The Uncertain Future of Large Scale Solar Thermal Power Plants

(3BL Media/Justmeans) - Last week, I wrote about my visit to the Shams-1 hybrid thermal solar-natural gas plant in Abu Dhabi. This 100MW plant, which combines concentrated solar power (CSP) with natural gas, is capable of generating power around the clock. The plant’s technical support manager, Abdulazoz Al Obaidli, said that it was unclear whether more plants like this one would be built, seeing as how new solar photovoltaic plants were challenging this technology on both price and efficiency. Improvements could also be realized with this approach, but it’s unclear, especially given the long lead times for building a plant like this, what the comparison will be down the road.

While CSP plants are basically steam plants with mirrors, photovoltaics are semi-conductors which have a tendency to follow something called Moore’s Law that has seen performance doubling and costs dropping at regular intervals like clockwork. And though we tend to think of PV in terms of small rooftop installations, there are, in fact 19 PV plants of 100MW or more, the largest being the Topaz Solar Farm in San Luis Obispo, CA, which weighs in at 550MW.

While the matter is far from settled, there are a number of other challenges facing CSP, sometimes called solar thermal plants, which use the heat of the sun to produce steam, unlike photovoltaics that convert sunlight directly in electricity. The CSP plants, given the thermal mass of fluids in the system, do produce more stable power and are thus better suited to baseline applications.

In Arizona, the Solana plant, built by Abengoa (a 20% partner in Shams-1), has the additional feature of thermal storage that allows it to provide power through most of the night as well, only without the use of fossil fuels. This accomplishment represents a sort of Holy Grail for renewables, yet, despite this, it’s unclear whether the company will build another one of these, either. In this case, it’s because of uncertainty about the Investment Tax Credit (ITC) which is due to expire at its current 30% level in 2016, dropping to 10% after that. That’s way too much way too soon for a plant that will take years to build. The Solar Energy Industries Association plans to lobby Congress this year to extend the credit at its current level.

It’s all about the money, really. Technologically, the plants are performing as they were intended to. Another piece of the puzzle is the loan guarantee program from DOE. Abengoa’s Mojave Plant along with BrightSource’s  Ivanpah plant, also in the Mojave Desert, but with a solar tower design,  both received over $1 billion each in loan guarantees. That program, which got a black eye for their investment in Solyndra, a manufacturer that collapsed in the face of unanticipated price cuts in Chinese solar panels, is no longer active.

David Crane, CEO of NRG and principal investor in Ivanpah, when asked if he was ready for another one, somewhat sanguinely, “We’ve got $300 million invested in Ivanpah — let me see that work for a few months and then we’ll decide whether we want to be involved in more.”

In the meantime, while this is all being sorted out, companies like BrightSource  are going overseas, pursuing markets overseas like China, South Africa and the Middle East where the rules of the game are not moving around quite so much.

What will happen in Washington is anyone’s guess. Other funding mechanisms are on the table. One idea is to extend the master limited partnerships (MLP) that are currently available to oil and gas companies to renewables. Real estate investment trusts (REIT) could also be revised to include solar farms and other types of projects. Both of these provide tax benefits to companies while passing much of their income along to investors.

One final note: There seems to be a good deal of confusion on the question of government energy subsidies. Many people begrudge the subsidies given to renewables without realizing that oil and gas also receive a huge amount of subsidy despite being enormously profitable. Which industry gets more? It depends how you measure it. According to Bloomberg, fossil fuels currently receive $550 billion in subsidies compared with $120 billion for renewables. But, argue fossil supporters, fossil fuels produce more energy than renewables, so the government is getting more for their money, 25 times more, if you measure dollars spent per unit of energy produced. It’s not at all unusual to see this type of imbalance when comparing mature industries with startups. That’s exactly why subsidies are needed. Otherwise, nothing new would ever get off the ground. Not in a business of this magnitude.

The government has long played a role in protecting emerging technologies from the ruthlessly competitive environment of the marketplace. That was the rationale behind our patent system, going back to 1790, long considered the best in the world (too bad we’ve now changed it to be more like everyone else’s). In areas of strategic national interest, like energy, transportation and communication infrastructure, the government takes the additional step of providing direct funds to ensure that these are maintained.

Image courtesy of BrightSource