Clean Energy Future by Arno Harris

The Siren Song of Cheap Natural Gas

The Wall Street Journal ran a good article last week on the "shale gale," a reference to the sweeping impact that newly discovered shale-gas reserves are having on energy policy. New cheap shale gas has created a tempting diversion for policymakers. They struggle to balance the low cost of natural gas against important but hard to value principles like energy security and environment. Because they make the choices that will shape our future energy infrastructure, how they respond will determine an awful lot about the future of energy.

The story of the shale-gas find is dramatic. Three years ago, the conventional view was the US was running out of natural gas. Then a few innovative developers, using drilling methods that fracture underground rock formations, discovered a way to release trapped natural gas. Their efforts unlocked massive new reserves literally beneath our feet. In a stunning reversal, conventional wisdom was turned upside down. Estimates vary, but the bottom line is that there now appears to be anywhere from 40 to 100 years or more of natural gas reserves that can be tapped at low cost to meet US demand (assuming current usage rates).

This puts the energy industry and policymakers in a pickle--something I saw firsthand recently at conference in Vail where a number of federal and state regulators spoke frankly about the issue. On the one hand they want to deliver the best cost enegy to ratepayers. On the other hand, they have a responsibility to make long term strategic decisions that ensure our energy supply is diverse, secure, and clean.

The easy choice is to let the siren song of cheap natural gas lead us into a massive build-out of new gas-fired power plants. It's politically easy to make decisions that result in abundant low cost electricity. And on the surface it seems more environmentally responsible too. If we replace coal with gas we'll end up a lot cleaner too, because efficient gas turbines create roughly half the amount of carbon emissions of a typical coal-burning plant.

But switching everything over to gas is not the responsible choice. It would make us overly dependent on a single fuel source. It would raise the pace at which we use gas, and thereby reduce the lifetime of a strategically valuable supply. And while it's cleaner than coal, gas is still a source of carbon emissions and much less clean than renewable sources like wind and solar.

The truth is we need a diversified energy supply that balances cost against other benefits like energy security, stability, and environmental benefits. The most compelling vision of what we could accomplish over time sounds like this: we leave the old nukes in place, retire the old coal plants, build as much renewables as we can take, and fill the rest with natural gas. This approach would result in a grid that is robust, diverse, clean, and affordable for generations to come.

Our role in all of this? We need to support our policymakers in making the right choices so they're not tempted to go with the cheap payoff of a big gas frenzy. It's the right thing do to for energy and for generations of energy users who will inherit the result of the choices we make today.

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PS: As I've blogged before, natural gas and renewables play very well together. Natural gas fired turbines can be ramped up and down quickly, answering the increasing need for dispatchable resources to balance rising intermittent renewable sources. It's very important to note that renewables and gas are not mutually exclusive . The choice is between an all-gas world vs. a symbiotic world which gas a renewables are integrated in a robust, diverse generating system.

 

Recurrent Energy: Pushing into the PV Supply Chain

 Earlier this week, Recurrent Energy announced an agreement to buy approximately 180MW of solar PV modules for our Ontario projects. The module supply agreement is with Celestica, a well-known Toronto-based contract manufacturer.

Under the terms of the agreement, Celestica will build a PV module assembly plant in Ontario and Recurrent Energy will buy most of the plant's output over the next few years. It took our team about 15 months of negotiation with a number of potential suppliers to reach this solution. The agreement represents an important milestone for our company for a couple of reasons.

First, since winning our Ontario FIT contracts back in April of last year, a key focus of the company has been on securing modules that meet the domestic content requirement. The FIT contracts require us to source 60% of the equipment and services for the projects from within the province.

Meeting the domestic content requirement was probably the biggest single risk we took in signing up for the projects. Through our agreement with Celestica, we've now taken that risk off the table and cleared the path to their successful execution.

Second, the decision to work with a contract manufacturer reflects an important part of our strategy to maintain competitive advantage and bargaining power. As a developer, Recurrent Energy doesn't want to be simply a 'price taker' from our suppliers.

With this transaction, we're demonstrating we can push up into our supply chain to take a more direct role in making modules to meet our price targets and technical specifications. The capability to work with contract manufacturers gives us more options and more bargaining power when we're negotiating critical supply contracts.

Anyone who wants to raise the question of 'bankability' with this approach might take a moment to look at Celestica's balance sheet relative to many of the so-called 'Tier I' module suppliers whose credit sets the standard. I can tell you that none of our lenders raised an eyebrow when we discussed the strategy.

I'm proud of our team for putting together a smart deal that not only solves the immediate supply challenges of working under Ontario's domestic content rules, but also points the way towards a compelling strategy for the business.

