San Francisco Business Times - 6 Feb 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 28 Nov 09)

Bay Area Solar Companies Get Scorched

Financial crisis casts shadow as industry waits for stimulus

By Lindsay Riddell
Friday, February 6, 2009

The Bay Area solar industry, battered by the financial crisis, is clinging to the hope that the federal economic stimulus package will reverse its slide.

From installers to panel producers to designers of large solar power plants, nearly every part of the industry has been hammered by the credit crunch and the collapse of the fledgling tax equity market.

And now, for many companies, the only options are wait, beg or change plans.

One of the only places for solar companies to look for money is in the U.S. Department of Energy, which has some grant money available now, and could have billions more depending on which version of the economic stimulus passes, said venture capitalist James Kim.

"If I was a company with novel technology, I'd definitely be going to the DOE and asking them for loan guarantee programs and asking them for capital to work on projects," said Kim, a senior partner in the energy and materials group of San Francisco-based CMEA Capital. "You've got to look for the free money."

Change of Plans

While solar companies wait for Congress to hash out the economic stimulus, many Bay Area companies have announced forced changes to their business models in the last couple of weeks. Palo Alto-based Ausra Inc. intended to design, own and operate large solar thermal power plants and sell power to utilities. But its CEO, Bob Fishman, said the company will instead become a technology provider, a less capital-intensive business. The company plans to focus on quicker, smaller, cheaper industrial applications for its solar thermal technology and will sell the equipment to companies and utilities to own and operate themselves.

Ausra's technology uses acres of mirrors to direct the sun's heat onto water pipes. That heated water turns to steam and runs a turbine that produces power. When the company debuted its 5 megawatt pilot facility near Bakersfield, the governor showed up to dedicate it.

"Given the state of the project finance market, it's very difficult to go out and get a large project financed at this point," Fishman said. "You also can't go from a 5-megawatt prototype to a 500-megawatt project in one leap. The financial markets won't do it. They want you to go from 5 to 50 to 100 megawatts, and then maybe they'll let you make the leap to 500."

To prove its technology can work at those in-between sizes, Ausra is looking to apply it at a smaller scale to run turbines in factories or coal-fired power plants to reduce the amount of coal needed to produce electricity. Fishman said he'll continue to pursue plans to develop Ausra's 177-megawatt plant in the Mojave Desert whose power PG&E already has contracted to buy. But the company has asked the San Francisco-based investor owned utility to own and operate that plant.

"They're thinking about it," Fishman said.

Such cancellations, changes and slowdowns could hamper PG&E's legally mandated push into solar power. Like other California utilities, PG&E is required by the state to generate 20 percent of its power from renewable sources by 2010, up from 12 percent today. With contracts already in place with Ausra and other power producers, it could provide up to 24 percent renewable power — if those facilities get built.

PG&E declined to make an executive available to discuss how financing difficulties in solar power might affect the utility and whether it will provide financing. Through a spokeswoman, it said that it remains confident that all power contracted from independent producers will still be delivered. She added that the utility will apply in the first half of the year to the California Public Utilities Commission to develop at least one renewable energy facility of its own.

Delays on Horizon

Other solar producers are weighing their options.

Ausra competitor BrightSource Corp., based in Oakland, said raising project finance today would be extremely challenging. BrightSource said it would be at least a year before it needs to secure financing for its projects totalling up to 900 megawatts. The power that would be produced by those is also contracted to PG&E.

Hayward-based OptiSolar Inc., which had planned to scale rapidly this year, delayed its expansion and laid off 300 employees because it can't get financing to fund its new factory. San Francisco-based Suntech America said its expansion is also delayed.

Foster City-based SolarCity, one of the largest residential installers in the state, told customers that because financing is so scarce, new customers who want to take advantage of SolarCity's lease program will have to wait at least six to eight months for installations.

The energy produced by solar power is still more expensive than power produced from fossil fuels, once installation and maintenance are included. But financing models that edge the price of solar closer to parity with fossil fuels have driven growth in the industry.

Those models, rely on state and federal incentives that push costs lower. They also rely on investors, who purchase federal tax credits from solar companies to lower the buyer's tax liability.

Banks have been the heaviest purchasers of such credits. But the credits aren't of value to companies that don't need to offset taxes on gains. And right now, there are very few banks that have profits to offset.

Lyndon Rive, CEO of SolarCity, said last year he found tax equity financing for groups of 300 solar leases but financing has since become extremely challenging.