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Government aid will end soon, and CSP will have to prove its technology and profitability to risk-averse banks and private financiers.

By Bob Moser, Americas correspondent

With key government aid programs likely to expire at year's end, concentrated solar power (CSP) developers will have to turn to a private investment market that may be too risk-averse to back the relatively unproven technology over renewables like PV and windpower, which are also aggressively competing for lender attention.

Of 103 CSP plant locations on CSP Today’s 2011 US CSP projects map, 17 are currently operational, eight are under construction, and around 78 in various stages of planning. But across the industry, a recent rash of bankruptcies and major shifts in tech-commitment may be overshadowing the positive groundwork many firms are laying.

Bankruptcies, foreign competition

California-based Solyndra Inc. closed shop and filed for bankruptcy in August, as did Evergreen Solar and SpectraWatt. Those three manufacturers made up roughly 20% of US panel manufacturing capacity.

Solar thermal company Stirling Energy Systems filed for bankruptcy in September. The company had planned to compete in the utility-scale CSP market. California regulators had approved two Stirling projects last year totaling 1,372.5 MW, but its sister company, developer Tessera Solar, sold those projects when it couldn't line up construction financing. Frustrated by the process, utility Southern California Edison canceled its contract for one of the projects.

More project developers are turning to PV as a cheaper and faster option for utility-scale projects. In August, Solar Trust of America announced it will use PV instead of CSP for the first 500 MW of its 1 GW Blythe Solar Power Project. On October 6, PV-plant builder solarhybrid AG announced it was buying up to 2.25 GWP in US solar projects from CSP developer Solar Millennium AG.

“It does send a signal, no question about it, and throws down a gauntlet for the CSP industry to work through cost issues and technology risks,” said Audrey Louison, partner and renewables specialist at  Boston-based law firm Mintz Levin. “The loan guarantee program has done what it was supposed to do with CSP. It catalyzed some big projects, and if they are successful there may still be a role for CSP in the market. Utilities themselves may be interested in some self-built large-scale projects.”

The Section 1603 cash grant program has helped 2,410 renewable energy projects in the last year monetize the 30% ITC without needing a tax equity partner. The vast majority of those – 2,095 to be exact – were solar energy projects.

When that program expires at year's end the solar sector will suffer more than any renewables industry, concludes researchers at Mintz Levin in a renewables finance greenpaper published in September. If the cash grant program were extended long-term, solar power would win big, with CSP projects benefiting more than any.

Silver lining?

About 85% of the CSP projects Mintz Levin expects to seek financing through 2013 are 100 MW or larger, and that type of capital-intensive project is much easier to finance if 30% of its capital costs can be recovered as a direct cash grant. But prospects for the program's extension are dim, Louison says.

There's private money eager to back renewables in the US. About 10,000 MW of windpower (or US$20 billion at US$2 per watt) were installed in the US in 2009, and commercial banks financed roughly half that.

Some of these same banks – Santander, Bank of Tokyo, Union Bank NA and more – will have loans for solar developers, but their concern with unproven technology and commercial scales may limit CSP, says Brett Prior, senior analyst with Greentech Media/GTM Research.

Developers of new CSP tower projects could struggle to convince lenders or have to pay a premium, Prior says, since Brightsource's Ivanpah will be the technology's first full-scale deployment. Brightsource has funding set for its Hidden Hills projects nos. 1 and 2, but may face premiums from lenders for planned expansions.

“It may be an uphill battle. Debt holders are first in line, so if anything goes wrong it's actually equity investors whose return gets hurt,” Prior said. “But if operations and maintenance costs more the equity investor gets hit, but the lenders are still covered.”

The cost of PV panels has dropped 37% within the past year thanks to Chinese producers slashing prices. Asian competition was the main factor that pushed American PV panel producer Solyndra into bankruptcy last quarter, and forced Solar Millennium AG to abandon a US$2.1 billion loan guarantee last month to drop thermal technology for cheaper PV.

Low-cost Chinese PV panels have also driven proven equipment makers from Germany and Japan into financial trouble. Solar thermal simply doesn't seem to be able to adapt as quickly to the competitive marketplace as PV has done.

Thermal developers typically offer custom-designed plants built on a utility-scale and need years to design and construct. They cost more to build and maintain than plants using PV panels today.

But the United States' trade balance in solar products is still very much positive. The country was a net exporter in 2010 by US$1.9 billion, and had a positive trade balance with China.

The US exports a lot of poly-silicon and manufacturing equipment, Prior says, but is a net importer of modules. “I wouldn't say that more modules from Asia being installed in the US means eroding support for our industry,” Prior said.

To respond to this article, please write to the Editor:

Rikki Stancich: rstancich@csptoday.com