A report issued by the Solar Energy Industries Association estimated America could add as much as 1.13 gigawatts of solar installation this year but a shortage of money is holding back solar projects. If that were true, that would mean American solar installations have risen as much as 150% from a year ago. One gigawatt is equivalent to about the output of a nuclear reactor.
Because of the shortage of available financing, utility companies are over shadowing smaller solar development. The utilities have lots of money and are able to finance their own projects. I suppose thats a good and bad twist to the solar story. California’s major utilities, driven by a Renewable Electricity Standard (RES) requiring them to get 33% of their power from renewable energy by 2020, are building solar capacity as fast as they can.
Matt Daily and Sarah McBride of Reuters report that the American solar energy industry is having its best year ever, yet financing remains scarce for the billion-dollar projects needed for America’s solar sector to gain ground on global leaders such as Germany.
Big solar plants often top $1 billion in costs according to the North Bay Nugget. For the American solar industry to ramp up from a rooftop add-on technology to the scale of fossil fuel power plants, the country needs to build large solar plants covering hundreds of acres. Each can cost upward of $1 billion, a huge sum for the nascent industry to finance, even with U.S. government incentives.
Because the debt market is so thin right now, it is very difficult to find lenders who are able to lend long-term,” said Scott Frier, chief operating officer of Abengoa Solar, which has two big U.S. plants under development. Just last week, doubts arose about the largest thermal solar plant under development, the 1 GW plant proposed in Blythe, California, by Solar Trust of America, a partnership of Solar Millennium AG and Ferrostaal AG.
The company warned its federal solar and wind loan guarantee application was taking longer than expected. U.S. solar sales are on track to reach about 1 GW this year, equivalent to one nuclear reactor. While solar panel makers and project developers are optimistic the country could become the world leader by the middle of the next decade, the U.S. industry remains far behind other countries, especially Germany.
Globally, solar installations are expected to reach 14 gigawatts this year. At least half of that will come in Germany, where developers have rushed to build projects ahead of cuts to financial incentives.
The U.S. government has two key programs to help the industry: a cash grant that pays 30 percent of solar project costs for plants under construction by Dec. 31, and a loan guarantee program that covers up to 80 percent of solar and wind energy project costs.
Applicants to the solar loan guarantee program have complained the process is too lengthy and murky, leading to just a handful of projects win-ning approval. We and everyone else” need a loan guarantee, Solar Trust’s Chief Executive Uwe T. Schmidt said. We and every one else need a cash grant.”
This summer, Abengoa won a $1.45 billion loan guarantee for its 280-megawatt solar plant in Gila Bend, Arizona. Regulators are paging through applications for other projects, including a cluster of solar plants in California that would provide more than 4,000 megawatts of power.
Experts say it is unlikely all the proposed projects will be built, in part because of high financing costs. Bankers generally prefer smaller, less risky projects and shorter-term loans than the 20-year terms solar plants typically need. If big banks are willing to get involved, their lending rates run about 8 percent, roughly double the level of the government rate.
Still, some bankers say developers, looking to keep the favorable government programs alive, have been exaggerating the difficulties of lining up bank financing for photovoltaic loans. There is commercial solar project financing available,” insisted Jonathan Yellen, managing director for infrastructure and project finance at Deutsche Bank. Renewable solar energy is attracting a large and growing portion of the available capital.”
The erosion of another key financing tool, the tax equity market, during the 2007 banking crisis, also dried up a significant pool of capital for solar projects. In that market, companies developing solar projects sell future U.S. tax breaks for renewable energy to a financial partner who, in turn, applies those credits to its own tax bill. By paying up front for the tax benefit, the financial sector provides the developers with cash to build larger solar panel projects driving solar installations up.
While major banks have recovered from the worst of the recent crisis, their appetite for tax equity fulfillment remains a fraction of what it was in 2007. Two of the biggest players in the solar renewable installation financing market at that time were Lehman Brothers, now defunct, and insurer AIG, which needed a bailout and has sharply cut its operations.