State of the Renewable Energy Finance Markets

Post-stimulus Financing: Will Renewable Growth Continue?

FULL CREDIT TO Renewable Energy World, Elisa Wood

Original News Source >

Will private lenders and investors pick up where government leaves off in a post-stimulus world?

LONDON – Money is flowing worldwide for many forms of renewable energy, as the industry presses forward with dramatic growth. CleanEdge reported US$188.1 billion in global revenue for biofuels, solar and wind energy in 2010, a 35.2% surge over 2009. Bloomberg New Energy Finance (BNEF) found that clean energy investment worldwide reached $243 billion in 2010, nearly double the sector investment just four years earlier. And venture capital investment for clean technology in the US rose 54% in the first quarter of 2011 compared with the same period one year earlier, in a trend led by solar energy companies, according to Ernst & Young.

What has buoyed the market? Many in the renewable energy sector thank stimulus funds infused into the industry by governments throughout the world. But will the growth continue as stimulus funding winds down? Will private lenders and investors pick up where government leaves off in a post-stimulus world?

Several deal makers describe the state of today’s finance markets and provide their outlook into 2012 and beyond, including how hard – or easy – it is to attract private tax equity, project finance, venture capital and other types of loans and investments. Even as the world economy continues to struggle, renewable energy fares far better than many sectors.

REVIVAL OF U.S. TAX EQUITY?
Jonathon Gross, a principal with US accounting firm Reznick Group and head of the firm’s alternative energy practice in North Carolina, helps match renewable energy project developers with investors. He specialises in tax equity investments, where the investor, in effect, buys a project’s tax benefits to offset tax liability. Goldman Sachs was one of the more notable tax equity investors before the financial collapse. But when profits dropped after the crash, so did tax liabilities. As a result, tax credits had little value and investors fled.

In response, the US government created a cash grant to help renewable energy projects during this phase. The grant differed from a traditional tax credit in that developers received money up front, rather than after the project was built or operating. This helped renewable energy developers secure project financing when tax equity investors vanished. The grant, however, is being phased out beginning in 2012.

Fortunately, tax investors are returning to the market, said Gross. But, he added, “I don’t know if it will be fast enough for the developers who are getting the grant.” Gross predicts a dip in US project development in early 2012 when the federal cash grant expires for projects that do not meet certain predevelopment requirements.

Meanwhile, a player known as the tax equity syndicator is increasingly moving into energy. Syndicators, such as Stonehenge Capital Company and Red Stone, connect private equity investors with developers. They more commonly work in low-income housing investment, but syndicators lately have been attracted to state renewable energy credits, Gross said.

Flat Water Wind Farm, a 60-MW Nebraska project, was a recent beneficiary of a tax equity deal. Completed in April 2011, the deal was arranged between U.S. Bancorp (USB), Gestamp Wind North America, Spanish Banco Santander and other lenders. USB has committed more than $400 million of renewable energy tax equity to finance over $800 million of renewable energy projects in the US, primarily in the solar and wind energy markets.

INNOVATIONS, CREDITS AND PROJECT FINANCING
In Europe, it’s unclear where the renewable energy sector will find the capital to build enough projects to meet 2020 renewable energy targets. Assuming it will cost about €350 billion to achieve the goals, each of Europe’s 40 banks that are active in the sector would need to loan €750 million annually for the next 10 years, according to Ernst & Young’s paper, Funding Renewable Energy in a Capital-Constrained World.

What will those sources be? European utilities might fill in some of the gap, but renewable energy will still need alternative pools of equity and debt to finance projects. One source might be industrials, especially those that act as supply chain co-sponsors in the project development phase, said Ernst & Young.

In the US, renewable energy credits are gaining importance in helping developers secure financing. Banks are apt to take an applicant more seriously if it has a long-term contract to sell its RECs to a utility or other credit-worthy buyer (as opposed to selling RECs on the spot market or under short-term deals).

Solar renewable energy credits (SRECs), only available in certain states, are created by solar energy projects. One MWh generated by a solar installation equals one SREC. Utilities and retail suppliers buy the credits from projects and use them to meet state government requirements that a certain amount of the electricity they sell comes from solar.

But there was much talk in Spring 2011 about the collapse of the famed New Jersey SREC market. New Jersey is a crucial market for solar developers in the US, the second largest to California, with an exceptionally mature SREC market, according to the Solar Energy Industries Association’s US Solar Market Insight: First Quarter 2011.

New Jersey’s SREC was a victim of its own success. The state’s high SREC prices attracted so much solar development that the market became oversupplied with SRECS and trading prices plummeted for the credits. SEIA predicts an end to New Jersey’s market growth in late 2011/early 2012 as a result of the overheated SREC market.

However, Kent Rowey, head of Freshfields’ Americas Energy and Infrastructure practice, says that stories are overblown about the death of New Jersey’s SREC market. “Smart traders think that the market has mispriced the SREC, that the forward curve is incorrect,” he said.

Why? Too often analysts forecast SREC supply based on the project applications that are before regulatory bodies, and not on the actual projects being built, according to Rowey. This creates an overly high forecast for solar development. In reality, a good number of the projects that are proposed will never be built. Rather than counting applications, savvy financiers conduct their due diligence “the old-fashioned way” – they count rooftops from helicopters to determine what’s really being installed. What they are finding is that fewer projects are being built than expected, and therefore fewer SRECs will be available in the future than is now believed. Therefore, the New Jersey SREC market may not be as overheated as some believe.

Beyond SRECs, Rowey sees the overall debt market for renewable energy as buoyant. “If there is any kind of limiting factor, it is probably that there is an inverse relationship between the size of the deal and the work that goes into it,” he said. Big banks prefer large loans because it takes just as much work to administer a large loan as a small loan, but the returns are lower.

German commercial banks are leaders in providing debt capital for project finance. Rowey also sees more US banks eyeing renewable energy projects; some are teaming up with pension funds.
“There still is liquidity in the debt market for renewable projects. It is one of the sectors in the infrastructure market that hasn’t really been hit as hard,” he said. Even though underwriting standards are more stringent since the market crash of 2008, “for the right project and right sponsor, renewable energy is a space where traditional financing is available.”

WHAT FINANCIERS LIKE
Michael Lorusso, managing director and group head for US-based CIT Energy, which focuses on project and structured finance, shares this view. He says that if the developer offers a financeable project, the lender will be there. “It is incumbent on the developers to do something that is financeable and not push the market to the point where they are stuck with a project that cannot be financed,” Lorusso said.

CIT Energy evaluates projects much the way large banks do. The financing and advisory firm prefers proven technologies and shies away from technology risk. Projects should have equipment contracts with established manufacturers, and a solid construction contract, Lorusso said. Applicants for finance also should produce a power purchase agreement with a solid buyer, like a utility or industrial customer, which minimises the project’s price risk in the eyes of the investor. Or the project may use a short-term contract that relies on commodity price hedges with third parties, like Goldman Sachs or Morgan Stanley. All government permits must be in place.

Lorusso likes wind, solar and geothermal energy, as well as hydroelectricity, although he noted that less hydroelectricity is in development than the other three resources. He is skeptical about biomass because he sees its fuel source as less reliable, or at least harder to quantify through statistical analysis than wind, solar and geothermal. He receives many inquiries for new technologies that use fuel cells, wave energy, biofuels and gasification, but says often they are unproven, unreliable or uneconomic, and therefore not yet good candidates for financing.

Even though wind energy is high on his list of strong investments, Lorusso sees that market slowing. The sentiment is that “the best sites have been taken, the low hanging fruit has been picked,” so it’s becoming more difficult to develop wind farms, he said. In addition, utilities are less apt to enter into lucrative long-term power sales agreements with wind farms, given today’s low natural gas prices and depressed demand for electricity. Solar energy, on the other hand, appears to be more quickly moving toward grid parity. It also offers the promise of adaptable consumer applications as it becomes integrated into shingles, windows and signs, he said.

Not all solar, however, is created equal when it comes to financing. The industry seems to be developing under what Lorusso described as a bifurcated “barbell effect.” On one side of the barbell is the proliferation of small rooftop solar installations, almost “real estate plays,” he said, that are increasingly aggregated to make them more appealing to financers. On the other side of the barbell are fewer, but massive, utility-scale projects with well-structured deals that attract financial backing. One example is the 392-MW Ivanpah Solar Energy Generating System, being built in California’s Mojave Desert with the help of a $1.6 billion loan guarantee from the US Department of Energy.

