It's Official (sort of): BrightSource wins first Dept of Energy Loan Guarantee to a Solar Developer at a Whopping $1.4 Billion

BrightSource Energy Official Press Release

The moment that many have been waiting for- the first stimulus loan guarantee funds for a project development. The Ivanpah project (ring a bell?) has been awarded a conditional DOE loan guarantee for $1.37 billion.

Not a lot to say about this one that isn't said better in the press release, however one big thing jumped out at me that I've been seeing a lot of.

In September 2009, BrightSource selected Bechtel as the engineering, procurement and construction contractor for the Ivanpah project. Bechtel Enterprises, the project development and financing arm of the Bechtel organization, has committed to become an equity investor in all of the Ivanpah solar power plants.

Basically this means that the contractor, who will be responsible for the design and construction of the plant, is also partially financing the plant. Which means to an extent they are paying their own checks. Not only is this a tremendously precarious position for a developer to place himself in, it is also a truly questionable conflict of interest, particularly when federal funds are involved.

Arrangements like these are becoming the norm and it is having a negative impact on project developers and other project sponsors, which hurts the industry as a whole. It would also not be surprising if Bechtel was providing some kind of output guarantee on the system, which large creditworthy EPC companies are able to do and also charge a hefty premium for it.

The loan guarantee can only cover up to 80% of the project loan. The loan ratio at a ballpark would look like maybe 75% loan to value. That means that at a minimum, the 400 MW project will cost $2.3 billion for a total of $5.7 million/MW. More likely, a guarantee in such a high amount with Bechtel providing equity would be more like a 65-75% guarantee which would make the $/MW even higher. Sounds to me like there's some serious price inflation going on and my money is on Bechtel's fee.

Balancing Policy Objectives with Bureaucratic Timelines

CSP Today's Weekly Intelligence Brief

A majority of the industry updates covered in the weekly CSP Today Intelligence Brief emphasize a common theme: timing.

The single largest stumbling block in the language of the ARRA renewable energy stimulus funding is the requirement that construction begin no later than September 30, 2011. Most large renewable energy projects require 3-5 year lead times from formation of the business model to breaking ground, particularly large projects requiring NEPA reviews and complex permitting procedures. BrightSource Energy, a much-lauded Israeli start-up funded in part by the omnipresent Google.org, has been dragging its 440 MW Ivanpah solar CSP tower project along for over 2 years now, and is still battling regulators and lawmakers.

The Oakland, California-based company has submitted a revised plan to the California Energy Commission (CEC) and   the Department of Interior’s Bureau of Land Management (BLM) that would reduce the project’s footprint of the overall Ivanpah project by about 12%.

With the proposed alternative design, BrightSource is trying to avoid the habitat of rare plants and other species. The company mentioned that the alternative design would reduce expected desert tortoise relocations by around 15%.

BrightSource is reportedly in the running for a Department of Energy loan guarantee and must begin construction close to their planned start date of late 2010 in order to qualify.

Another news item featuring the partnership of American company Fluor with Spanish Elecnor to provide engineering services on a 50 MW CSP plant in Badajoz, Spain mentions that services on that project began in 2009 and the engineering phase is not scheduled to be complete until 2011. The global financial freeze left many projects dead in the tracks for months now going on years, and the liquid capital required to bring projects far enough along for short or long term financing is scarce.

Granted, the point of ARRA is to help finance shovel-ready projects to get job creation jump started immediately. The Department of Energy also stated on the record at RETECH 2010 that any remaining funds after the current solicitation is closed will likely be rolled into a second solicitation.

The issue with this promise is that banks have been leery of the regulatory uncertainty surrounding renewables for a long time. Because of its highly politicized nature, incentives and programs are at the mercy of changes in the legislature and presidential administrations. Continuity has come to carry a high premium and the uncertainty leads to stagnation. When nations have implemented long-term energy programs that have been allowed to run their course, entire industries have blossomed and economies have grown. 

Today's American politics of  one-upsmanship and strictly polarized debates, the constant tug of war for power, are neglecting the very thing they claim to cherish. It is very difficult for a nation to flourish in spite of its leaders' worst efforts.