Question: Bright Source Energy: The Challenges Introduction In the 1980s Arnold Goldman's company Luz International built nine solar thermal plants in the California desert using parabolic troughs to concentrate sunlight to boil oil that drove turbines to generate electricity. Falling crude oil prices put an end to solar thermal projects until a revival near the end of the first decade of the 2000s. Solar thermal plants were built in Spain supported by high feed-in tariffs. A solar thermal plant in Seville used tracking mirrors called heliostats to concentrate the sun's rays to boil water to drive turbines. The Spanish company Acciona built a solar thermal plant in Nevada in 2007. With support for solar thermal growing in the United States, Goldman formed BrightSource Energy with the objective of building large-scale solar thermal plants. BrightSource's first U.S. project was the Ivanpah plant. The Ivanpah Solar Electric Generation System The Ivanpah solar thermal plant would be the largest in the world when completed in 2013.42 The technology used heliostats to concentrate sunlight on a boiler to produce superheated steam to drive a conventional turbine to generate electricity. The boiler and turbine were to be mounted on a 459-foot-high tower, and three towers were planned for Ivanpah. The first tower was expected to be completed by mid-2012 and the other two by 2013. Construction began on the first plant and tower in October 2010, and the governor of California and the Secretary of the Interior were present at the groundbreaking.
The $2.1 billion plant was located on public land in the Mojave Desert northeast of Los Angeles near the Nevada border. The plant received a $1.37 billion loan guarantee, one of the first approved under the federal program established by the 2009 American Recovery and Reinvestment Act. The plant also qualified for the Department of Treasury's Section 1603 cash grant program that would reimburse the developer for 30 percent of the construction costs when the plant came online.43 The generation costs for the Ivanpah plant were necessarily uncertain. Nathaniel Bullard, a solar analyst for Bloomberg New Energy Finance, estimated that solar thermal plants could generate electricity at approximately 13-17 cents per kwh after including the federal subsidies, compared to about 10 cents for natural gas fueled plants.44 Bullard estimated that solar thermal plants like Ivanpah would generate electricity at a cost of 17.5 cents per kwh without subsidies.45 When completed the Ivanpah plant capacity of 394 gross-megawatts would power 140,000 homes annually and reduce CO2 emissions by 2.5 million tons annually. The reduction in CO2 emissions was equivalent to taking 70,000 cars off the road. BrightSource signed 20- and 25-year supply contracts with Pacific Gas & Electricity and Southern California Edison for the power. The contracts had been approved by the California Public Utilities Commission (PUC) with tariffs established under a "cost reasonableness" standard, which required comparison to other Renewables Portfolio Standard (RPS) projects.46 Southern California Edison planned to spend $314 million to construct transmission lines to connect the Ivanpah solar power plants to the California electricity market. The company sought incentive rates that required approvals from the Federal Energy Regulatory Commission and the California Independent System Operator, which owned and operated the transmission system in the state. 42
German developer Solar Millennium planned to build a $6 billion solar thermal plant on 11 square miles of desert near Blyth, California. Also, Tessara Solar planned a 709 megawatt plant in the Imperial Valley of California. 43The cash-grant program was scheduled to expire at the end of 2010, although the underlying tax credit program was authorized until 2016. 44New York Times, October 29, 2010. 45San Jose Mercury News, April 26, 2011. 46The tariffs were deemed confidential by the PUC. Approvals The Ivanpah plant required approval from five government agencies, and the public was allowed to intervene. Environmentalists were divided on the project with some supporting approval because of the renewable energy and others opposing it because of the harm to the desert habitat.47 Gloria Smith, a senior attorney with the Sierra Club, stated, "Looking at the new proposal, it will not do anything to protect the desert tortoise .... We will support this project but just want it to have a more beneficial footprint."48 San Bernardino County, where the plant was to be located, objected to the plant because the county would not receive much tax revenue because of required state tax breaks and because the construction jobs would largely go to workers in Nevada, since the closest town was Primm, Nevada. As the approval process ground along, time became an increasing concern. To qualify for the 1603 cash grant program, construction on the Ivanpah plant had to commence before the end of 2010. A fast-track approval process was instituted in which five agencies simultaneously reviewed the proposal. The final approvals from the U.S. Bureau of Land Management (BLM) and the California Energy Commission were obtained in the fall of 2010, allowing construction to begin.
The approval process took 3 years, and the company made a number of changes in the Ivanpah project to mitigate environmental impacts and to address objections by the BLM and the California Energy Commission. The company reduced the plant size by 12 percent to 3,500 acres of federal land. The technology used water rather than oil to drive the turbine, avoiding the possibility of environmental damage from oil. To conserve water the plant would use air cooling to condense the spent steam, reducing water usage by 95 percent compared to water-cooled solar thermal plants. The heliostats were to be mounted on pylons above the ground to allow vegetation and wildlife to coexist with the plant. This also allowed the natural contours of the land to be followed, avoiding grading. The focal point for environmental objections to the Ivanpah project was the desert tortoise. BrightSource went to extraordinary steps to protect the tortoise. Mercy Vaughn, chief biologist for BrightSource, said, "Nobody is allowed on site without a biologist to escort them .... We have someone tracking all the tortoises continuously, so whenever we determine one's at risk, someone gets put on it."49 Each desert tortoise on the site was fitted with a radio transmitter. The company placed signs in parking areas on the work site stating, "Look under your car for desert tortoise before you drive away!"50 BrightSource also agreed to acquire 7,200 acres of desert land to mitigate the impact of the project.