Treasury Grant Program Renewed for One Year

President Obama signed the tax relief bill into law today, following passage in the Senate on Wednesday and The House early Friday morning. Those of us in the solar industry breathed a huge sigh of relief as the final bill included a one-year renewal of the Treasury Grant Program.

The TGP allows developers to apply for a cash grant in lieu of the 30% Investment Tax Credit. This in turn enables developers to finance projects using conventional project finance (i.e. non-recourse debt and equity) rather than having to use more expensive tax equity. I've blogged extensively about this issue and the need to renew the program in the past.

With the renewal of the TGP, the critical last piece falls into place to preserve the current momentum of US solar and renewables. Earlier in the year we saw the defeat of Prop 23 at the polls, which threatened to gut California's landmark climate legislation and the RPS. Yesterday saw the passage of RAM, which adds a critical new dimension to California's RPS by focusing on distributed scale resources. Also yesterday we saw the passage of the first non-wind RPS in Texas. And now with the TGP renewed, the projects resulting from the RPS and RAM will be assured of the access to capital necessary to finance construction and put them into operation.

These victories were hard won. The TGP renewal effort has been going on for over a year now. Recurrent Energy and many others in the renewable industry have lobbied hard on the issue with just about anyone in DC who would listen. And believe me it's hard to get people excited about the intersection of tax law, energy policy, and asset finance! Similarly the efforts to pass RAM and to defeat Prop 23 required significant effort and resources by many dedicated advocates of renewable energy.

As excited as I was to see the TGP renewal pass, I can't help but think that the really important victories are still to come for US renewables. The reality is that the industry secured only a year's breathing room with the TGP renewal. In the long run, it's clear we we can't continue using the US tax code to fund our renewable energy policy. The complexity and inefficiency tax incentives introduce in the market is no longer tolerable in the industry at its current scale. Meanwhile, our state RPS programs, which have done the heavy lifting in creating demand for renewables in the US, are at risk of running out of steam in the face of a weak economy and low cost natural gas.

We are now at a critical point in the history of US renewable energy policy. We can continue our past approach of applying a short term patchwork of half-measures to keep things limping along. But as Tom Friedman recently pointed out, this approach is rapidly losing ground to the focused national strategy being executed by China and other global leaders. While the US dithers, other governments rightly recognize renewables as one of the key emerging business sectors of the next century. I'm hopeful we're going to get the formula right in the coming years and the US will claim a leadership role once again. At least that's what I plan to spend my time and energy fighting for.

CPUC Passes RAM - Dawn of a New Era of California PV

The California Public Utility Commission today approved an important new policy for California solar PV, the Renewable Auction Mechanism (RAM). As you may remember, RAM was originally proposed by the CPUC staff back in August of 2009 (I blogged about it and why I thought it was a much preferable alteranative to a Feed-in Tariff here). Recurrent Energy has been very involved as an advocate of RAM and we're thrilled to see it finally pass.

The decision that was appproved today has seen a lot of changes since it was first proposed. However at its core, the program preserves the key features that I think are important for the state as it evolves towards a competitive renewable power market. It essentially directs the 3 large investor-owned utilities (SCE, PG&E, SDG&E) to procure 1 GW of distributed scale projects over the next 2 years through a competitive auction process.

The RAM's focus on distribute-scale projects (2MW-20MW each) is important because these projects are less risky and can be delivered in a much shorter time frame than large projects. Recurrent Energy was an early leader and proponent of this type of distributed-scale project.

Unlike the 'mega PV' projects that typically require thousands of acres of pristine wilderness and new transmission lines, distributed-scale projects can be fit onto smaller parcels of less sensitive land and can be connected to the existing utility grid. That means they're less risky--in other words they're more likely to get permitted and interconnected--and they can be delivered sooner.

Those benefits are (or should be) important to utilities and regulators who are under increasing pressure to meet RPS targets. Adding distributed-scale resources to the RPS portfolio reduces the overall risk of hitting regulatory goals (in the same way that a diversified financial portfolio can deliver a more consistent return).  

Another very important feature of RAM was the clear policy preference for using auctions to set prices rather than using a 'European-style' Feed-in Tariff (FIT) where prices are set by regulators. As I've said repeatedly, FITs come with all the market distortions associated with government price-setting. In a world where PV prices are rapidly declining, a government set price cannot respond fast enough to ensure that utilities and ratepayers are getting the best deal for solar power. An auction (with the right rules) will ensure that California gets the absolute best price for this type of resource while encouraging a tremendous groundswell of new project development activity.

The other important feature is the RAM's emphasis on strict viability standards and short delivery time lines. As I mentioned above, for an auction to work, it has to have the right 'rules' to ensure it isn't gamed or manipulated. One risk of auctions is that participants may bid very low prices in order to win a position in the queue, effectively getting a 'free option' on delivering a project if equipment prices decline rapidly. If prices don't come down, they just walk away at no cost.

