Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

How a $2.2 Billion Solar Plant Became a Money Pit

By Travis Hoium - Apr 2, 2016 at 11:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the largest solar plants in the world could soon be shut down, and the reasons why offer investors a valuable lesson.

Image source: Craig Butz via Wikimedia Commons.

A few years ago, there was a lot of enthusiasm about a new kind of solar energy installation that would be able to provide solar energy 24 hours a day. The concept was the solar thermal power plant -- which uses mirrors to focus the sun's energy on a power tower, where it heats a liquid (usually an oil) that eventually turns a turbine to create electricity. If solar thermal power plants worked well, they could be connected to an energy storage medium, like molten salt, allowing that heat to be held in reserve temporarily and doled out produce electricity to the grid 24/7.

A few massive plants were commissioned, including a $2.2 billion, 440 MW Ivanpah Solar Power Facility in the California desert. A $1.6 billion loan guarantee was given to the project by the federal government, and in late 2013 the power plant started generating energy. But the results haven't been quite as impressive as its developers planned.  

Solar thermal and the performance problem
Ivanpah's problems began shortly after it came online. The plant only generated about a quarter of its expected power output in its first eight months of operation as owners NRG Energy ( NRG -1.17% ), Alphabet ( GOOG -0.58% ), and BrightSource Energy worked to optimize operations.  

Problems early on weren't surprising because the solar thermal power tower is a fairly new technology. But we're now over two years into operations, and the plant still isn't meeting its contracted production terms with utility PG&E. Last week, regulators gave the plant another year to increase production, rather than forcing it into default on its contract, but that may not be enough.  

Consumer advocates are already pushing for the utility to renegotiate terms with the power plant, which signed its power purchase agreement when solar plants were much more expensive. The plant was paid $0.20 per kWh last summer for electricity and $0.135 for the rest of the year, compared to an average solar system getting about $0.05 per kWh for new contracts today.

If the plant can't crank up its production numbers by a year from now, PG&E may be able to negotiate a better deal, which could conceivably end up with the plant forced to shut down if the new lower rate doesn't cover its operating costs.

Not yet beating the incumbents
Solar thermal technology was once seen as a high potential technology because it could supply energy more consistently over time than a traditional solar plant. The way the power tower heats fluid, and the potential for molten salt or another  medium to store energy, made it look more feasible as a base-load technology. But it has proven the be more expensive than more mainstream technologies, and when you include the distraction thousands of mirrors pose to air travel and the thousands of birds that have been fried by the concentrated light, it isn't living up to plan. But this isn't the first time solar technologies haven't lived up to expectations.

Technologies like thin-film CIGS (think Solyndra) and amorphous silicon solar cells were supposed to lead to lower-cost solar panels and lower cost solar, but never panned out. Instead, most of the solar panels being deployed today are using silicon technology developed decades ago. The industry is proving that tried-and-true technologies with years of historical performance to lean on are better than concepts that haven't been proven on a big scale. Ironically, that means that old, stodgy companies like Trina Solar and SunPower, who have proven the ability to make solar panels cost effectively, are better investments than the next new tech coming to the market.

The disappointing production from Ivanpah, combined with other failed solar technologies, shows why investors should look more for known technologies than new technologies to disrupt the industry. Because the history of these promising breakthroughs leaving holes in investors' pockets is a bad one.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$27.12 (-5.34%) $-1.53
NRG Energy, Inc. Stock Quote
NRG Energy, Inc.
NRG
$35.60 (-1.17%) $0.42
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$2,832.36 (-0.58%) $-16.68

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
656%
 
S&P 500 Returns
144%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.