Farming the Future in Solar

S.F. startup thinks it can harness the massive investor dollars needed for its ambitious plans.

It's a tall order: Build and finance the most massive solar energy farm in the world -- one large enough to cover an entire square mile of the central San Joaquin Valley.

But executives at Cleantech America LLC -- a collection of Fortune 500 alums, entrepreneurs and risk takers -- believe they have the chops.

With plans to build not just one massive solar power farm in the region, but two, the San Francisco-based startup is hoping to find investors willing to bet hundreds of millions of dollars on a Valley solar industry that as yet exists only in the imagination.

Whether the company can turn imagination into reality will depend on a number of factors, energy industry watchers say. While investor interest in utility-scale solar power in California is greater than ever, Cleantech's goals also are much grander.

Energy industry analysts agree that California, with a mandate that utilities provide 20% of their power from renewable sources by 2010 and incentives for solar power projects, is a hot spot for solar investment.

"Large-scale solar projects are increasingly appealing to financiers as they become more comfortable with the technology" and the regulatory environment, said Ethan Zindler, head of North American research for London-based New Energy Finance Ltd., which tracks investments in clean energy worldwide.

California has about 40 photovoltaic solar power projects of 500 kilowatts or more either planned, built or operating, Zindler said.

But with several key details about Cleantech's projects still undisclosed, including who will invest in the plants and where the company's larger, 640-acre solar farm will be built, Zindler said the verdict on Cleantech's vision is still out.

"Building a project like this doesn't happen overnight," Zindler said.

"There are a number of important elements to the project that still sound like they need to be finalized before they [Cleantech] can move forward."

Cleantech first announced plans to build a 5-megawatt solar facility in western Fresno County late last month.

One week later, the company upped the ante by announcing its intention to build an 80-megawatt plant in the Valley, one that could power more than 20,000 houses. Local utilities have agreed to buy power from both facilities.

While Cleantech is a 2-year-old startup with no track record, its principals have experience with power plant developments around the world, including members with experience at worldwide engineering giants Bechtel Corp. and Fluor Corp.

"We think the whole San Joaquin Valley will be in the future a solar valley," said Bill Barnes, the company's president.

"You have great sun characteristics and an air quality that will benefit because solar has zero emissions. It can provide peak power at peak times ... and there is the political will in the Central Valley to create renewable energy, particularly solar."

The first 10-megawatt phase of the 80-megawatt solar farm could be producing power in early 2009, and the project could be complete by 2011, Barnes said. The company is searching for a site.

Large-scale solar power projects like those Cleantech has proposed aren't science fiction, Zindler said.

Germany, Portugal and Spain already have solar farms in the 10-megawatt range.

Popularity of the technology could be a problem for Cleantech, Zindler said.

With demand for the highly purified silicon used in solar panels at an unprecedented high, it might be hard for Cleantech to afford the massive number of panels it will need.

"From our perspective as analysts, we took [Cleantech's] 80-megawatt announcement with a bit of a grain of salt," Zindler said.

"The 10-megawatt project sounded like it had a number of things in place to get off the ground. The other 70 megawatts, we'll see."

But Barnes said that Cleantech has taken this into account in its Valley plans.

The company's three-year phase-in plan will help ensure a steady supply of polysilicon, a key component in solar panels, Barnes said.

Costs, demand critical factors

Rapid growth of the solar industry has sparked fears that suppliers of polysilicon couldn't keep up, but manufacturers worldwide have kicked up production, according to a 2006 study by the Prometheus Institute, a nonprofit that advocates for alternative energy sources.

The institute predicts production of polysilicon will triple by 2010.

And the economies of scale for larger, commercial-scale solar installations have driven down installation costs, helping to offset the rising price of solar panels, according to industry data.

Nationwide, solar panel prices for larger projects have risen about 12% over the past three years, from about $4.34 per watt in July 2004 to about $4.84 per watt in July 2007, according to solar industry consultancy Solarbuzz LLC.