While small and large deals make it onto the barbell, mid-sized solar projects often find it hard to secure traditional financing. These $2-3 million installations on commercial roofs lack the economies of scale to attract large banks. As far as the banks are concerned, he said, conducting due diligence on these projects takes too much time for the size of the transaction. Therefore this mid-range solar project often must rely on all equity deals, aggregation, or in some cases small regional banks.
A solar company needs roughly a $20-$50 million pipeline of projects just to catch financiers’ attention, said Scott Wiater, president of Standard Solar, the highest ranking renewable energy company on Inc. magazine’s top 500 fastest growing American companies for 2010. “It’s all about scale, you have to have scale,” he said.

Having a signed power purchase agreement is crucial, Wiater added. “The people that offer tax equity and debt – their mindset is we don’t want to take any pre-development risk.” With a power purchase agreement in hand, a solar company can secure debt financing relatively easily now; tax equity financing less so, he said. “You can find tax equity, but it is expensive.”

Meanwhile, Standard Solar has seen an uptick in the number of commercial enterprises that install solar panels to hedge against future energy rate hikes. Some of these deals are all cash and others operate under power purchase agreements. ‘We are seeing just normal commercial customers installing fairly large systems,’ he said, adding, “If natural gas pricing wasn’t as low as it is, we would have much more business. But with that said, we can still be competitive even with the currently depressed energy prices.”

COMMUNITY BANKS FOR SMALL PROJECTS
For the truly small renewable project, conventional financing can be extremely hard to find. But small specialised or community banks are increasingly filling this niche by lending to ventures that have a hard time accessing conventional capital. Many of these banks function as non-profit institutions that do not have to answer to shareholders, so focus on investments with social impact, such as day care centers or schools. For such projects, “there are a world of government programmes that aren’t going to go anywhere, that are not in danger of being zeroed. We have been looking for how to take those tools and put capital in the green economy,” said Melissa Malkin-Weber, green initiatives manager for Self-Help Credit Union, nonprofit community development lender, real estate developer, and credit union with offices in California, North Carolina, and Washington, D.C.

For example, in the US small renewable energy projects can take advantage of the new markets tax credit, set up in 2000 for real estate construction and renovation in low-income areas. “Renewable energy looks a lot like commercial real estate from an underwriting perspective,” she said.
Renewable energy developers, such as solar installers, can use such credits to attract private capital. The developer can parlay the credit into a below-market interest rate and more flexible loan term. Loans can be as small as $5000, although the sweet spot tends to be $75,000 to $10 million, she said.

YOUNG AND UNSUBSIDISED
New technologies, those just getting off the ground, typically seek out a different kind of investor than those already accepted by commercial markets. Still unproven, and not ready for full-scale commercial deployment, these technologies often look to angel investors, venture capitalists and government funding.

The good news is that an increasing amount of VC money has been flowing to renewables. In the US, investors in new technologies look to renewable energy as the “next major economic transformation frontier,” according to Venture Capital’s Role in the US Renewable Energy Sector, a white paper by the US Partnership for Renewable Energy Finance. Before 2005, renewable energy accounted for two percent of VC investment in the US; by 2010 it had reached 15 percent.
China, too, with its growing appetite for clean energy, can be a rich launching point for new renewable energy technology, according to Stephen Edkins, partner in Diverso, a Shanghai-based venture capitalist firm that specialises in connecting technology innovators with opportunity in China. Diverso’s clients included Ilika, a clean-tech materials company that works in energy storage, and TMO Renewables, the developer of a new process for converting biomass into fuel ethanol. Both are based in the UK.

Direct subsidy is difficult to come by in China, and that’s just fine with Diverso. Much like other VCs, Diverso looks for technology that can stand on its own.

“Technological innovation is about allowing renewable energy to be competitive in the absence of subsidy,” said Edkins. While direct subsidies may be hard to come by in China, the government backs renewable energy in other ways, particularly through favourable terms from its state-owned banks, which “act as a lever,” Edkins said.

Opportunity is great for new technology in China’s hungry energy market, but also daunting. The language barrier alone can stymie outside businesses, according to Diverso.

Brian Kinane, managing director at Yorkville Advisors, also works with junior energy companies, but in Europe, where the challenges are different. “Equity markets are difficult to access for companies at present. Many investors are concerned that there is correction coming in the market. There is a feeling that the market has had quite a high run-up and now there is a greater sense of volatility,” he said.
This slowdown is being spurred by government austerity measures throughout Europe, as well as talk that China’s economy is cooling. The correction is expected to be temporary, with a positive economic trend reasserting itself, but investors “don’t want to be caught up in that correction,” he said.
Longer term, Europe’s renewable energy finance sector is likely to benefit from Germany’s decision to close down its nuclear power stations, he added.

HELP FROM EXPORT BANKS
Meanwhile, government export credit agencies, such as the US’ Export-Import Bank (Ex-Im Bank), Export Development Canada and Germany’s Hermes Cover, have been filling in the financing gaps for equipment suppliers. Export banks are especially well suited for small transactions that hold little interest to conventional lenders.

For example, Ex-Im Bank offers a streamlined application process known as Renewable Express. Solyndra saw its financing processed in just 41 days. The manufacturer used the programme to finance its sale of solar panels to an international supermarket chain in Belgium. The June 2011 deal offered Solynda not only a favourable interest rate, but also a long financing term. The US export bank guaranteed an 18-year €7.7 million loan ($10.3 million) to finance panels for the 3 MW project.

NOT A BUBBLE
Kathleen Marshall, managing director at Green Solar Finance, says that stimulus funding did what it set out to do. Financing is again available for renewable energy. “What we are seeing is tremendous movement on almost all fronts,’ she said. “We’re seeing many more financial entrants coming in – philanthropic investors, insurance and bank lenders.” She credits much of the movement to the cash grant offered in lieu of a tax credit. “It provided a strong initial catalyst to start moving things. I think what it really did is it created scale. It created tremendous scale and success in getting projects done.”
Ultimately, though, for a financing deal to work it takes “tremendous collaboration,” she said. If a subsidy goes away, parties must be willing to be flexible and realistic about yields. And then “a deal will get done,” she said. In any case, whether stimulus money stays or goes, what’s clear to renewable energy investors now is that this industry is “not a bubble – the horses are out of the gate and they are running,” Marshall said.

Solar - Approaching Grid Parity Faster Than You Thought

Solar gets cheap fast

by Stephen Lacey

Full credit to Climate Progress.

There's a joke in the solar industry about when "grid parity" -- the time when solar becomes as cheap as fossil sources -- will happen. Ron Kenedi, the former VP in Sharp Solar's U.S. business liked to throw out random dates, telling me once "November 21, 2012" in jest.

The truth is, it will happen in phases -- one market and one technology at a time.  But according to two top solar executives -- Tom Dinwoodie, chief technology officer and founder of SunPower and Dan Shugar, former president of SunPower and current CEO of Solaria -- "ferocious cost reductions" are accelerating that crossover in a variety of markets today.

Dinwoodie and Shugar are responsible for developing over $3 billion in photovoltaic (PV) projects around the world. They were making the rounds in Washington this week, giving presentations to journalists and policymakers about the changing economics of solar PV. Joining them was Adam Browning, the executive director of the Vote Solar Initiative, an organization responsible for much of the state-level progress for solar in the U.S. (Vote Solar helped put together the data.)

Their goal: to explain that solar PV is no longer a fringe, cost-prohibitive technology -- but, rather, a near-commodity that is quickly becoming competitive with new nuclear, new natural gas, and, soon, new coal.

These slides are a must-see for anyone interested in solar, or in the business of energy generally. While I think some of the predictions and comparisons between technologies aren't telling the full picture, the underlying data is very compelling: We are starting to realize grid parity in solar -- all with technologies available today.

Let's take a look.

Notice in the first chart how steadily manufacturing costs have come down, from $60 a watt in the mid-1970's to $1.50 today. People often point to a "Moore's Law" in solar -- meaning that for every cumulative doubling of manufacturing capacity, costs fall 20 percent. In solar PV manufacturing, costs have fallen about 18 percent for every doubling of production. "It holds up very closely," says Solaria's Shugar.

The "Moore's Law" analogy doesn't necessarily work on the installation side, as you have all kinds of variables in permitting, financing, and hardware costs. But with incredible advances in web-based tools to make sales and permitting easier; new sophisticated racking, wiring, and inverter technologies to make installation faster and cheaper; and all kinds of innovative businesses providing point-of-sale financing (think auto sales), costs on the installation side have fallen steadily as well. The Rocky Mountain Institute projects that these costs [PDF] will fall by 50 percent in the next five years. (Note: This chart is from RMI, not from the Dinwoodie/Shugar presentation.)

