In the upcoming GTM Research report The United States PV Market Through 2013: Project Economics, Policy, Demand and Strategy, we take a deep dive into the dynamics of the U.S. PV market. Diversity is an important element in the U.S. PV market. From the regulations and policies governing PV project deployment to the electricity prices that determine project revenue very little is static. Underlying this are a variety of project development structures and financing models. These vary by project size, power off-taker, and location and are impacted by many factors, including the quality of components used and the experience of the developer. Project structures range from two-party deals to complex, multi-party agreements.
This diversity also provides an opportunity for developers to differentiate themselves. Structuring a successful PV project often requires examining the structure of existing projects and those under development. Seeing what has worked in the past provides a key to understanding what structures the market will accept. In this article we analyze the anatomy of three projects currently under development to highlight successful models for project development in different circumstances found in the U.S. PV market.
El Dorado Expansion Project Structure
First, we examine a planned 48-megawatt expansion project in Boulder City, Nev. The first 10-megawatt phase of the Sempra Generation El Dorado Energy Solar plant was completed in December 2008. It is the largest operational thin-film project in the U.S. In April 2009, First Solar and Sempra Generation announced they would expand the facility by an additional 48 megawatts. This was followed by an announcement from Pacific Gas & Electric that the utility signed a power delivery contract for the facility's output. First Solar will provide EPC services as well as modules, and expects to complete construction in 2010.
The El Dorado project shows what is possible when traditional IPPs co-locate PV projects with traditional generation facilities. Sempra Generation developed the El Dorado Energy Solar facility as an attachment to its existing 480-megawatt Combined Cycle Gas Turbine (CCGT) generator on 138 acres of land leased from the city of Boulder City. This provided a cost reduction for the PV facility, as major transmission lines already served the CCGT plant. The PV system will connect to those lines without significant upgrade. In addition, Sempra Generation was able to obtain a PPA from PG&E and finance a 10-megawatt thin-film plant before ever having developed a PV asset. This indicates the value placed on a successful track record of development execution. By leveraging its experience developing natural gas assets, Sempra was able to step into the PV market and have an immediate impact.
Sunset Reservoir Project Structure
Next, we examine a project using an innovative public-private partnership structure. Through the arrangement, Recurrent Energy will own and operate a 5-megawatt system sited on municipal reservoir acquired through a site lease with the City of San Francisco. The San Francisco Public Utilities Commission (SFPUC) has contracted for the system's output and RECs through the public sector equivalent of a commercial PPA. Financing for the project comes out of a $75 million corporate equity investment in Recurrent Energy from Hudson Clean Energy Partners, a leading private equity firm specializing in renewable energy. When completed, the Sunset Reservoir project will be one of the largest municipal PV projects in the United States.
This form of public-private partnership carries with it both advantages and disadvantages compared to standard commercial PPA projects. As a tax-exempt entity, the City of San Francisco cannot take advantage of federal tax incentives. By partnering with Recurrent Energy, the City of San Francisco was able to benefit from these tax incentives through a lower PPA price than it could have achieved on its own. Second, a municipal off-taker presents minimal counterparty credit risk. Off-taker creditworthiness is a key factor in PPA bankability. Municipalities have emerged as ideal PPA customers that make the financing decision easier.
Transaction costs and project lead times may be higher when dealing with the public sector. Recurrent Energy won the contract for the Sunset Reservoir project through a bidding process, but it took the city government a year to approve the project. In the end, such public-private partnerships present attractive opportunities, as long as the developer has the patience and wherewithal to work with numerous agencies within a government body.
CSU-Pueblo Project Structure
Finally, we look at a Fotowatio Renewable Ventures project with a variety of parties and contracts. The project is a planned 2-megawatt system at Colorado State University (CSU). Colorado's renewable portfolio standard allows unbundled RECs. Because of this FRV was able to establish a long-term power contract with CSU and a long-term REC contract with Xcel Energy. The project is the first to be financed through the Renewable Ventures Solar Fund V, a $200 million fund raised in August 2009 with investments from Wells Fargo and John Hancock Financial, the lending arm of an insurance company.
Although this is a single 2-megawatt project, mapping out the entire ownership structure reveals direct and indirect involvement for a large number of development and financial firms. Renewable Ventures Solar Fund V was one of the first tax equity funds raised in 2009, and remains the largest to date. This is attributable to the track record that Renewable Ventures and Fotowatio each have in project execution. Without this track record, it is unlikely that either Wells Fargo or John Hancock Financial would have invested in the fund given the current economic climate.
These three projects are successful for different reasons. But together they show the variety of business models that exist in the U.S. market. As the U.S. becomes a global PV demand center, monitoring these project structures will provide a valuable indication of market trends and successful development strategies.
Image via Apollo Solar.