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Should utilities invest in solar tech manufacturing?

Utilities don’t often invest in new types of technology manufacturing, but then, California’s Pacific Gas & Electric isn’t your average utility. PG&E has requested state approval to enable it to invest $9.9 million of taxpayer money in a solar engineering and manufacturing service center run by commercialization startup SVTC Technologies.

PG&E said the investment in the SVTC project will help reduce the cost of solar and benefit consumers. The startup secured a $30 million grant from the U.S. Department of Energy last summer to build a manufacturing center in Silicon Valley where its customers can fine-tune various solar cell manufacturing technologies before commercializing them. SVTC needs to raise $9.9 million in matching funds in order to make use of the DOE money, said the California Public Utilities Commission, which is scheduled to consider PG&E’s request next week. A $9.9 million investment would cover “just under 25%” of the project’s cost.

The service aims to help U.S. companies, especially startups with no money to buy their own factory equipment for pilot production, to speed up their technology development work by roughly 12 to 15 months. The model is common in the chip industry, which SVTC serves through manufacturing centers in San Jose, Calif., and Austin, Texas. SVTC was spun off of Cypress Semiconductor in 2007 and is backed by investors such as Oak Hill Capital Partners and Tallwood Venture Capital.

Public benefit?

PG&E contends that the commission has funded similar research and development efforts before, and the investment in SVTC’s project will ultimately promote solar energy development by bringing cheaper technologies into the market. Popularizing solar energy use is one of the commission’s roles since the state is requiring utilities to get 33 percent of their power supplies from renewable sources by 2020.

But critics of PG&E’s proposal said the idea is unprecedented and a risky use of public money that may not be recouped, given that the investment would go to a startup. Critics say that PG&E should use its own money instead. Opposition is coming from public and private groups such as the Division of Ratepayers Advocates (part of the commission), Californians for Renewable Energy, the Utility Reform Network and Marin Energy Authority.

PG&E’s request is unusual because it typically puts money into power generation, not manufacturing technology development. The utility has been signing power-purchase agreements with solar power plant developers in order to meet the 33 percent state’s mandate. It also is developing its own solar power projects to meet that requirement.

SVTC is looking at helping primarily silicon solar cell and panel manufacturers, but there aren’t that many of them in the U.S., let alone in California. Many of the world’s largest silicon solar cell and panel makers are in China and Taiwan. California is home to SunPower(s SPWR), but it’s doubtful that a major company like SunPower would need to rely on an outside manufacturing service when it has long established its own research and development shop and large factories. Instead, there are more U.S. startups looking at using materials other than silicon for solar cells.

The chief points of debate among PG&E, the commission and critics of the proposal are whether the investment would meet state regulations and whether there are clear benefits to taxpayers. State law allows utilities to charge ratepayers for R&D expenses, but it doesn’t clearly define what makes up research and development spending.

Dual recommendations

The administrative law judge assigned to give the commission a recommendation is proposing a “no” vote on the PG&E request. The judge’s proposed decision said the manufacturing service project is too risky and there aren’t clear benefits to Californians. It also noted that PG&E initially claimed the project will make enough money to return the taxpayers’ investments, but it later changed its argument to say the main benefit for the taxpayers is to have potentially lower priced solar electricity.

But the commission president, Michael Peevey, supports the project and has offered an alternative proposal for the commission to vote on next week. Peevey’s proposed decision would approve the $9.9 million investment in the project, arguing that the project will help to bring down the cost of solar electricity. It also noted that research and development, by its nature, is a risky undertaking to start with, and no one can accurately predict the success rate of any such effort.

“Any direct return to ratepayers from their ownership of preferred stock in the (solar manufacturing center) is secondary to the goal of promoting cost reductions in solar PV technologies,” said Peevey in his proposed decision.

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