What has driven these cost reductions? A staggering ramp-up in installations around the world that have driven an even greater increase in solar manufacturing. (By the end of this year, GTM Research predicts we'll have 50 gigawatts of module global production capacity.)

As SunPower's Dinwoodie puts it:

That 17 gigawatts installed in 2010 is the equivalent of 17 nuclear power plants -- manufactured, shipped, and installed in one year. It can take decades just to install a nuclear plant. Think about that. I heard Bill Gates recently call solar "cute." Well, that's 17 gigawatts of "cute" adding up at an astonishing pace.

He has an excellent rhetorical point, which highlights the brilliance of solar: This modular technology can be produced and installed at a pace far faster than most energy technologies. And businesses are getting amazingly efficient at doing so.

However, this comparison neglects the "value" of energy. Nuclear is a baseload resource; solar PV is more of a "peaking" resource. To compare 17 gigawatts of global solar PV development to 17 gigawatts of nuclear power plants ignores the fact that nuclear produces far more electricity than an equivalent solar PV plant.

With that said, solar brings a different kind of value to the grid. Not only can it be quickly deployed on existing infrastructure (warehouses, commercial buildings, residences) at rates that are orders of magnitude faster than nuclear, it offsets the most expensive peaking power plants -- providing immediate economic value.

Here's an amazing statistic told by Shugar: If only 500 megawatts of solar PV had been deployed in the northeast U.S. to help alleviate demand for electricity, the August 2003 U.S.-Canadian blackout wouldn't have happened. That blackout was the second largest in the world, causing between $7 and $10 billion in economic damage.

Notice in this chart how beautifully solar PV fits in to the highest demand periods in the middle of the day:

"We are considerably lower than natural gas peaker plants," says Dinwoodie. "We're also coming in lower than new nuclear and becoming lower than new coal. Gigawatts of these plants are being developed in months -- not years or decades."

Here's their comparison between solar PV, natural gas peakers, nuclear, and coal. The figures come from Lazzard, an international financial services firm that tracks energy data, and the Department of Energy.

You can see that natural gas peaker plants, which sit idling most of the day, are an expensive option for utilities:

In sunny markets like California, solar is becoming competitive with large combined-cycle natural gas plants as well. According to Dinwoodie, there have been 4 gigawatts of contracts for solar PV plants in California signed below the Market Price Referent -- the projected price of a 500-megawatt combined cycle natural gas plant.

While that is a major milestone for the solar industry, we need to be careful about jumping to conclusions based on these figures. Some in the solar business fear that many developers are signing contracts too low -- which means they get the contract, but investors may be hesitant to provide financing because they're concerned the projects won't pencil out. But the trend is clear: Continued declines in the cost of building solar plants is allowing developers to compete with fossil energies in certain markets.

Here's another important statistic: When SunPower built the 14-megawatt Nellis Air Force Base system in 2007, it cost $7 per watt. Today, commercial and utility systems are getting installed at around $3 per watt. In 2010 alone, the average installed cost of installing solar PV dropped 20 percent.
It would appear that solar PV is also cheaper than new nuclear:

This year, the U.S. industry may install 2 gigawatts of solar. The last nuclear power plant to come online in the U.S., Watts Bar 1, has a capacity of 1.1 gigawatts -- but that took 23 years to complete, not two years.

When looking at the time and cost of construction of new nuclear -- as well as insurability issues -- solar PV (in sunny areas) is already competitive with those plants. Again, I believe there is a big difference in the "value" of electricity from nuclear and solar PV given that they play such opposite roles; but these figures do tell an interesting story. (These figures were put together before the Fukushima accident.)

And what about coal -- supposedly our cheapest form of energy? Dinwoodie and Shugar argue that solar PV is becoming competitive against that technology too:
Over the last few years, 153 coal plants have been abandoned, in large part due to uncertainty over environmental regulations. Dinwoodie and Shugar believe that by the time a new American coal facility is built in the next six years, solar PV in the sunniest regions can be competitive with those plants.

Again, we have to recognize the differences in energy value. Resources like biomass combined-heat-and-power, geothermal, and hydro may be better equipped to make up for the loss of coal. But if these projections are accurate -- and experience suggests they are on target -- getting solar PV competitive with coal would be a huge boost to the industry.

So what does all this mean? It means that the notion that "solar is too expensive" doesn't hold up anymore. When financing providers can offer a home or business owner solar electricity for less than the cost of their current services; when utilities start investing in solar themselves to reduce operating costs; and when the technology starts moving into the range of new nuclear and new coal, it's impossible to ignore.

According to SunPower's Tom Dinwoodie: "The cross-over has occurred."

Stephen Lacey is a reporter with Climate Progress covering clean energy issues. He formerly worked as a producer/editor at RenewableEnergyWorld.com.

Update on California's Upcoming Utility-Scale Solar Projects from The Desert Sun



Laura Abram of First Solar holds a photograph with a simulated image
of what the terrain near Desert Center will look like after solar panels
are placed in the area behind her.  Omar Ornelas, The Desert Sun

Solar: California's new gold rush
Green energy offers the prospect of an economic boon, but some worry the environmental, cultural cost is too high

The Desert Sun - Keith Matheny 

It's been called California's second gold rush: the clamor by large solar companies to stake a claim in southern California's open deserts and capture one of its most abundant resources — sunlight.

While many cheer the cleaner energy and economic possibilities utility-scale solar development may bring to a job-starved region, some environmentalists, Native Americans and others are critical of the process, saying it's running roughshod over threatened plant and animal species and culturally sensitive areas.

The California Energy Commission and federal Department of the Interior have approved eight major solar projects in Southern California since last year, including seven projects in the deserts north and east of the Coachella Valley. All but two of the approved plans utilize largely undeveloped public land managed by the federal Bureau of Land Management. The projects are expected to generate:

• Nearly 3,600 megawatts of non-carbon-emitting electricity, enough to power almost 1.8 million homes.

• Some 5,500 jobs during construction of the projects, and nearly 1,000 long-term operational jobs.

• More than $15.2 million in annual property taxes, and hundreds of millions more in sales taxes as the projects are built.

Another eight utility-scale solar projects are also in the permitting pipeline for Riverside and Imperial counties, promising an additional 2,173 megawatts of renewable energy generation. And long-range plans are in the works that could open up millions more public acres to solar development in six western states, with the largest proposed solar energy zone in Riverside County.

“California is the national leader in clean energy, and our great state is poised to become the world leader in renewable energy generation,” Gov.Jerry Brown said Monday.

Brown earlier this month signed a bipartisan bill to further increase California's renewable energy portfolio standard, now requiring that utilities get one-third of their electricity from renewable sources by 2020, up from 20percent.

Critics contend the politically driven fast track to approving projects on tens of thousands of acres of public lands will cause irreparable damage to threatened plant and animal species, as well as to historic, prehistoric and culturally important sites.

“The irony is, in the name of saving the planet, we're casting aside 30 or 40 years of environmental law. It's really a type of frenzy,” said Christine Hersey, a solar analyst at Wedbush Securities who closely follows environmental concerns associated with solar projects.

It's an issue that pits green against green, environmentalists prioritizing the reduction of atmospheric emissions that contribute to climate change versus those most interested in threatened species and the near-pristine desert ecosystem.

“When you take a look at the political climate, the economy, and you add that to the recent media notoriety of the climate crisis — which I'm not a skeptic of at all — you've got a rather vicious cocktail where environmental groups don't really know how to handle this,” said Kevin Emmerich, a former park ranger turned biological consultant who lives in the Mojave Desert in Beatty, Nev., just across the border from California.

“A lot of them are thinking, ‘The climate's changing; the desert is disappearing anyway; we may have to sacrifice some in order to save the rest.' That support has helped expedite this process.”

The state of California and federal government are spurring the desert solar development, offering billions of dollars in federal loan guarantees, cash grants and tax breaks. On Monday, U.S. Energy Secretary Steven Chu announced $2.1 billion in federal loan guarantees for one project, a 1000-megawatt proposal near Blythe.

Another solar plant in development, Ivanpah in eastern San Bernardino County, received $1.37 billion in federal loan guarantees in February.

Janine Blaeloch, executive director of the nonprofit Western Lands Project, questioned the huge taxpayer commitment to the solar projects.

