SOLAR POWER:

Calif. startups might get help in unlikely places

SAN FRANCISCO -- California's solar power market and its startups stand to gain from utilities making a direct play into renewable energy development, a prominent industry representative said in an interview yesterday.

Sue Kateley, executive director of the California Solar Energy Industries Association, said she welcomes Pacific Gas & Electric Co.'s decision this week to launch a five-year effort to build and own solar-run power plants totaling 250 megawatts (E&ENews PM, Feb. 24). The deal, she said, is a sign that the state's installers, distributors and manufacturers could find enough work to weather the economic downturn.

"It's a win-win on either side," said Kateley, who represents solar companies all along the supply chain.

San Francisco-based PG&E has backed its ownership plans with a second track under which the utility intends to help finance another 250 MW of development. PG&E CEO Peter Darbee said the company expects to spend $1.4 billion to see the entire 500 MW online by 2015.

To get there, PG&E intends to contract with third parties to build its plants, which would range from 1 MW to 20 MW. The utility then plans to sign deals for buying power from the remaining 250 MW, which should help developers of those projects secure financing.

Kateley said that "50-50 split" drew her to the program.

"That is what I liked about what PG&E proposed," she said. "This means there's room for developers to bid to work these projects."

PG&E's announcement continues a trend of large utilities or independent power producers entering the development space. Earlier this week, Princeton, N.J.-based NRG Energy Inc. inked a deal with eSolar, a Pasadena, Calif., solar-thermal developer, and utilities like San Diego Gas & Electric Co. and New Jersey's PSEG Inc. have similar plans to own renewable generation plants (E&ENews PM, Feb. 23).

Their motivation for getting into development is twofold: Smaller developers are having trouble securing capital in the economic downturn and the utilities are now eligible for a federal 30 percent investment tax credit under a law passed by Congress late last year.

Another benefit could be added tax revenue to the cities and counties that would host solar plants. PG&E wants to build some of the plants on land it already owns, but it could also break ground at small construction sites around the state.

Transmission bottlenecks

In addition to the favorable tax treatment, PG&E is attracted to building the smaller plants at substations and on rooftops it owns to avoid the difficult transmission shortages associated with locating centralized renewable plants far from the populated coast.

Building power lines to vast potential geothermal and solar fields in the interior part of California is a concern, so Darbee and others have been looking for a way to site more distributed generation to meet the state's 20-percent-by-2010 renewable power mandate. The smaller plants may be an answer.

"There would be little or no need for transmission" in these projects, Darbee told reporters this week.

Kateley said her group supports a possible shift away from the kind of massive 1,300 MW solar-thermal project proposed recently by the state's largest investor-owned utility, Southern California Edison Co. Doing away with the need for big investment in transmission pathways "has been my big hope," she said.

Los Angeles-based SoCal Edison recently unveiled plans to build a series of large solar-thermal plants in the Mojave Desert with BrightSource, a developer based in Oakland, Calif. BrightSource has a contract with PG&E for 300 MW worth of solar-run power at the same site in Ivanpah, Calif. (E&ENews PM, Feb. 11).

'Tweaking' the tax credit

Environmental groups appear content to watch the action, for now, and seem likely to support more distributed generation over massive new power lines. But at least one source said he was concerned about smaller businesses losing out to the big boys on the block.

Tyson Slocum, director of Public Citizen's energy program, said new renewable energy capacity is positive no matter who develops it. But he would also like to see a "tweaking" of the federal incentive program to encourage smaller-scale investors.

A federal change to the investment tax credit, Slocum argued, might ensure a more equitable distribution among large and small companies. The big utilities won the change to the current tax credit after a "very aggressive lobbying effort," he added, which he tends to regard with wariness.

"We're excited that folks are recognizing the advantages of expanding solar capacity, but we want to make sure that federal money isn't going to just a handful of big players," Slocum said.

An official at the state-run Division of Ratepayer Advocates offered another view. Sepideh Khosrowjah, a policy adviser, said that while the agency has not examined the PG&E proposal through the state's Public Utilities Commission, its position is that ratepayers would likely be better off if larger utilities focus on larger projects.

"We want utilities to do solar projects that are utility-sized projects," said Khosrowjah, arguing that the smaller-scale projects should be left to the independent startups to help small business.

For his part, Darbee this week proposed using the federal stimulus package to guarantee loans to smaller developers and "counterparties to our contracts" that might be struggling during the recession. His concern is that some of the power already contracted to meet the state's renewable target might fall through.

"We think those financing plans may be in jeopardy," he said.