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Taxpayers, ratepayers will fund California solar plants

A new breed of prospectors -- banks, insurers, utility companies -- are receiving billions in subsidies while taxpayer and ratepayers are paying most of the costs. Critics say it's a rip-off.

September 20, 2012|By Evan Halper, Ralph Vartabedian and Julie Cart, Los Angeles Times

The $2.2-billion Ivanpah Solar Electric Generating System is being built by Oakland-based BrightSource Energy Inc. on 3,500 acres of public land.

Spread across a dry lake bed will be 173,500 mirrors, each the size of a garage door. Eventually 6 square miles will be covered with three fields of gleaming mirrors, each aimed at a 459-foot tower.

The sun's power will be focused on a boiler in each tower, heating water to 1,000 degrees to create steam to drive turbines. When completed, the plant is expected to produce 370 megawatts, enough to power about 140,000 homes.

Joe Desmond, a senior vice president at BrightSource, said the tower design allows Ivanpah to produce more electricity during high demand periods later in the day compared to other technologies, such as photovoltaic panels. Still, the Ivanpah design has never been proven on a large scale.

The Ivanpah plant was made possible by government-backed loans at low rates — 4% to 4.2%. BrightSource and its corporate investors will receive about $600 million in federal grants once the plant starts producing.

The project's investors, which include New Jersey-based NRG Energy Inc. and Google, also will be able to share a federal tax reduction of an estimated $600 million to $700 million over five years under the government's tax break.

Even renewable-energy advocates, such as the Bay Area-based Climate Policy Initiative, acknowledge that the nation's first forays into utility-scale solar plants will be expensive.

The group estimates that 43 cents of every dollar of energy produced by the Ivanpah facility will be paid for by taxpayers.

BrightSource Chief Executive John Woolard said the company isn't looking for "persistent large subsidies" but isn't ready to operate without them. "You want to diminish them over time, but you don't want to fall off a cliff," Woolard said.

The developers and investors will continue making money on the project thanks to a long-term power agreement with Southern California Edison and Pacific Gas & Electric Co.

The California Public Utilities Commission, which approves all rate agreements, won't disclose the rate for Ivanpah or any solar plant because it is considered a trade secret.

But outside experts, including Wolak, the Stanford economist, estimate that Ivanpah power is priced at $90 to $130 per megawatt hour — three to four times the cost of electricity in the state last year.

BrightSource declined to specify the price but said it was in line with the PUC's recommended renewable rate of $129 per megawatt hour.

The PUC has approved virtually every long-term contract for renewable energy that has come before it, driven in part by the state's renewable energy goals. The commission has greenlighted all but two of 184 green-energy proposals since 2002, including a plan by Pacific Gas & Electric to buy solar power generated in outer space.

The state Division of Ratepayer Advocates, whose purpose is to represent consumers, concluded in a report last year that the power contracts the PUC has been approving have put consumers on the hook for $6 billion in excess costs.

"What the commission's practice has been is not to consider the cost of renewable power but to approve every renewable project that came before them," said Joe Como, acting director of the division. "We really spent too much money. It's frustrating as hell."

A PUC member broke the secrecy about rates at a public meeting last November. Michael Florio, a longtime consumer advocate appointed to the commission last year, revealed that the price of energy from the Abengoa Mojave Solar Project near Barstow would cost ratepayers at least $1.25 billion more over 25 years.

Even by the inflated standards of current power purchase agreements, the Abengoa contract stands out — about $200 per megawatt hour, said Powers, the San Diego-based power consultant.

"We have plenty of time to obtain less expensive, readily available renewable energy from other sources," Florio said.

PUC staff presented the commissioners with two options: Either pull the plug on Abengoa or renegotiate the contract with more favorable terms for ratepayers.

But commission President Michael Peevy, a former president of Edison International and Southern California Edison, pressed for approving the contract, arguing that changing the terms could jeopardize the project's federal loan.

"While it is true Mojave Solar is more expensive, this project has positive attributes not reflected on a price-by-price comparison," Peevy said.

Among the benefits cited by Peevy and his colleagues were the 800 construction jobs and 60 permanent jobs that would come with the solar plant.

Peevy's resolution passed by a 4-1 margin.

Although they will pay higher rates for solar power, California's utilities are poised for huge rewards by building thousands of miles of transmission lines to far-flung solar sites.

The state allows big power companies to bill ratepayers for every dollar they plow into building transmission lines, at a guaranteed annual rate of 11% for 40 years.

Powers estimated the cost of new transmission lines to reach remote solar and wind power plants could exceed $15 billion statewide in the next decade. Upgrading existing transmission lines would add billions more, he said.

The transmission upgrades and new lines for the Ivanpah project carry a price tag of $400 million.

"The utilities are thinking, 'How could we morph this thing into a … infrastructure boondoggle for our company?' " Powers said. "This is the answer — remote solar projects."

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