Blaeloch is a member of Solar Done Right, a coalition of public land activists, solar power and electrical engineering experts, biologists and renewable energy advocates critical of placing large solar projects on relatively unspoiled public land. She co-authored a report released earlier this month on governmental push for solar in the open desert, entitled “Wrong from the Start.”

She noted that corporate investors in companies developing solar projects in the California desert include Chevron, BP, Morgan Stanley and Goldman Sachs.

“It's big money and big oil,” she said. “It's the same people who have driven us into the hole we're in now trying to get us into another one.”

NextEra Energy's Solar Electric Generating Systems facility near Kramer Junction,
which is near Barstow, in San Bernardino County. The company is planning a similar
solar thermal plant to be located on federal land east of the Coachella Valley.
 - NextEra Energy

Gold mine in the desert

Perhaps ironically to some, the modern push for large-scale desert solar, it can be argued, started under former President George W. Bush and California Republican Gov. Arnold Schwarzenegger.

“The gold rush really started after George W. Bush signed the Energy Policy Act of 2005,” which provided tax incentives and loan guarantees for California desert solar development, Hersey said. “That's what really started the speculators.”

Under Democratic Gov. Gray Davis, California in 2002 passed a renewable energy portfolio standard calling for 20 percent of California's electricity to come from renewable sources by 2017. Schwarzenegger in 2006 moved the 20 percent target up to 2010.

Interest in solar development on federal land in the Southern California desert jumped from 20 applications in 2006 to about 150 the following year, said Greg Miller, BLM renewable energy program manager for the California Desert District.

“We had what we called a land rush,” he said.

BLM had previously approved use of federal desert lands for things such as power line corridors — never anything of the size of solar energy projects, Miller said.

“We were kind of learning as we were going,” he said.

In 2008, Schwarzenegger signed Executive Order S-14-08, streamlining renewable energy permitting and collaborating with federal agencies to develop the Desert Renewable Energy Conservation Plan, to facilitate desert energy development while maintaining natural resources conservation.

The push for solar has continued and expanded under Democratic President Barack Obama, whose administration has made green energy a priority, Hersey said.

“They can't do it fast enough,” she said.

Schwarzenegger and U.S. Interior Secretary Ken Salazar in October 2009 signed a memorandum of understanding between the state and Department of Interior that, among other things, developed a fast-track permit approval process allowing as many large-scale solar projects that could to begin construction by Dec. 1, 2010, making them eligible for American Recovery and Reinvestment Act, or federal stimulus, funding.

The fast-tracking “demonstrates how separate government processes can be coordinated without cutting corners or skipping any environmental checks and balances in the projects,” Salazar said Oct. 25 as he announced approval of the Blythe solar project.

BLM Director Bob Abbey in October acknowledged what was at stake.

“With something as momentous as the introduction of large-scale solar development on the public lands, we have one chance to do things right,” he said. “That's why we did complete environmental analyses on these projects with expanded opportunities for public participation.”

But Blaeloch questions that assertion.

“They are not saying to the public, ‘We want to know how you feel about this;' They're saying, ‘We're going to do this and you can comment on it if you want,'” she said.

“These solar plants will introduce a huge amount of damage to our public land and habitat. The sites will be turned into permanent industrial zones. Even if the plants are dismantled after their life is expired, you cannot restore the desert to what it was.”

Solar Done Right's report contends government officials could take advantage of already disturbed lands such as brownfield sites and former agricultural fields. The U.S. Environmental Protection Agency identified hundreds of thousands of acres of such sites, with the potential to generate 920,000 megawatts of solar electricity, the report notes. Distributed generation on rooftops is another option, Blaeloch said.

“I think those are really good questions to ask,” said Amy Fesnock, BLM's chief wildlife biologist in California.

“BLM doesn't have the ability to say, ‘Go build this on private land.' We don't have authority on private land. We can only assess the projects that are presented to us, on lands over which we have authority.”

BLM stands to bring in more than $10.2 million a year in rental fees from the solar companies permitted or nearing approval to locate in the desert, along with more than $25 million in additional megawatt capacity fees.

Hashing out the details

Though projects are approved with thick, multi-volume environmental impact statements, many details aren't yet resolved and are being worked out on the fly as work commences, including final plans on what will ultimately happen with endangered desert tortoise found on solar project sites.

Preliminary plans include moving the tortoise to other habitats, known as translocation — a controversial practice that top tortoise biologists say leads to high mortality rates.

A panel of independent scientists in October prepared a report for officials working on the Desert Renewable Energy Conservation Plan, that concluded: “In general, moving organisms from one area to another ... is not a successful conservation action and may do more harm than good to conserved populations by spreading diseases, stressing resident animals, increasing mortality, and decreasing reproduction and genetic diversity.

“Transplantation or translocations should be considered a last recourse for unavoidable impacts, (and) should never be considered full mitigation for the impact.”

In approving Ivanpah, California Energy Commissioners stated, “We assume that a substantial number of translocated tortoise may perish.”

But commissioners concluded the proposed mitigation efforts will make the impacts acceptable.

“Whether to approve this project or not is a policy decision to be made by the Energy Commission, after considering all the relevant factors, including scientific opinion,” they stated. “Input from the Advisory Panel is informative but we are not bound by any policy recommendations it makes.”

In addition to tortoise, the commission listed numerous other impacts from Ivanpah: loss of multiple-use lands, loss of habitat for the threatened Mojave milkweed and desert pincushion, increased traffic on Interstate 15 and degradation of scenic vistas. However, the commission found, the “project benefits outweigh the significant impacts identified.”

“The project helps address a global climate change problem of paramount importance and responds to state laws requiring a shift to renewable electricity sources,” the energy commission's Ivanpah decision states.

“Overriding concern” citations were used by the energy commission in the approval of other desert solar projects as well, said Jim Andre, a desert botanist with UC-Riverside's Granite Mountains Desert Research Center in eastern San Bernardino County.

“A decision is being made to waive significant impacts and to go forward with these projects as quickly as possible, without even acknowledging the science,” he said.

It's a similar story with cultural resources.

A June Energy Commission staff report on the Genesis solar project looked at cumulative impacts on cultural sites from past, present and likely future solar development.

“This analysis estimates that more than 800 sites within the I-10 corridor, and 17,000 sites within the Southern California Desert Region, will potentially be destroyed,” the report stated. “Mitigation can reduce the impact of this destruction, but not to a less-than-significant level.”

An economic boon

But large-scale desert solar development proponents say use of the BLM-managed lands provides an opportunity to shape projects in ways that minimize negative impacts that other tracts of land might not.

First Solar, a company based in Tempe, Ariz., is nearing final approval of its Desert Sunlight project, a photo-voltaic solar plant planned north of Desert Center, a tiny community about 50 miles east of Indio off Interstate 10.

The project at its inception secured 19,000 acres of BLM land, studied it with biologists and archaeologists, then scaled and modified the project footprint to minimize impacts to biological and cultural resources, First Solar project director Kim Oster said.

Removed were a bighorn sheep movement corridor, a potential desert tortoise corridor, an area of threatened foxtail cactus and “significant prehistoric resources,” she said.

“To combat climate change, changing our energy use has to be part of the solution. It will provide a significant solution to global warming for the future, while providing green jobs now.”

First Solar on Monday informed Desert Center community leaders of plans to provide a $350,000 community development fund for locally identified priorities such as local school and library improvements.

“Everybody around here thinks it's a great project,” said Ken Statler, owner of McGoo's Country Store in Desert Center.

“They're willing to help out the county and the area. There are no jobs available out here.”

The solar construction and ongoing operational jobs will “undoubtedly” help his store, Statler said.

“Where else are they going to get anything?” he said. “We had two other mini-marts out here and they closed down. You can't get gasoline; it's closed down.

“We need some life out here in the desert. That will definitely help us.”

Desert Center resident John Beach earlier this month landed a job in procurement with NextEra's Genesis project.

The currently proposed projects “bring an economic boost to an area that has very high unemployment and not very much in the way of business,” he said.

But community members generally are more apprehensive about what may be coming later, Beach said.

Federal agencies are currently working on an overarching framework for solar development on public lands in six western states, including California, called a solar programmatic environmental impact statement.

The plan calls for creation of 24 federally designated solar energy zones, areas deemed most likely to work for large-scale solar development while minimizing environmental and cultural impacts. The largest of the zones, at 202,000 acres, is in eastern Riverside County's open deserts.

“That's not reasonable,” Beach said.

