Is Washington Creating a Big Solar Bubble?

We all know what happened when Wall Street and Washington both looked the other way in the name of corporate profit as banks and insurers inflated housing prices, and encouraged unstable investments.  But will Americans be stuck with the cost of another over-hyped investment?

The Bureau of Land Management (BLM) has smoothed the way to permit hundreds of square miles of solar energy facilities on public land in America's southwestern deserts.   In California alone there were 20 solar applications in line for public land, totaling over 200 square miles.  The Obama administration asked the BLM to work with the Department of Energy (DOE) to decide which projects can receive taxpayer-backed financing and grants.  Massive solar projects have already been approved for over 4 billion dollars in government loans, and millions of dollars in cash grants.

A subsidiary of energy firm "NRG" was awarded over 18 million dollars in grants (free cash), and 2.1 billion dollars of taxpayer-backed financing for the  Blythe Solar power project, according to the Departments of Treasury and Energy.  The public land they are building on is also home to sacred Native American sites and pristine desert habitat.  According to SEC filings, NRG had 2.9 billion dollars of its own cash and equivalents available as of December. 

Another company, First Solar, is seeking public financing for its large solar projects in California, which are expected to kill or displace dozens of desert tortoises and scar desert land just outside Joshua Tree National Park.  According to its SEC filings, First Solar had over 765 million of cash on hand in 2010, and hired a new Chief Financial Officer with a starting salary of 435,000 dollars, a signing bonus of 262,800 dollars, and stock valued at 2,340,000 dollars.  First Solar's CEO receives total annual compensation of over 3 million dollars, according to Reuters.

Banks and insurers don't trust the utility-scale solar projects enough to invest their own money.  The technology is relatively unproven on a mass scale, and the projects are as destructive as other unpopular energy sources (such as hydropower or off-shore drilling) because of the immense land requirements.  That leaves some solar companies with Uncle Sam as landlord and financier.

Government policy is surely a major driver behind the solar industry's growth.  This is not a bad thing when we end up with more efficient photovoltaic cells developed by NREL or growth in rooftop solar installations.  But it's a dead-end road for utility-scale projects that will leave the taxpayer holding the bill

The Demand:

The "solar rush" that is gobbling up so much open space in America's southwestern deserts is 45% the fault of the states, and 55% the fault of the Federal government.  Let's take California for example.  Sacramento passed a law requiring that 33% of its energy come from renewable sources by 2020, called a Renewable Portfolio Standard (RPS).  This puts public utilities (such as Southern California Edison or San Diego Gas and Electric) under the gun to sign power purchase agreements (PPAs) with energy plants that can supply wind, solar or geothermal energy.  California's RPS ignores energy produced by privately owned distributed generation, such as a homeowner that installs a solar panel on their rooftop.   This is significant because the the best aspect of solar technology is that it can be used anywhere, but the law makes it difficult to fulfill the RPS without destroying public land.   It's also unpopular since it costs more to generate solar power in the middle of the desert, and those costs will be passed along to the customer.

The Obama administration has been the biggest national proponent of utility-scale solar projects, clearing two of the biggest hurdles for any major solar power project--land and money.

The Land:
If you are going to profit from producing renewable energy, it helps to do it on a massive scale.  The biggest landholder in the West is the BLM.  This is important for utility-scale solar projects, which can be as "small" as 3 square miles, or as big as 11 square miles.  There are private parcels of land big enough to accommodate solar power projects, but you need cash on hand if you're going to get in the door.  Not so with public land.  Although its not free, just about anybody can submit an application for a right-of-way grant. When the project is underway you will pay rent.  But it's public land.  Who cares if you foreclose on land that's not yours, right?  You may lose your right-of-way grant, but you won't be indebted to a bank.

The Financing:

Big projects require big bucks.  While some of these solar companies (NRG and First Solar) have lots of cash, it's a matter of risk to sink all of that into a project that has a decent chance of failing.  So a bulk of the money needs to come from someone with deep pockets who does not care if the money vanishes.  That is where the Federal government steps in (again).  The Section 1603 Treasury Grant Program provides cash credits to eligible solar power projects (no strings attached), and the Department of Energy issues loans under Section 1705.

