Utility-scale Solar Thermal financing challenges vs PV in light of relative efficiencies

Despite the turbulence of recent years, development euros continue to flow into solar projects around the world.  However, recent changes in the financing landscape have added fuel to the debate around the relative strengths and weaknesses of solar thermal versus solar PV.

PV facilities can convert roughly 15 percent sunlight into grid quality electricity. In comparison, thermal plants can harness up to 70 percent of the sun’s energy into usable heat for power generation.  Theoretically, (and this is where the debate is emerging) the cost of power from a thermal plant is estimated to be much lower.

While PV technologies are suitable where direct sunlight is scarce and, for example, the retrofitting of buildings (Northern Europe), thermal is regarded as the solution for larger scale generation in desert-like environments with strong direct sunlight. The cost efficiency and scalability of thermal has been given a boost recently with Brightsource, a leading solar thermal developer in the US, gaining loan guarantees in March from the US Government for its 340 megawatt solar thermal plant in Southern California. Thermal projects such as this and the Solucar tower in Spain require large amounts of infrastructure and debt finance to develop.  Hard to come by these days, and hence, the loan guarantees.

The question that arises is whether the government is wise in providing these support structures to technologies which are not capable of attracting the capital required on their own.  While thermal may have higher efficiencies, the LCoE of thermal has been distorted by the government support, and is not reflective (har har) of the system’s true economics.  Rather than picking winners and losers (concomitantly), the government should be providing an incentive structure that promotes competition among the technologies.  To do otherwise is to invite interested parties to try to game the system.

In addition to the financing issue, one might consider the relative safety of distributed generation versus the centralized plant model.  In the United States, the coalition of support for renewable energy that was created between the Democrats and the Republicans was at least partially driven by the Republicans’ need for energy security.  While security shouldn’t be a partisan issue, at least for the moment, the Republicans will need for that security box to be checked to get behind a project or technology.  This might be more critical moving forward, after the November mid-term elections.

While the loss of leverage has slowed down development of large-scale solar utilities, investments have continued to be made in the refinement of PV technologies. I2BF, for example, has investments in three solar companies (Prism Solar, Solar Silicon, and Integrated Photovoltaic) which are focused on continuing to reduce the cost of PV while maintaining its bankability.

 

About  the Author:
David Waserstein joined I2BF in 2009 as Director of Investments.  Most recently, Mr. Waserstein worked as an investment professional at Hudson Clean Energy Partners, one of the world’s largest renewable energy-focused private equity groups with $1.024bn AUM.  Additionally, David is the founder of High Water Mark Advisors, LLC and Anvanta Systems.  He has a track record of providing high-value management consulting with a focus in the areas of funding and strategic development.  David holds an MBA from Columbia University, Graduate School of Business as well as a BA from Tufts University in Political Science.

Picture: AP Photo/SkyFuel, Jack Dempsey