“We're going to end up having a disproportionate share of all of the projects and having no more open desert. People are saying that doesn't sound right.”

But the federal report recommends opening up even more land to solar development than the 667,384 acres currently under consideration across western states. Another 21.5 million acres of federal land could be considered for renewable energy development, including 1.7 million more acres in California, with 205,000 acres of the total in the deserts surrounding the Coachella Valley.

Though more than a dozen major solar projects have been approved or are nearing approval, the work on considering the cumulative impacts of them all is in many ways only beginning.

The Desert Renewable Energy Conservation Plan is not scheduled for completion until next year.

“The goal of the DRECP is to approach renewable energy in a more organized fashion. The question really is, will that be in place in time to be of benefit to the planning?” said Gail Barton, principle planner for Riverside County and the county's representative on the committee developing the plan.

Solar projects are currently being considered “consistently with the law,” Barton said.

“Is that the best kind of planning? Probably not. With more comprehensive planning, you tend to look more thoughtfully at things.”

In December, after approving seven large desert solar projects, the California Energy Commission solicited applicants to conduct a study examining the “cumulative biological impacts framework for solar energy projects in the California desert.”

A Sierra Club lawsuit against the Calico solar project in San Bernardino county was dismissed by the California Supreme Court April 13. Legal challenges remain on other solar projects, filed by both environmentalists and tribal members who claim they were not properly consulted, and that the projects fail to protect species and cultural sites as required under federal law.

To many in the rest of the country, local concerns about the desert solar projects' impacts aren't the priority.

“Societally, this is the kind of change that helps the whole country, the whole world,” said Kenneth Zweibel, director of the George Washington University Solar Institute in Washington, D.C.

“There's much bigger value in helping the whole society, the whole world, than in the local issues. Something you are trying to protect is being changed, but it's helping so much in terms of climate change, energy self sufficiency and clean energy, it's a sacrifice that's appropriate to take.”

Clean Energy Spared The Budget Axe - For Now. An Update from Politico

Alternative energy runs into headwind

By DARREN SAMUELSOHN, POLITICO.COM
Clean energy technology champions are scrambling to secure the tax breaks.  Photo by AP Photo

For the renewable energy sector, it’s a wonder either wind or solar power is still standing.

Austere budgets and small government have become Capitol Hill credos, and clean energy technology champions are scrambling to secure the tax breaks and loan guarantees they’ve depended on over the past decade to drive investments.

Cheap natural gas is beating renewables as the lowest-cost option for meeting the nation’s thirst for new electricity.

Scathing media reports have also raised questions about whether the Obama administration favored its green-tinted campaign contributors with federal stimulus dollars and wound up sending upward of three-quarters of the subsidies to companies that are now based overseas.

And when the industry does show signs of life, wildlife advocates and environmentalists have been making it difficult by blocking transmission lines to get the clean energy to urban centers.

Moderating an Import-Export Bank conference panel earlier last month alongside several top energy industry executives, Carol Browner, President Barack Obama’s former top energy adviser, bemoaned the lack of a long-term market signal to help renewables. Without private entrepreneurs, she said, the already small U.S. market could be swamped by foreign competitors.

“This is an industry evolving rapidly, whether it be on the supply or demand side,” Browner said. “From my perspective, on the public policy side, we need to do more to ensure there is demand for the technology. We are in danger of not being at the forefront of the industry. It’s because of people like this we’re at least able to hold on.”

John Denniston, a partner at venture capital firm Kleiner Perkins, sounded off on the disparity, too, ticking through the top 20 renewable energy companies in the world and noting that just four are American.

Exactly what the federal government can do is a question.

Obama promised to put solar panels on the White House roof last year and has continued to talk up renewable energy. During a visit earlier this month to a wind turbine manufacturer in suburban Philadelphia, Obama pledged to keep up the fight to make the renewable industry’s tax credits permanent — rather than leave them exposed to the often last-minute dash for renewal.

“I want to kick-start this industry,” the president said. “I want to make sure it’s got good customers, and I want to make sure the financing is there to meet that demand.”

But several market experts doubt Obama can live up to his promises. While the solar tax credits are secure through 2016, wind will see some of its most cherished benefits expire at the end of 2012, just after the presidential campaign.

“We’ve seen this movie a number of times,” said Rob Gramlich, senior vice president for public policy at the American Wind Energy Association.

Some of the long-term options are also no longer looked at so kindly on Capitol Hill, either.

Former Senate Energy and Natural Resources Committee Chairman Pete Domenici had once floated the idea of establishing a “green bank” that would put financial experts in place in the evaluation of clean energy projects. A similar idea is now a centerpiece of the Democrats’ energy plan, which makes it more likely to fall to partisan sniping.

“The Republicans are calling it a Fannie and Freddie for clean energy, but they don’t mean it in a nice way,” said Kevin Book, managing director of the Washington research firm ClearView Energy Partners.

Renewable advocates insist they long ago gave up on the idea of pricing carbon emissions as a way to get a toehold against their coal, natural gas and nuclear rivals. Now, they’ve put their eggs in another basket: the “clean” energy standard that Obama mentioned in January’s State of the Union speech.

But even here, their preferred policy approach appears to be stuck in congressional low gear.

“I think the door is cracked open and therefore worth pursuing,” Gramlich said.

House Energy and Commerce Committee Chairman Fred Upton may be the biggest barrier to a “clean” energy standard. He opposes federal mandates and has shown no interest in responding to the issue, even if the Senate somehow were to come up with 60 votes on legislation.

In an interview, the Michigan Republican insisted that he wants to expand the nation’s renewable portfolio. But he quickly ticked through a number of the industry’s downsides.

“Solar would be dead without the extension of the tax credits about a year and a half ago,” he said. “So they continue to push out.”

Upton also took issue with local activists and environmentalists who have made it more difficult to get wind energy into the transmission system by challenging various transmission projects.

“That’s the dilemma,” he said. “You’ve got different groups challenging the building to improve the grid. It’s a problem.”

Despite the hurdles, industry officials see themselves in a strong light.

Wind produces about 2 percent of the nation’s electricity. That’s up from less than 1 percent in 2005, with turbines now churning out more than 40,000 megawatts of power — enough to supply electricity to more than 10 million homes.

Solar power is in its own camp. It still hovers below 1 percent of the nation’s energy pie. Its small size makes its growth look even bigger. Investments jumped from $3.6 billion to $6 billion last year. As of 2010, there’s more than 1,000 megawatts of installed capacity, up from 320 megawatts in 2008.

“We’re the fastest-growing industry in the United States, period,” said Rhone Resch, president of the Solar Energy Industry Association.

Indeed, both wind and solar can point to some useful figures as they try to sway political doubters. In 2010, 14 wind manufacturing plants opened, giving the industry 20,000 jobs stretched across 42 states. Fifty-eight new solar panel factories have opened in the past 18 months. Solar officials tout a similar number of jobs spread across 47 states.

Industry observers say wind and solar, while in different camps in terms of recent growth, can at least take heart in the policies they have been able to latch onto.

“It could have been worse,” Book said. “It could have been the case there was no stimulus to spend. It could have been the case that there was no grant program. It could have been the case there was no production tax credit.”

Google Invests in BrightSource's 392 MW Ivanpah Solar Project

Google making big investments in solar energy

By: Chris Meehan, Clean Energy Authority.com

Apr 13, 2011
Is the search giant on its way to becoming a renewable energy giant?

Last week, Google made what sounded like a big investment in solar when it announced that the company bought a 49-percent stake in an 18.4-megawatt photovoltaic farm in Brandenburg, Germany.

But yesterday (April 11), it announced that it was purchasing a $168 million stake (roughly 10 percent) in Brightsource’s 392-megawatt Ivanpah Solar Electric Generating System. In all, the company has now invested more than $250 million in clean energy.

“We have been active in the renewable energy sector for some time, having invested in several innovative companies through Google.org, and more recently, making corporate investments in clean energy projects, like two North Dakota wind farms, an offshore wind transmission line, and these two solar investments over the last week,” said spokesperson Parag Chokshi.

Chokshi could not discuss what type of return on investment the company expected from the projects.
“We're interested in investments that have attractive returns and spur more deployment and development of compelling renewable energy technologies,” he said. “That includes solar photovoltaics in Germany, and power tower technology at Ivanpah here in the U.S.”

“We need smart capital to transform our energy sector and build a clean energy future. This is our largest investment to date,” wrote Rick Needham, Google’s director of green business operations in Google’s official blog. “We’re excited about Ivanpah because our investment will help deploy a compelling solar energy technology that provides reliable clean energy, with the potential to significantly reduce costs on future projects.”

