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Solar power's outlook not as sunny

Projects stall amid uncertainty about the future of big tax breaks and utilities' willingness to buy the pricier electricity.

January 12, 2014|Julie Cart
  • BrightSource Energy's Ivanpah solar facility under construction in 2012 in California's Ivanpah Valley, near the Nevada state line. Five years after the Obama administration's renewable energy initiative touched off a building boom of large-scale solar power plants across the desert Southwest, the pace of development has slowed to a crawl.
BrightSource Energy's Ivanpah solar facility under construction… (Mark Boster / Los Angeles…)

Five years after the Obama administration's renewable energy initiative touched off a building boom of large-scale solar power plants across the desert Southwest, the pace of development has slowed to a crawl, with a number of companies going out of business and major projects canceled for lack of financing.

Of the 365 federal solar applications since 2009, just 20 plants are on track to be built. Only three large-scale solar facilities have gone online, two in California and one in Nevada. The first auction of public land for solar developers, an event once highly anticipated by federal planners, failed to draw a single bid last fall.

For The Record
Los Angeles Times Wednesday, January 15, 2014 Home Edition Main News Part A Page 4 News Desk 1 inches; 41 words Type of Material: Correction
Solar outlook: In the Jan. 12 Section A, an article about a slowdown in the development of solar power plants misidentified a Los Angeles firm that arranges financing for renewable energy projects. It is Winston and Strawn, not Winstong and Strawn.
For The Record
Los Angeles Times Sunday, January 19, 2014 Home Edition Main News Part A Page 4 News Desk 1 inches; 41 words Type of Material: Correction
Solar outlook: In the Jan. 12 Section A, an article about a slowdown in the development of solar power plants misidentified a Los Angeles firm that arranges financing for renewable energy projects. It is Winston and Strawn, not Winstong and Strawn.

Several factors are responsible, industry analysts say. The tight economy has made financing difficult to obtain, and the federal government has not said whether it will continue to offer tax credits of the size that brought a rush of interest in large-scale solar five years ago.

"I would say we are in an assessment period," said Amit Ronen, director of the George Washington University Solar Institute. "Nobody's going to break ground on any big new solar projects right now -- utilities want to see how farms coming online this year fit into the grid, and developers are waiting for more certainty about state policies and federal tax credits."

Another, somewhat unexpected issue is the difficulty solar developers are having negotiating agreements to sell their power to large utilities. The agreements reached to date guarantee solar providers higher rates than utilities pay for power from traditional energy sources.

Utilities had been willing to pay more because many states, including California, require them to derive a significant percentage of their power from renewable energy sources. But now utilities in many states are on track to meet those requirements, giving them less incentive to buy higher-priced solar energy -- especially as a steep decline in natural gas prices has cut the cost of power from gas-fired generators.

In California, utilities are saying they have enough projects under contract to meet the state's 33% standard for power from renewable sources, said Jerry R. Bloom, chairman of the energy practice at Winstong and Strawn, an L.A.-based firm that arranges financing for large renewable energy projects.

"Until you know that you are going to build the plant and be able to sell the power, no one is going to get money to build," Bloom said. "No bank would fund it."

The slowdown is sobering for a high-flying industry that a few years ago attracted investments from Goldman Sachs, Google and energy giants BP and Shell. Generous federal and state incentives and federally guaranteed loans provided investor returns of 15% to 20%, said Ed Sappin, chief executive of New York-based Sappin Global Strategies, which advises renewable energy developers.

But those days are gone. "It's not as attractive to private equity players now," he said.

Sappin called the investment tax credit the cornerstone of modern solar development, one of a list of government subsidies long available to the fossil fuel industry. That credit is scheduled to drop from 30% to 10% at the end of 2016. Congress could elect to extend the larger tax break, but with continued uncertainty, new solar projects are unlikely in the near future, Sappin said.

Some power from the three new operating plants has hit the grid, but as of 2012, solar's contribution to the total national power supply was less than one-half of 1%.

The scrutiny of big solar has been unrelenting, with every hiccup parsed for insight into solar market trends. In California the industry has weathered projects that have been put on hold (Blythe Solar), withdrawn (Rio Mesa), suspended (Hidden Hills) or failed outright (Carrizo, Calico, Beacon Solar and Imperial Valley Solar).

Some moribund projects have been the victim of the delays and cumbersome requirements involved with siting massive power plants on public lands and dealing with environmental and cultural sensitivities.

Even so, solar backers see progress. "Considering that we did almost nothing in the way of large-scale solar for almost 20 years, this represents a substantial step forward," said V. John White, executive director of the Sacramento-based Center for Energy Efficiency and Renewable Technologies.

White is optimistic that projects that have signed power purchase agreements will be built.

The Obama administration has placed great emphasis on renewable energy, making nearly 20 million acres of federal land in the West available to developers. The initiative was rolled out in a series of sweeping pronouncements, with government and industry leaders envisioning the use of public lands as a springboard for renewables.

But that scenario has not played out. The gavel rose on the first solar auction of federal land last October: 3,700 acres in Colorado's San Luis Valley. There were no takers.

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