After spending five years drawing up plans, securing construction permits and winning a fat federal loan guarantee, Abengoa Solar cleared a final hurdle Thursday when California regulators approved its contract to sell that solar power to utility Pacific Gas and Electric.
The approval didn’t come easy. The sticking point was the cost of this contract, which is apparently extraordinary high and prompted the commission’s staff to recommend to either vote no on the contract or to modify it to reduce its cost (the contract price and terms are supposed to be confidential).
The California Public Utilities Commission debated not one but three proposals on what to do with the contract for a project called Mojave Solar, which recently won a $1.2 billion loan guarantee from the U.S. Department of Energy that will cover up to 80 percent of the project’s cost, which will come from a private source. The company already has spent $70 million developing the project, the commissioners said. The project will have 280 MW of capacity but deliver 250 MW to the utility.
A project’s development and construction cost gives some clues about what the developer will charge for the power, but other factors, such as how efficient the solar equipment is at producing electricity and the cost of maintenance and operation also are factors. But just for some sort of comparison: BrightSource Energy secured a $1.6 billion federal loan guarantee to build a 392 MW solar farm in California while First Solar lined up $967 million for a 290 MW project in Arizona before selling it to NRG Energy.
California requires its utilities to secure 33 percent of their electricity supply from renewable sources by 2020. This mandate is driving much of the utilities’ investments in clean power.
While acknowledging that high cost, the four commissioners who favored it said cost shouldn’t be the only factor in deciding the merit of the project. They cited the five years and $70 million that Abengoa already has invested in the project and the benefit of promoting renewable generation using different types of technologies. Most of the more recent renewable energy projects are using photovoltaic technology because the cost of that technology is falling, which refers to solar panels, and some commissioners said the state shouldn’t rely too heavily on just one type of solar technology.
Abengoa plans to use a solar thermal technology that uses mirrors to concentrate sunlight to produce steam, which then runs a turbine to produce electricity.
“It’s worthwhile to spend a little more on projects like the Mojave Solar so the (state’s) renewable portfolio doesn’t rely heavily on a single technology. In other words it’ll be more balanced,” said Peevey, adding that solar thermal technology can generate power more consistently than solar panels.
The commissioners also said it would be a shame to lose that loan guarantee when raising money for a big solar project has always been one of the main obstacles for developers. Even changing the terms of the contract could cause Abengoa to lose the loan guarantee, said Michael Peevey, the commission president who led the effort to approve the contract.
The lone dissent came from Commissioner Mike Florio, who noted that the contract is actually not needed for PG&E to meet its renewable energy goals. The utility has signed many other contracts and will continue to do so, so there is no reason to accept the Mojave Solar contract that will cost $1.25 billion over 25 years, he said.
“I’m extremely troubled by the contract, primarily based on cost,” Florio said. “We will be better off if we pay the developer the $70 million they have invested and end this project.”
Abengoa is building the solar farm in southern California and plans to complete it in 2014.
Image courtesy of Abengoa Solar