News of Google’s investment in the Ivanpah plant came on the same day that the DOE announced a $1.6 billion loan guarantee to support development of the Ivanpah project. The project is largely being financed NRG.

“We hope that investing in Ivanpah spurs continued development and deployment of this promising technology while encouraging other companies to make similar investments in renewable energy,” Neeham wrote.

Google has plans for further clean energy investments, according to Chokshi.

“We are continuing to look for new ways of advancing clean energy,” he said.
But Google isn’t just buying stakes in clean energy projects, it’s also using it to help power its operations.

“We have a 1.6 MW solar installation at our Mountain View headquarters,” Chokshi said. “It was built in 2007, and was, at the time, the largest corporate solar installation in the U.S.”

RELATED LINKS

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

http://www.eweek.com/c/a/Green-IT/Google-Pumps-168M-into-BrightSource-Solar-Power-Tower-228810/

http://cleantechnica.com/2011/04/12/googles-largest-cleantech-investment-yet-in-california/

Futurist: Solar Will Be The Answer

Futurist Ray Kurzweil isn’t worried about climate change
By Lauren Feeney - Full Credit PBS

Ray Kurzweil at JavaOne+Develop 2010 in San Francisco. Photo: Flickr/Yuichi Sakuraba

Author, inventor and futurist Ray Kurzweil famously and accurately predicted that a computer would beat a man at chess by 1998, that technologies that help spread information would accelerate the collapse of the Soviet Union, and that a worldwide communications network would emerge in the mid 1990s (i.e. the Internet).

Most of Kurzweil’s prognostications are derived from his law of accelerating returns — the idea that information technologies progress exponentially, in part because each iteration is used to help build the next, better, faster, cheaper one. In the case of computers, this is not just a theory but an observable trend — computer processing power has doubled every two years for nearly half a century.

Kurzweil also believes this theory can be applied to solar energy. As part of a panel convened by the National Association of Engineers, Kurzweil, together with Google co-founder Larry Page, concluded that solar energy technology is improving at such a rate that it will soon be able to compete with fossil fuels.

I caught up with Kurzweil when he was in New York promoting a new documentary about his life to ask him about his optimistic views on the usually gloomy subject of energy and climate change.

Lauren Feeney: You have made a prediction about the future of solar energy….

Ray Kurzweil: One of my primary theses is that information technologies grow exponentially in capability and power and bandwidth and so on. If you buy an iPhone today, it’s twice as good as two years ago for half that cost. That is happening with solar energy — it is doubling every two years. And it didn’t start two years ago, it started 20 years ago. Every two years we have twice as much solar energy in the world.

Today, solar is still more expensive than fossil fuels, and in most situations it still needs subsidies or special circumstances, but the costs are coming down rapidly — we are only a few years away from parity. And then it’s going to keep coming down, and people will be gravitating towards solar, even if they don’t care at all about the environment, because of the economics.

So right now it’s at half a percent of the world’s energy. People tend to dismiss technologies when they are half a percent of the solution. But doubling every two years means it’s only eight more doublings before it meets a hundred percent of the world’s energy needs. So that’s 16 years. We will increase our use of electricity during that period, so add another couple of doublings: In 20 years we’ll be meeting all of our energy needs with solar, based on this trend which has already been under way for 20 years.

People say we’re running out of energy. That’s only true if we stick with these old 19th century technologies. We are awash in energy from the sunlight.

Feeney: In his recent State of the Union address, President Obama set a goal of running the country on 80 percent renewable energy by 2035, which is a little bit less ambitious than what you’ve suggested. Are you satisfied with the goal set by the president?

Kurzweil: 2035 is 24 years. I am saying we can meet all our energy needs from solar in 20 years. It’s actually pretty consistent with what I’m saying.

Feeney: You have a very optimistic view of the future; eccentric, even. You believe that eventually we’ll be able to live forever, and maybe even bring people back from the dead. How would that growth in population affect the environment? A lot of people are afraid of overpopulation as one of the major factors in climate change.

Kurzweil: We will be extending the human life expectancy; in fact, we have done that already. Human life expectancy was 37 years in 1800, 48 in 1900; it’s now pushing 80. But this is going to go into high gear now that health and medicine has changed. It used to be hit or miss. We’d just find things — medicine was just a kind of an organized set of ideas that we discovered accidentally. We now have the actual means of understanding the software of life and reprogramming it; we can turn genes off without any interference, we can add new genes, whole new organs with stem cell therapy. The point is that medicine is now an information technology — it’s going to double in power every year. These technologies will be a million times more powerful for the same cost in 20 years.

However, the same technologies that are going to extend life and nudge up the biological population are also going to expand the resources. We just talked about energy, because we are running out of it, but actually we are awash in energy. We are awash in water — pun intended. Just most of it is dirty and polluted. And we know how to convert it, today, but it takes energy, which is why it’s expensive. Once energy is inexpensive, we can create water.

There is a whole set of new food technologies. We are going to go from this revolution that happened 10,000 years ago of horizontal agriculture to what’s called vertical agriculture, where we grow plants, fruits, vegetables and meat in computerized factories by artificial intelligence; hydroponic plants tended by intelligent robots to create fruits and vegetables, in-vitro cloned meats, basically just cloning the part of the animal that you want to eat, which is the muscled tissue. There is no reason to create a whole animal to get to the parts that we want to eat.

The point is that the same technologies that are going to increase human longevity are also going to expand the resources and ultimately make them very inexpensive.

Feeney: You talk about what will happen instead of what might happen. But there are so many obstacles to dealing with climate change — political gridlock, consumer apathy. Are you concerned that these things might not happen because of obstacles like these?

Kurzweil: My main thesis, which I call the law of accelerating returns, is not affected by the kind of things you are referring to. The exponential growth of computation is measured in many different ways continued through the entire 20th century, completely unaffected by the little things like World War I and II or the Great Depression. It was not affected at all by the recent economic downturn. This exponential growth of solar energy has continued through thick and thin.

As the cost per watt of solar falls significantly below coal and oil, people are going to go to that for economic reasons. It won’t be a political issue.

Feeney: A lot of climate scientists say that we have about 10 years to turn the situation around, otherwise we’re going to hit this tipping point and we are all doomed. So you think we’re going to make it?

Kurzweil: Even if those timelines were correct, there will be quite a transformation within 10 years and certainly within 15 or 20 years. The bulk of our energy will be coming from these renewable sources. So, I think we have plenty of time. I think we can make it to the point where these renewables are taking over. And I think there are reasons besides climate change to move away from fossil fuels — that whole oil spill, remember that, that’s not climate change, that’s just pollution. But I don’t see a disaster happening before we can get there because it is pretty soon at hand.

Chadborne & Parke LLP's Project Finance NewsWire January 2011

Click here for Chadborne & Parke's latest Project Finance Newswire, which we consider to be required reading for clean energy project finance participants.

IN THIS ISSUE

1 More Subsidies for US EnergybProjects
8 DOE Loan Guarantee Update
12 California Cap-and-Trade Program Takes Shape
15 California Settlement Settles Old Scores and Charts New Paths for Generators
18 Master Financing Facilities for Solar Projects
29 Turkey Moves to Boost Renewable Energy
31 Cellulosic Biofuels: The Future Is When?
38 PPPs in the Middle East
42 Environmental Update

Update on the Cash Grant and More - Chadbourne & Parke's April Newswire

Chadbourne & Park's April 2010 Newswire is available here.

Again, Chadbourne has provided excellent up-to-date information on matters relating to the clean energy project finance market.


In This Issue
1 Strategies for Starting Construction
5 Germany Cuts Solar Subsidy
8 Update: Tax Equity Market
20 Swap Gets Wholesale Generator Into Trouble
22 Tax Credits for Green Manufacturers: Who Will Use Them and How
27 Court Orders Lender to Continue Funding Defaulted Loan
28 Shedding Assets Quickly in Bankruptcy
34 Environmental Update 

Strategies for Starting Construction
by Keith Martin and John Marciano in Washington, and Eli Katz in New York

FULL CREDIT TO CHADBOURNE & PARKE

The race is on to get renewable energy projects in the United States under construction by year end to qualify for cash grants from the US Treasury. Developers are pursuing different strategies. It is not enough merely to have made a large down payment toward turbines, modules or other equipment for the project by year end. A senior Treasury source said the government is looking for economic activity during 2010. A developer must show work at the site or at the factory on equipment for the project during 2010. The grants are 30% of the project cost and are paid on new wind, solar, geothermal, biomass, landfill gas, waste-to-energy, ocean energy and fuel cell projects that are completed in 2009 or 2010 or that start construction in 2009 or 2010. Grants of up to 10% of project cost are also paid on small cogeneration facilities of up to 50 megawatts in size. Projects that merely start construction in 2010 must be completed by a deadline. The deadline is 2012 for wind farms, 2016 for solar, small cogeneration and fuel cell projects and 2013 for other types of projects.

