Solar thermal energy was supposed to be the next revolutionary technology in energy. The concept is the sun's light is bounced onto a collector that heats oil and that energy eventually runs a steam turbine to create electricity. If designed correctly, the sun's energy could be stored by molten salt and generate electricity hours after the sun went down.
Between 2008 and 2011, this technology was among the most promising in the solar industry and it gained hundreds of millions in venture funding, project contracts, and even government money. But now the solar thermal industry is crashing down and at the heart of the problem is the fact that it's flagship plant is performing well below expectations.
Ivanpah becomes solar thermal's last hope
The once promising world of solar thermal electricity generation has fallen behind conventional PV panels in large part because it's no longer cost competitive. I highlighted this earlier this year in comparing First Solar's (NASDAQ:FSLR) Topaz Solar Farm with Ivanpah Solar, which had costs of $4.36 and $5.61 per watt, respectively. I'll note that since this contract was signed First Solar's costs have fallen at least 50% and the opportunity for cutting costs in solar thermal is limited.
Still, Ivanpah was welcomed with open arms by solar observers and owners NRG Energy (NYSE:NRG), Google, and BrightSource Energy and opened to full production earlier this year. But when the plant was completed late last year and began production it didn't perform quite as well as expected and the media jumped on that and the grant the company is applying for.
Fox News was among the first to report that the plant is only performing about half as well as expected this year and is asking for a $540 million grant. But before we call this plant a failure it's time to put some facts behind those figures.
Ivanpah Solar isn't looking for a government bailout yet
While it's true that NRG Energy, Google, and BrightSource are asking for a $540 million grant. It's also true that this was the plan all along and is simply monetizing a solar incentive passed by Congress first in 2008 and then modified in 2009 as financial markets deteriorated.
This grant is what's called a 1603 Treasury Grant, which is cash paid to the renewable energy project in lieu of a 30% tax credit, which is still on the books today. The investment tax credit was an incentive passed by Congress and signed by the President in 2008 and was intended to lower the initial cost of solar projects to make them more competitive with conventional energy sources.
The credit was turned into a grant during the financial crisis when equity investors -- who bought the tax benefits -- no longer had profits to write off for the tax credit. The cash grant portion ended in 2011 and the investment tax credit will expire for small solar projects in 2017 and go to 10% for larger projects in the same year.
The bottom line here is that NRG, Google, and BrightSource aren't asking for a bailout, they're applying for tax incentives that were written into law when they built the project. When paid, the grant money will be used to pay off a $1.6 billion federal loan guarantee, which is also part of the contract.
Ivanpah Solar also isn't a success yet
While the media has gotten the reporting on the 1603 Treasury Grant program all wrong, what's more concerning is the production coming from Ivanpah. The operating company points out that 2014 is a start-up year and expected less than optimal performance and 9% less sunlight than expected has hindered production.
But it's unknown whether or not the plant will ever produce the 1.1 million MW-hrs that were planned when it was built. BrightSource points out that it's not expected to reach that level of optimization until 2018, so it could be years until we know the full story from a production standpoint.
Short-term, what's important to keep in mind is that the government will be paid back part of its loan guarantee soon and there are more installments due in 2015. If the plant doesn't perform as expected, Google, NRG Energy, and BrightSource will take the brunt of the losses, not the government. None of this means that solar thermal technology will suddenly become popular again.
Solar thermal is still a dying technology
Ivanpah may not be as bad as the media is reporting, but it's not the shining beacon solar thermal companies were hoping it was going to be either. Traditional PV projects can now reliably be built for far less cost than solar thermal projects and there's enough data to reliably predict energy production from Day 1. Solar thermal energy can't say that yet.
I still think solar thermal is a dying technology and investors interested in solar should turn to proven PV projects. That's where the money is being made in solar today, not on questionable new technologies like this.