The company also agreed to test for any disease in all desert tortoises on the site, relocate them to comparable habitat, and continue to monitor them. To overcome the objections by San Bernardino County and union complaints, BrightSource and Bechtel, the construction company for the project, reached an agreement on hiring with the State Building and Construction Trades Council of California and the Building and Construction Trades Council of San Bernardino and Riverside counties. Financing In addition to the loan guarantees by the Department of Energy, NRG Solar LLC, a subsidiary of NRG, a large power producer headquartered in Princeton, New Jersey, invested $300 million in the plant and Google invested $168 million. Bechtel also was an equity investor in the plant. During the approval process BrightSource raised equity capital, including $55 million from Alstom SA of France in May 2010 and $122.5 million from private investors in March 2011. BrightSource completed its equity financing with $75 million from Alstom in April 2011. BrightSource had earlier received equity financing from Vantage Point Capital Partners, Black River, DBL Investors, and google.com. MorganStanley, Draper Fisher Jurvetson, BPalternativenergy, and StatoiHydro Ventures also provided funds.
With construction on the Ivanpah plant underway, in April 2011 BrightSource announced an initial public offering to raise $250 million. Risks With the approvals by California and the U.S. government in hand and construction underway, environmentalists and Native American groups again sought to stop the plant. In January 2011 the Idaho-based Western Watersheds Project environmental group filed a lawsuit alleging violation of the Endangered Species Act because of the threat to the desert tortoise. BrightSource had estimated that 38 tortoises were on the Ivanpah site, but the BLM estimated that 3,000 tortoises would be disturbed by the construction and 700 juvenile tortoises would be killed during construction. In April 2011 federal officials ordered construction to halt on two-thirds of the project site. Kelly Wachs, spokesperson for BrightSource, said the government numbers "are not consistent with the actual number of tortoises found on the project site. It appears that the largest concentrations of tortoise are outside the project and in areas that we designed the project to avoid."51 Cory J. Briggs, an attorney for La Cuna de Aztlan Sacred Sites Protection Circle Advisory Committee, which filed a lawsuit against the Ivanpah and four other solar power projects, said, "There's no good reason to go into these pristine wilderness areas and build huge solar farms, and less reason for the taxpayers to be subsidizing it. The impacts to Native American culture and the environment are extraordinary."52 Alfredo Acosta Figueroa, who had founded La Cuna, "explained how the giant image of the creator etched into the earth guides the souls of mothers and children toward Old Woman Mountain."53
He said, "There's no way these people can circumvent all the sacred sites out here, and no way to fix it when the damage is done."54 Threats to cultural heritage represented a new challenge to desert projects. Arnold Goldman and the CEOs of 33 other renewableenergy companies went to Washington in April 2011 to lobby against a continuing resolution that would reduce the Department of Energy's loan guarantee program by $25 billion. The reduction had been approved by the Republicancontrolled House of Representatives as part of the effort to reduce the enormous federal budget deficit. The reduction would include rescinding loan guarantees already approved. The CEOs argued that their projects involved $24 billion in private investment and would employ 35,000 workers when completed. Goldman and seven other CEOs wrote to House and Senate members stating, "We are deeply concerned that eliminating funding for this critical program will not only destroy thousands of pending jobs and hinder the growth of critically needed U.S. domestic energy production, but also defeat America's effort to compete with China, Germany, and others in the clean technology marketplace .... Eliminating funding at this late stage would literally pull the rug from under our projects, just as we are about to break ground."55 Senator Diane Feinstein (D-CA) said, "American industry has asked Congress to provide a predictable business environment. Yet the House [Continuing Resolution] would eliminate the DOE's loan-guarantee program without warning and without provision for loan applicants who have negotiated with DOE in good faith for multiple years."56
The $25 billion reduction was in part in response to a House inquiry into the federal loan guarantee to Solyndra Inc. for the construction of a plant to produce solar panels. BrightSource had signed long-term contracts with Southern California Edison and Pacific Gas and Electric, and normally such contracts would be upheld by the courts if there were a breach and compensation would then be awarded to the injured party. The tariffs for renewable energy, however, were set by the California PUC and hence were subject to regulatory approval and hence to regulatory risk. Regulatory commitments could be reviewed as to the reasonableness of tariffs, and the state legislature could also intervene. Altering contracts would, however, send a signal to other renewable power producers and affect future projects. The marketplace also posed risks. One longer-term risk for BrightSource was competition from photovoltaic solar power plants. Solar panel prices had fallen sharply because of expanded production in China, making photovoltaic plants that convert sunlight directly to electricity potentially more competitive than solar thermal. Moreover, photovoltaic plants could have smaller footprints and be constructed on private land. Ted Sullivan, an analyst with Lux Research, said, "The real concern is that if these solar thermal projects don't get done in a timely fashion in 2011 and 2012, prices will come down and it will make more sense to go photovoltaic."57 Another risk for BrightSource beyond Ivanpah was the scale of the footprint required for its generation technology. The opposition to large-scale solar thermal plants was substantial, and finding the required land was problematic. Some analysts believed that solar generation plants that used photovoltaic solar panels would ultimately prevail because they could be built on smaller sites, such as urban brownfields.58
1. Assess the opportunities for Bright Source.
2. Assess the market and nonmarket risks Bright Source faces.
3. What should Bright Source do about the challenges from environmentalists and Native Americans?
4. Identify the regulatory and legislature risks Bright Source faces. How should the company deal with those risks?