Even so, the cost per installed watt -- about half of which is the panels -- has steadily declined for large-scale projects in California, from about $10 per installed watt in 2003 to less than $7 per installed watt today, according to New Energy Finance.

If those trends continue, that could ease a critical pressure for solar installers, Zindler said.

But equally as important, he said, is the increased demand for solar that comes from California's requirement that utilities produce 20% of their power from nonhydroelectric renewable sources by 2010.

That mandate has really reassured investors that they'll have a buyer for their power, Zindler said.

"In California, you have utilities that are really under pressure" to buy solar and other renewable power, he said. Currently, 11% of the state's electricity comes from renewable energy.

New large-scale solar-energy plants will be critical to meeting California's renewable standard, said Claudia Chandler, an assistant executive director for the California Energy Commission.

Securing a power purchase agreement with a utility is the first step any developer must take before investors are likely to start getting interested, Zindler said.

In Cleantech's case, "The announcement that they have agreements with the local utilities is one of the key steps to getting a project built," he said.

Cleantech's 80-megawatt solar farm would generate power under an agreement with the Kings River Conservation District, the water-management arm of the San Joaquin Valley Power Authority. The authority has about 350,000 customers in 12 cities and two counties.

Cleantech's smaller, 5-megawatt plant would provide power to Pacific Gas & Electric Co. under a 20-year deal. That solar plant is to be built on 40 acres near the utility's Mendota substation.

With power-purchase agreements in hand, Cleantech has the promise of income to offer banks and other institutional lenders, Barnes said.

Cleantech wouldn't give a firm construction cost estimate, except to say the projects will cost "hundreds of millions" of dollars.

The company expects to borrow some share of that total cost, though Barnes wouldn't specify how much.

Tax credits, benefits attractive

For the investors who will cover the remaining costs, solar farms offer another key advantage, Barnes said -- federal tax credits and other tax benefits, like accelerated depreciation, which are attractive to pension funds and other institutional investors.

"The top names in the world, both in debt and tax equity finance, are extremely interested in large-scale solar projects," Barnes said.

All these incentives are still important for photovoltaic solar power, said Daniel Kammen, a professor in the Energy and Resources Group at the University of California at Berkeley.

That's because, despite advances in technology and growing economies of scale that have brought down solar power's costs, "it's still the case that solar is still roughly twice the cost of grid power" derived mainly from coal, natural gas, nuclear and hydroelectric dams, Kammen said.

Even so, some free-market forces are also working in solar power's favor, Kammen said.

That's because solar power plants generate power when it's most lucrative -- in the hottest parts of the afternoon.

Using 2006 estimates, Kammen estimated that solar power costs at least 20 cents per kilowatt-hour on average. That's compared to an average nationwide retail price of about 9 cents per kilowatt-hour for electricity this spring, according to the federal Energy Information Administration.

But because California power costs fluctuate widely with demand, power prices in "peak demand" times like late summer afternoons can rise as high as 45 to 50 cents per kilowatt-hour, Kammen said.

"Peak afternoon power being so valuable, that allows you to think about these investments in a very different way," he said.

Solar-energy plants planned for Fresno County also will relieve pressure on California's power grid at those crucial times when the sun is baking the state and people are cranking up their air conditioners, said Jon Tremayne, a PG&E spokesman.

A large local energy source, such as big solar-energy plants, decreases the likelihood that the Valley will suffer a blackout, because increased local supply will offset heavy summer energy demands, Tremayne said.

Kammen said that California's landmark greenhouse-gas reduction law will also give solar power plants a new potential source of revenue -- selling carbon credits, or a credit for generating electricity without burning fossil fuels, to other entities seeking to offset their own greenhouse-gas emissions.

For all these reasons, he said, "utilities are seeing investments in renewables, both wind and solar, as an increasingly good deal. It removes the uncertainty of fuel costs, and it means that when the carbon market finally comes, they'll already be invested in the technologies that are the real winners."