Congress may ultimately give companies more time. A bill in the House would give developers another two years through December 2012 to start construction without changing the deadlines to complete projects. However, the odds of such an extension at this point are probably a little better than 50%. Most developers are taking steps to start construction in case there is no extension.

Two Ways 


The Treasury Department explained what it means to start construction in written guidance on March 15. The guidance left many unanswered questions. The Treasury answered some of the questions since then in private meetings and in public statements at industry conferences.There are two ways to show construction started. One is to show there was “physical work of a significant nature” on the project during 2010. The Treasury said that “the beginning of excavation of the foundation, the setting of anchor bolts into the ground or the pouring of concrete pads of the foundation” at the site count as such work. It also counts if physical assembly of major components starts off site at a factory. However, the developer must have a “binding” contract in place before such work starts in order to count work done by an equipment supplier or other contractor. To be “binding,” the contract must be more than an option to choose equipment later. The Treasury said “the amount and design specification of the property to be purchased” must be clear from the contract. The contract should not limit damages if the developer walks away to less than 5% of the contract price. Any conditions to performance by a party must be outside the control of the parties. Thus, for example, if the developer must give a notice to proceed before the contractor will start work, the notice should be given before year end. It is not clear whether a contract between related parties can be “binding.” It is best to assume not. There is a risk that amending the contract after work starts could lead to loss of grandfather rights. The guidance suggests that it does, but the Treasury may still be thinking about this issue. The guidance said that any amendment must be “insubstantial.” Minor modifications in design are not a problem; an example is the later addition of a “cold weather package for wind turbines.” The IRS used a similar standard in 1986 after the investment tax credit was repealed. Projects that were under binding contract before the repeal to be built still qualified for an investment credit provided there was no “substantial modification” of the contract later. An amendment that increased the contract cost by more than 10% was considered substantial.


Ellen Neubauer, the cash grant program manager, said at a wind industry finance conference
in New York in early April that it is the start of physical work of a significant nature to construct roads on the project site. The roads must be used to transport equipment rather than solely to provide access for people working at the site. She said it is also the start of physical work for the developer
to lay three concrete pads for a wind farm that will consist of 65 turbines or for the turbine vendor to commence physical assembly of at least one turbine for the project at the factory under a binding turbine supply agreement signed before physical assembly starts.


It is not clear whether it matters if work starts in 2010 but then nothing is done for another year at the site or at the factory on the turbine order. Some senior Treasury staff are not bothered by such a delay; they stress that the Treasury guidance said all that is required in 2010 is the “beginning” of construction or else they view the deadline to complete the project as a check on how long a delay is possible. However, there may be a risk if the facts show with hindsight that construction did not truly get underway.  Developers who plan to rely on physical work to start construction plan to work steadily once construction starts, although possibly at a slower pace than normal. For example, a
wind farm that might normally take six months to construct might take 12 to 18 months under an elongated construction schedule.

There is an assumption in each of these cases that the developer will choose to treat all the turbines or solar arrays as a single “property” so that the work done in 2010 counts as the start of work on the entire project. The Treasury treats each turbine or solar array that can operate independently as a
separate property. Therefore, work must start independently on each. However, a developer can choose to treat multiple turbines or solar arrays that are owned by the same company and are on the same site as a single project.

5% Test

The other way to show that construction started is to “incur” more than 5% of the total project cost by December 2010. A developer does not have to satisfy both the physical work test and the 5% test; either is enough. Costs are considered “incurred” when the developer pays them, but only if he expects the equipment or services for which payment was made to be delivered within 3 1/2 months
after payment. Otherwise, he must wait until delivery to count the costs. Thus, for example, a payment made on December 31, 2010 counts in 2010 as long as the equipment is reasonably expected to be delivered by April 15, 2011. Otherwise, the payment is treated as spending in 2011 after delivery in 2011. Delivery may include transfer of title to equipment that has been manufactured, but that the manufacturer is holding in storage at the site.

The developer can look through any “binding” contracts with equipment suppliers or other contractors that are signed before manufacture of the equipment or other work starts and count spending by the contractor using the same principles. Thus, for example, the developer can count spending by a turbine vendor on components or services, but the spending counts at time of payment only if it is reasonable to expect delivery of the components or services to the turbine vendor within 3 1/2 months of payment. Otherwise, costs are incurred only as equipment or services are delivered to the vendor. This will require getting equipment suppliers to certify how much they spent toward manufacture by year end this year. To show how this works, suppose a developer signs a binding turbine supply agreement in mid-2010 for turbines to be delivered in late 2011 and makes a 20% down payment. The turbine vendor then spend 15% on components for the turbines. The developer cannot count the 20% down payment in 2010, but can count the 15% spent by the turbine manufacturer provided the manufacturer expects delivery of the components within 3 1/2 months of payment. The manufacturer would also have to link the components to the turbines ordered under the contract. Two large wind turbine manufacturers told the Treasury at a meeting in early April that it is impossible to certify that components ordered this year are for particular turbines that will be manufactured next year or the year after. One said that components are ordered well in advance of use based on expected orders. Ninety-five percent of the components in a turbine are interchangeable across turbine types. The manufacturer said components are not assigned to a particular turbine until roughly a week before manufacture starts. Actual manufacture of the turbine takes five days. This has caused wind developers to take a harder look at starting physical work at the site or else requiring manufacturers to manufacture at least one turbine for each project in 2010 in order to commence construction under the physical work test.

The developer must incur more than 5% of the actual project cost, not the expected cost in 2010. A developer would be wise to incur more to leave a margin for error. However, it may be possible if project costs spiral to fix the problem by choosing not to include one or more turbines or solar arrays as part of the project on which a cash grant is taken. For example, the developer has the option in a 65-turbine wind farm of treating 63 turbines as one project and two turbines as a separate project.

Other Issues

The Treasury is still thinking about several issues. They may be addressed in questions and answered posted to the Treasury website. Any such answers are unlikely to be posted before June. The Treasury has not sorted out how to deal with frame or master agreements that larger wind companies use to buy turbines for multiple projects. The agreement is usually signed by a parent company. Closer to the time turbines are manufactured, “daughter” contracts are signed with project companies
essentially designating turbines for use in particular projects and copying over the terms from the master agreement into each standalone contract. Among the issues are whether spending by the parent company carries over to the subsidiary and by when turbines must be designated for use in particular projects.

The Treasury is looking for a way that it can confirm to developers that they started construction. A developer can apply for a grant after starting construction, but before the project is completed. The Treasury said last year that it planned to respond in such cases whether it agrees the project is under
construction. However, it has not sent any such confirmations to date despite receiving more than 100 applications. In all the cases to date, the agency concluded that the projects would be completed by December 2010 so it was a moot issue when construction started. Whether it is able to send such confirmations in the future is a resource issue. It is looking into what is possible.

Developers should ask equipment suppliers to certify to spending or the start of physical assembly as soon after the threshold for starting construction is reached in 2010, and then the developer should apply to Treasury for a grant. This may leave time to fix any problems before year end if the Treasury responds promptly. Even if the response is not received until early 2011, at least the issue whether construction started in time can be taken off the table. Geothermal companies that started drilling before 2009 for power plants that will not be completed until after 2010 received some relief in March. The Treasury said that it is not the start of physical work on a project to do “test drilling of a geothermal project.” It also said that a developer “may treat physical work of a significant nature as not having begun until more than 5 percent of the total cost of the property has been paid or incurred.”

Senior Treasury staff told Chadbourne at the same time that it is the start of physical work on a geothermal power plant to drill a fully-functioning production well whose output will be dedicated to the power plant. An example of such a well is one drilled to production depth and diameter and for
which permanent casing, a tree or other above-ground equipment and flow controls have been installed and tested. 

Update on Treasury's Cash Grant Program

April 16, 2010

Tax Cuts, Renewable Energy Grants Attract Unlikely Allies

By JOEL KIRKLAND of ClimateWire, New York Times

They might seem like strange traveling companions, but solar power companies and chemical manufacturers are riding the same bandwagon to urge Congress and the Obama administration to expand tax cuts and grants for clean energy.

