A new sunrise for CSP in Section 1703 loan guarantees?
U.S. loan guarantees for renewable energy ended in 2011. Or did they?
Speaking at the February opening of one of the huge successes of the loan guarantee program - the world's largest CSP tower, BrightSource’s 392 MW Ivanpah project - Energy Secretary Moniz declared that the Loan Programs Office (LPO) has remaining loan-guarantee authority – of $40 billion. CSP Today investigates.
The Obama administration was instrumental by providing renewable energy loan guarantees under new funding of Section 1705 of the 2005 Energy Policy Act, giving birth to the giant new Concentrated Solar Power (CSP) projects in the US that are just starting to tumble past the finish post four years later. Solana and Ivanpah are now in operation. Crescent Dunes and Mojave are close behind.
America had created the first CSP project back in the '80s, with the SEGS in California. In 2009, the LPO gave new life to the US CSP industry, through Section 1705, which was funded under the Recovery Act.
Loan guarantees provided investors with the security needed to invest in these gigantic solar projects, by ensuring repayment of their loans.
“It was a win-win, good for the nation and good for the environment – but at the same time, senior lenders and banks have always been reticent to make loans to the first deployment of a new technology, and CSP was and is new and innovative in many cases,” Peter Davidson, the new executive director of the Loan Programs Office (LPO) told CSP Today researcher Marco Geraghty last month.
“This reticence is always heightened when that first loan is a massive amount, which is necessary in the development of a CSP project.”
“There are no questions anymore - CSP technology works.” he says. “There is no question anymore that multi-hour storage connected to CSP works. So, all the things we hoped to do to prove out this technology and prove out the projects and get them grid connected have been achieved.”
But despite the success of almost 100% of all the loan-guaranteed projects, in 2011, on its two year Recovery Act deadline, after one bad renewable loan; Solyndra, Section 1705 was allowed to sunset. So how could there be funds now?
First-ever funding for renewables under Section 1703
The LPO tells CSP Today that what Energy Secretary Moniz referenced is the first funding under a different authority of the 2005 Energy Policy Act - Section 1703.
Despite passage in 2005, no projects have ever been funded under this section, renewable or otherwise. The last solicitation for renewable applications under 1703 was in 2010.
The DOE is now preparing to offer new loan guarantees through the LPO.
There is a pot of $1.5 billion for renewable energy loan guarantees - and at the most up to $4 billion - that will become available once the new renewable solicitation begins. These funds will be for innovative projects that employ new or significantly improved energy technologies that cut or eliminate greenhouse gas or other pollutants.
So with this new funding, despite the sunset of Section 1705, we are about to see a new sunrise - under Section 1703.
CSP eligible under larger fossil solicitation
An even larger pot of potential CSP funding resides in a just-opened solicitation under Section 1703 for “advanced fossil energy.” This has up to $8 billion.
The LPO confirms that CSP applications could be eligible under this solicitation as well. The advanced fossil solicitation covers everything from extraction to power generation and industrial processes, and any CSP technologies that integrate fossil fuels in an “innovative” way could be eligible.
Because CSP employs the same back end as fossil fuels – a steam-driven power block – it lends itself to hybrid fossil projects.
Any new technologies that have been active for under five years, or have three or fewer projects in commercial operation - on US soil - would meet the criteria for “novel” or “innovative.”
Definitions are kept fluid, however. If there were already two hybrid coal plants and two hybrid natural gas plants operating with CSP, it’s not set in stone whether only one more would be eligible (as the third US “hybrid fossil” project) or whether two more could potentially be eligible: a third “hybrid coal” project, as well as a third “hybrid natural gas” project.
The LPO confirms that the emphasis is very much on deciding each case on its merits, and remaining as open as possible.
“The first deadline for applications on this solicitation will be February 28th and then it’s a rolling process,” Davidson told CSP Today. “So we will be accepting applications every three months going forward from there.
But Davidson emphasises that the department expects the solicitation to remain open for several years.
“We want the developer community to know that they don’t have to get everything in within the first three months - this is going to be open for a while and we’re very accessible to discuss projects.”
CSP unique among renewables
CSP can replace diesel, oil or gas for mining. It can desalinate water, or can be added to any fossil generation, whether trough or power tower, making it unique among renewables in being readily piggybacked onto a traditional fossil energy power block.
Section 1703 grants the DOE very broad authority and discretion to select any innovative project under each solicitation, assuming a reasonable prospect of repayment of a guaranteed loan.
“A successful application has got to be combined with a fossil fuel, because this is a fossil fuel solicitation,” Davidson explains. “So, a CSP project by itself wouldn’t be able to apply, just because it’s not a fossil-based system.”
“But, if a CSP developer can find a way to do an innovative hybrid type of plant, then that would be of great interest to us. We are looking forward to developers putting in applications for hybrid solar facilities married up with a fossil. We are also very interested in advancing the technology for enhanced oil recovery.”
Enhanced oil recovery (EOR) is indeed one of the interesting new industrial applications for CSP. Just like the gas or oil it replaces, it creates steam to drive out oil from tired oil fields - but without the pollution or volatile prices of fossil fuels.
Fossil sector too mature for guaranteed loans?
GlassPoint CEO Rod MacGregor once mentioned that one advantage of selling his solar EOR directly to the oil industry has been that funding is relatively straightforward. The richest industry in the world hardly needs its loans guaranteed. Therefore, GlassPoint doesn’t face the difficulties that CSP firms that produce electricity do; of having to finance a brand new technology at utility-scale.
As the developer of the Berry Petroleum project, GlassPoint is, along with BrightSource, one of only two CSP firms in the US to “reduce greenhouse gases in an advanced fossil energy application” with a CSP technology customised for delivering the low-heat steam needed to enhance oil recovery.
GlassPoint VP of Business Development John O’Donnell seems surprised to hear that their unique solar glasshouse for supplying oil fields with EOR could be eligible for a loan guarantee under the new $8 billion advanced fossil energy solicitation.
“But that could be quite interesting,” he says. He has a slightly different take than MacGregor, with his US focus. “What Rod told you is correct, but as larger projects go forward, especially with California’s new carbon market arising from the Low Carbon Fuels Standards program, we might find that customers do want to employ finance mechanisms that these programs could address.”
In general, however, financing is less of an issue than the fundamental economics. He is at an earlier stage with his potential customers.
“The main issue that folks are looking at is not the question of how to finance it. At the moment, the question is - whether I choose to own it myself or choose to finance it - will it be an investment that pays me back?”
With both of the US enhanced oil recovery projects to date in California oil fields, most of the operators in the state are now aware of solar EOR, he says.
At this point, these oil companies have been “at least been evaluating where they would put it. If they understand that it’s going to be economical, then I think we’ll see a number of operators move forward.”
To comment on this article, please write to the author Susan Kraemer.