Passive Solar Design Active solar thermal, especially if also used for other applications such as water heating.
Process heat/ Water heating Thermal Active Solar Thermal flat plate or evacuated tube
Distributed generation Electric Photovoltaic technologies   
Off Grid Electric Non-tracking PV with battery backup  
Central Power Generation Electric Concentrating Solar Power Concentrating PV, Flat plate PV
Dispatchable Power Electric CSP with thermal storage Others w/ battery backup
Intermediate Generation Electric All technologies, should be tracking or west-facing to make production align most closely to peak load.
Base load Generation Electric CSP with thermal storage Others w/ Battery backup

Electric Generation Technology Table

Technology Best uses Strengths Weaknesses
Photovoltaic      
    Flat Plate Distributed, off grid Simplicity, Scalability Cost
       Crystalline Distributed Low maintenance, high durability Cost
       Thin Film Distributed, off grid Low cost; scalability  Low efficiency
    Concentrating PV Sunny areas, Central installations Low cost Higher maintenance
Concentrating Solar Power (CSP)      
     Solar Trough, CLFR, Solar tower Central Generation; peaking and intermediate power; base load capable. Thermal Storage, Cost Large Scale
     Dish Stirling Sunny areas, Central installations Low cost; can be hybridized with natural gas; Scalability Higher maintenance

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.

September 12, 2007

Structured Leveraged Concentrating Solar Power?

On August first, Acciona Energy closed financing on Nevada Solar One, in the first leveraged lease structured financing in the United States.

This begs two questions:

  1. What in the world is a leveraged lease structured financing?
  2. Why do we care?

What in the World?

An in-depth analysis of the economics of leverage leasing for all three parties involved is available here.  Structured financing is a generic term for any form of financing more complex than a loan or a rental.  For those of you who need to remain awake, here's the short version: a leveraged lease is a way of obtaining financing that allows the three parties (lenders, equity investors, and lessee) involved to parcel out the risks, tax benefits, and income streams in a way that suits each of their needs.

Why We Care

While using structured finance can lead to substantial financial benefits for the parties involved, the deal can only be done if the lenders believe that the cash flows from the underlying asset, in this case Nevada Solar One, a Concentrating Solar Power (CSP) plant, are sufficiently reliable that they are willing to loan money in exchange for  a share of those cash flows.

In other words, the lenders believe that Acciona (ACXIF.PK) will be able to operate the CSP plant with sufficient reliability to earn enough money to eventually pay off the $266 million they put up for the deal.  The equity investors believe that the CSP plant will retain some value at the end of the lease, so they will not be left holding the bag.

The completing of a leveraged lease is implicit proof that all the financial institutions involved have a degree of confidence in CSP technology, which they would not have in a development stage technology.  By their actions, lenders Spain-based Banco Santander and BBVA, and Portugal-based CAIXA Geral de Depositos and equity investors JPMorgan Capital Corp., Northern Trust (NTRS) and Wells Fargo (WFC), are all saying, "Concentrating Solar Power is a main-stream technology, and we are confident of its predictable operation for the lifetime of the lease."  Just as important, they're putting their money where their mouths are.

When lenders believe in predictable cash flows, they reduce the interest rate they charge to finance a project, just as a mortgage company will charge a lower rate of interest to a married couple with steady jobs than they would to a single man who has never worked in his life (if he could obtain a loan at all.)  A lower interest rate translates into a lower discount rate when calculating the Levelized Cost of Energy which a technology can produce.  

With financial innovation, a group of Iberian and American financial institutions have reduced the cost of energy which will have to be paid by this plants and future CSP plants in the United States just as surely as any technical innovation would.  Everyone who wants clean energy at affordable prices should care.

UPDATE: 9/13: In this article on CSP by Fortune/CNN columnist Marc Gunther, he quotes an executive at CSP developer Ausra, saying "As soon as we can build solar power projects with the same cost of capital as building conventional coal or natural gas plants, we'll deliver electricity at the same cost as coal."  (emphasis mine.)

DISCLOSURE: Tom Konrad  and/or his clients do not have positions in any of the companies mentioned here.

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.

August 07, 2007

Renewable Energy: a Better Bribe

Bribing and Pressuring Fissile Regimes

On July 25th, France offered to build a nuclear reactor for Libya to power a water desalinization plantRussia is delaying the delivery of  nuclear fuel for Iran's nearly completed Bushehr to help pressure them to comply with UN Security council demands for less secrecy.  South Korea, Japan, China, Russia, and the United States promised to provide 950 thousand tons of oil or equivalent aid to North Korea in return for permanently disabling all its nuclear facilities.

I'm not going to argue about whether using energy aid is the best way to influence this country or that; the fact is that no matter what you or I think about it, the carrot will always be part of international diplomacy, as well the stick.  I want to talk about what form that carrot takes.

 world_map_04.gif

This map shows the amount of solar energy in hours, received each day on an optimally tilted surface during the worst month of the year.
Image Source: Sunwize.  

Both Iran and Libya are well suited for concentrating solar power (CSP), and the declared purpose of the reactor for Libya is desalinization, an excellent application for CSPIran has a wind resource as good as the American Midwest (although CSP may be a better choice due to sandstorms.)  While North Korea has only moderate insolation, US non-governmental organizations were already working to help North Koreans with wind power in 1999.  North Korea has a high quality wind resource all along its Western coastline in Korea Bay, which is shallow and well suited to offshore wind, and also nearest the capital, Pyongyang.

Intermittent Electricity would be an Improvement

The strongest objection to wind power (and to a much lesser extent solar) is that these are intermittent resources.  Yet all these countries already have problems with persistent power outages.  Iran already has problems meeting demand during peak summer hours, and CSP is better suited for meeting peak summer loads than nuclear power, which is a baseload resource, which operates at its worst on hot summer days due to its cooling requirements.  

SEGS availability.bmp

Power utility time of use for California CSP Plants.  Source: San Diego Renewable Energy Study Group, 2005 [.pdf, page 15.]koreaREU121006_228x295.jpg

In Libya and North Korea, the electricity situation is even worse.  Libya's utility vows to reduce power rationing, and provide more hours of electricity, while in North Korea the entire nation, with the exception of Pyongyang, is switched off at night.  Providing North Korea with intermittent wind power rather than fuel oil for dispatchable power plants might lessen Kim Il Sung's incentive to give his capital such favorable treatment compared to the countryside, and do more to help the populace, rather than giving the regime another lever for control.

Technologies for Peaceful Applications

Iran and Libya claim that they want nuclear power only for peaceful applications.  Concentrating solar power is better suited to enhance their energy security than nuclear because it does not rely on imported uranium.  If that is what they want, CSP seems just as well suited for their purposes, and would give them greater energy security since it does not rely on imported fuel.  With North Korea, supplying wind turbines would be even simpler politically, because the existing agreement already allows for equivalent energy aid.  If we in the West are worried about the additional security renewable energy might give to these unpredictable regimes, shouldn't we be even more worried about providing them with nuclear material?

This same line of thought applies to President Bush's possibly Nuclear Non-Proliferation Treaty-busting deal with India.  Regions of Southern and Western India also have excellent solar resources (see map).  India may already have the bomb, but that is no excuse for eviscerating one of the few (and already weak) safeguards the world has against nuclear proliferation.  It might be argued that India does not need our help to take advantage of their renewable energy resources, but, if so, why do they need our help with their civilian nuclear industry?


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