The push in the past two days has corresponded nicely with Tax Day. With health care reform in the rearview mirror and talk of more economic stimulus bills around the bend, industries are going hat in hand to Congress for extensions of tax credits and government financing programs that could run out this year.

Wind and solar energy companies are desperate to maintain subsidies they say are needed to carve out a permanent place in the U.S. economy. Heavy industries, such as Dow Chemical Co., are looking for help retooling factories to shift some of their business to clean energy technology.
Two programs created by the 2009 economic stimulus package, the clean energy manufacturing tax credit and Section 1603 grants for renewable projects, are at the center of discussions. Since the departments of Energy and Treasury began administering the programs, hundreds of individual projects or companies have accessed the government's largesse.

Obama administration officials, along with industries that have benefited, tout the programs as big job creators, and according to DOE, they have created thousands of jobs. But in a political atmosphere colored by tea party protests, Congress battles perceptions among conservative Americans that the stimulus funding has not created jobs, even as companies press for expansions of the government financing programs that they say will yield concrete clean energy jobs growth this year and next year.
"The competition for these funds was oversubscribed 3-to-1 in competitive projects," said Matt Rogers, head of DOE's stimulus funding program, referring to the manufacturing tax credit.

Grant program made solar industry shine in '09

The Treasury Department had anticipated that it would distribute about $3 billion in renewable energy grants by the end of 2010. Treasury has already surpassed that figure. Companies ate up the $2.3 billion clean energy manufacturing tax credits quickly, and the administration has requested another $5 billion in its fiscal 2011 budget.

Wall Street has not fully recovered, according to the solar industry's top trade group. If it wasn't for the grant program, which pays companies upfront cash in lieu of tax credits, the industry in 2009 would have been held hostage to a banking sector that had frozen tax equity lending.

Rhone Resch, president of the Solar Energy Industries Association, yesterday called the Treasury program "instrumental in spurring industry's growth" and urged Congress to extend the program beyond this year. It expires at year's end.

By February, 182 solar projects had received Treasury grants totaling $81 million, which helped attract nearly $300 million in additional financing. The grant program "reduces the need for tax equity partners and significantly lowers the transaction costs for a solar project," the industry said in a report issued yesterday.

"The combination of the 48C program and 1603 renewable generation payments has put the United States on a path to doubling high-technology clean energy manufacturing and renewable generation capacity by 2012," Rogers said. "These programs are bringing private capital off the sidelines and back into the clean energy financing markets."

Chemical industry wants tax credits expanded

The manufacturing tax credit has been just as popular. Yesterday, the American Chemistry Council (ACC), a powerful Washington-based industry group that represents the nation's largest chemical manufacturers, urged Congress to expand the so-called 48C program.

"Policies that drive expansion of low-emission industrial technologies and clean energy innovation are important elements of any national greenhouse gas emission reduction policy," said the ACC.

"ACC fully supports the effort to encourage investment in energy efficiency and re-tooling for clean energy manufacturing via programs such as a manufacturing revolving loan fund, expansion in the 48 (c) advanced energy manufacturing tax credit, and other tax incentives," it said.

Officials from the trade group said Dow Chemical, for example, has used the manufacturing tax credit to encourage the development of an advanced auto battery that will make use of clean energy technology. The credit has also been of use in Dow's development of solar shingles. The profitability remains uncertain, but the tax credit has gotten the manufacturing off the ground.

Chemical companies are an active player in a group of major industry trade organizations pushing for industry-friendly policies in energy and climate change policy being crafted in the Senate. The ACC, while mentioning its interest in additional tax credits, said Congress should take the lead on any climate-related policy ahead of pending U.S. EPA regulations under the Clean Air Act to reduce greenhouse gas emissions.

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Kaiser Permanente Uses PPA Model to Create Distributed Energy

Kaiser Permanente Launches 15 MW Solar Initiative

By Leslie Guevarra, Greenbiz.com

Published March 30, 2010

OAKLAND, CA — Kaiser Permanente will install solar power systems totaling 15 megawatts at California facilities in the first wave of renewable energy projects planned by the largest managed care organization in the U.S.

Starting in April at a receiving warehouse in the San Francisco Bay Area city of Livermore, Kaiser Permanente will roll through a series of installations that are expected to bring solar power systems to 15 medical centers and other facilities in California by the end of summer 2011.

Kaiser Permanente announced its plans this morning. In interviews yesterday, sustainability and green building leaders of the organization provided details about the first stage of KP's broad renewable energy initiative.

"This is just the tip of the iceberg," said John Kouletsis, director of strategy, planning and design for Kaiser Permanente’s National Facilities Services group.

When they are complete, the 15 installations are expected to provide 10 percent of the power used at the Kaiser Permanente sites that host them and prevent the equivalent of 15,890 metric tons of CO2 emissions annually.

Kaiser Permanente's plunge into solar power follows an initial venture at its nearly 2-year-old Modesto Medical Center, which was designed as a high-performance energy efficient campus and included a 50-kilowatt solar energy system (pictured right) among its environmentally friendly attributes.

As planned, the installations also represent one of the larger solar power projects -- and possibly the largest thus far, Kaiser Permanente believes -- within the healthcare industry.

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The organization has been a leader of an industry effort to reduce greenhouse gas emissions by curbing energy consumption; increasing efficiency of facilities, equipment and business operations; finding substitutes for toxic chemicals in products; cutting waste; and providing food choices that are better for patients and employees as well as the environment. Kaiser Permanente also helped develop standards for greening healthcare.

"This is about health," said Kaiser Permanente's Environmental Stewardship Officer Kathy Gerwig, who is also vice president for workplace safety. "We're doing this because we see a direct connection between reducing greenhouse gas emissions and improving public health."

Kaiser Permanente's sustainability efforts are core to its goals of providing affordable healthcare and enhancing the communities inside and outside their hospital walls, she said.

"Facilities that perform better are better for the community, better for patients and better for employees," said Gerwig.

Kaiser Permanente, which serves 8.6 million members in nine states and the District of Columbia, will extend the solar program within its service area and is exploring other forms of renewal energy including geothermal, wind power, cogeneration and advanced technology fuel cells such as the Bloom Box, Kouletsis said. Kaiser Permanente has a goal of meeting 25 percent if its energy needs through on-site generation by 2020.

"If each of our sites had something, that would be terrific -- that's what we're looking at as an aspirational goal," Kouletsis said.

The organization's real estate portfolio spans 73 million square feet with about 1,100 buildings, including 36 hospitals, 450 medical office buildings, plus ambulatory surgery centers, administration buildings, parking structures and others, he said.

The roots of the company's renewable energy initiative lie in the fact that Kaiser Permanente controls 60 to 70 percent of the property it occupies. "Because we do own and operate so many of our buildings, we have great opportunities to reduce costs for our operations and our members," Kouletsis said. "And with such a big portfolio, we thought that it should speak to who we are, show that Kaiser is serious about public health and [show] what we can do to lessen harmful impacts to the environment and improve communities."

By starting the solar program in California, the initial projects have the benefit of being located in Kaiser Permanente's home state -- the organization is based in Oakland -- and can take advantage of state as well as federal rebates. The largest utility that works with the system, Pacific Gas and Electric Co., also is headquartered in California, and that provides a good opportunity for Kaiser Permanente to showcase how a strong relationship with an energy company is an important component for successful renewable energy projects, Kouletsis said.

The solar program is designed to be cost-neutral for Kaiser Permanente. Project partner Recurrent Energy, based in San Francisco, will own and operate the solar power systems and is eligible for a 30 percent tax credit. Kaiser Permanente will buy the solar power through a power purchase agreement with Recurrent Energy at rates that are less than or equal to those or energy on the grid.

"This is a long-term, ongoing commitment for us," Kouletsis said. "We're already actively starting to look for the next 15 to 20 sites."

Kaiser Permanente's renewable energy initiative dovetails a $36 billion, 12-year plan to expand and renovate more than 150 hospitals and medical office buildings by the close of 2015.  More information about it sustainability efforts is available at www.kp.org/green.

Top Image: A view of the planned 1 MW elevated solar installation atop existing parking garages at the Kaiser Permanente Santa Clara Medical Center. Rendering courtesy of Recurrent Energy. Inset: The solar installation at the Modesto Medical Center. Courtesy of Kaiser Permanente.