BrightSource Energy LLC received a 1.6 billion dollar DOE loan for its Ivanpah Solar Electric Generating System, and then raised cash from NRG (same company that also received grants and loans for a separate project) and Google to start building its solar facility in the northeastern Mojave Desert.  NRG plans to give 300 million over three years, and Google plans to give 168 million.  That leaves the taxpayer with the greatest risk, at 1.6 billion dollars in loans and 5.6 square miles of public land. 

Creating Value from Nothing

Solar energy companies end up with a boost in value when they get to announce the approval of a major project on public land.  They get another boost when investors hear that the project is eligible for taxpayer-backed financing.  But what exactly have they done? Solar facilities built in the Mojave so far have not been much of a success story.  Sand flows scratch mirrors and solar panels, reducing efficiency.  Storm runoff can erode already fragile soils holding mirrors and towers in place.  The per kilowatt price of solar is already high enough -- they cant afford many additional operational costs if they want to be competitive.  Some technologies have their own pitfalls, such as the clumsy SunCatchers, which increase project risk.

BrightSource Energy has already begun bulldozing pristine desert habitat for about a third of the total proposed Ivanpah project.  The project was halted earlier this year by the BLM because of higher than expected impacts on the threatened desert tortoise.

Deserts Under Strain
Even though Wall Street thinks America's deserts are a vast wasteland, there are actually a lot of demands on these lands.  Americans seek recreation here--hiking, camping, off-road vehicle use, mountain biking, photography, and plain old road-tripping.  Over 1.25 million people visit Joshua Tree National Park each year.   Death Valley, a far more remote National Park, received over 770,000 visitors in 2006.

Americans also simply appreciate having open space.  A land of peace and solitude, warmth and splendor where wildflowers bloom in the spring, coyotes howl and night, and jackrabbits abruptly bound from creosote bushes as you stroll through their home.  But desert habitat is already under strain.  Off-road vehicle usage, urbanization, military training, and transportation growth have pushed the US Fish and Wildlife Service to consider or designate several desert species as threatened or endangered.

So when energy companies want to bulldoze hundreds of square miles, they are certain to run into trouble.  Several have already faced legal challenges in State and Federal courts.  Utility-scale solar on public land is simply not a wise use of resources, and it's not sustainable.   Washington has oversold these projects as the solution to America's economic woes and climate change.  We are playing with fire, and resting our hopes on the wrong path.

Instead, the Obama administration should increase tax incentives and facilitate financing for individual citizens and small business to install rooftop solar panels.  You can give taxpayers a tangible asset, and reduce greenhouse gas emissions at the same time.  Some argue that rooftop solar cannot be deployed fast enough, but Germany has installed gigawatts of rooftop solar panels over the past couple of years.  Such installations, known as distributed generation, also eliminate the need for costly new transmission lines (one transmission line is expected to cost over $2 billion), and have been known to increase home values.

Even NRG executive David Crane recognized that time is running out for Big Solar projects, and forecasts greater (and smarter) emphasis on distributed generation.  According to his comments during a fourth quarter earnings call (emphasis added):

"Ultimately, however, we fully recognize that the current generation of utility-sized solar and wind projects in the United States is largely enabled by favorable government policies and financial assistance. It seems likely that much of that special assistance is going to be phased out over the next few years, leaving renewable technologies to fend for themselves in the open market.

We do not believe that this will be the end of the flourishing market for solar generation. We do believe it will lead to a stronger and more accelerated transition from an industry that is currently biased towards utility-sized solar plants to one that's focused more on distributed and even residential solar solutions on rooftops and in parking lots."

It's time for Washington to stop subsidizing needless destruction of public lands, and propping up a market that cannot fend for itself.  We should focus on putting taxpayer money back in taxpayer pockets through distributed generation incentives.