This type of behavior would be detrimental to confidence in the RPS and creates huge uncertainties for regulators and utlity planners. To address this, RAM requires project developers to show proof of interconnection filings, site lease, and other project milestones, plus it requires developers to have 'skin in the game' in the form of non-refundable developer deposits that have to be provided upon award. I believe these will be instrumental in encouraging responsible bid behavior.

RAM is an important new step in California's solar future, building on many of the innovative policies that have made California a leading state in the development of successful renewable energy policies. Governor-elect Brown has urged us to think even bigger, promoting a vision that includes 20 GW of new renewables with 12 GW of that 'distributed scale' just like those envisioned by a policy like RAM. We're just getting started!

Response to GTM Article on the US Solar Industry



 *This article is a response to Shayle Kann's recent article Can Pure-Play Utility PV Developers Compete in the U.S. Market? on Greentech Media*

Shayle, thanks for the article. I enjoyed reading your recent report which echoed similar themes. You’ve done a great job pulling together some comprehensive numbers on the ‘state of play’ in the North American downstream market. However, I would say there are several areas where our views of the market differ and I think it’s worth some public discussion.

As an aside, I have to point out that drawing the line on the market at the US-Canada border distorts the league tables for North America. With 165MW of projects in Ontario (and over 370MW now contracted), Recurrent Energy is actually the third largest developer in North America. I know you and I have a friendly disagreement on where to draw that line, but I figure it’s worth pointing out once again.

Your article (and report) repeatedly mentions the issue of underbidding in the US market in connection to the ‘vertical integration’ trend. While some recent California and Arizona bid results are rumored to have come in at very low prices, I am less concerned than you are about the issue. PV plant costs have certainly come down quickly and opinions differ about how far they’ll come down in the next 2-3 years—which accounts for some of the bid variation. To the extent there is aggressive risk taking, I think market mechanisms will correct any underbidding fairly quickly.

The reality is that strategic buyers in this marketplace do a tremendous amount of due diligence prior to pricing an acquisition. The idea that acquirers just count up signed PPAs and make a bid is inconsistent with my recent experience in the sale of Recurrent Energy. Buyers examine every project document and model each project assumption, carefully assessing potential profit of each project individually. They then discount each project based on the degree of development risk remaining. A portfolio of projects that cannot be realized profitably will not get an acquirer’s attention or investment.

If underbidding is occurring by developers who hope to flip a pipeline quickly, I think the market will deliver a swift and painful economics lesson. As you point out, late-stage development is capital intensive and a poor quality portfolio will not attract the investment required to bring it to realization. This is not the internet circa 1999.

The other mechanism that will come to bear on this issue is developer viability standards. Simply put, we need the utility evaluation process to take into account a developer’s history, balance sheet, and capabilities (as the California RPS does) and require them to post a meaningful security along with their bid. This approach ensures that they have skin in the game and tests their confidence in their ability to deliver a profitable project.

Finally, your report suggests in numerous places that vertical integration is the key driver behind all of the recent downstream acquisitions. While it certainly seems to fit some of them, I think that may be an oversimplification of what’s actually going on. In our case, the strategy we announced with Sharp is a little more nuanced.

We see a transition occurring in the market from FIT-driven demand to power-market-driven demand. Sharp’s acquisition of Recurrent Energy is really about building an interface to new market participants (utilities and IPPs) that is distinct from the module sales business. Recurrent Energy benefits from Sharp’s reputation as we compete for customers and project investors. And we will harness Sharp’s technology and supply-chain expertise to achieve a market-leading equipment and construction cost. That’s a strategy that enables us to define a long-term competitive advantage and a path to sustainable profits in a very competitive industry. You’ll see the evidence of this in coming months as we continue to harness a diverse supply of modules and services that won’t really fit the ‘vertical integration’ label.

Regards,

Arno Harris
CEO
Recurrent Energy

Imporant Victories in California

While Democrats in DC may be feeling down about the ‘shellacking’ they received in national races, California actually delivered some very important victories. Several of the California candidates and issues before the voters added up to a referendum on the state’s clean energy and climate policies. The results were a resounding affirmation of the direction California is going and bode very well for the renewable and solar industries.

Here are a few of the California results worth highlighting:

• Defeat of Prop 23 – Proposition 23 ("The Dirty Energy Proposition") went down in flames last night with 61% of voters saying ‘no’ to the two Texas oil companies who sponsored it. The proposition would have suspended AB32, California’s defining climate legislation that is the legal basis for the 33% RPS standard and our pending carbon regulation scheduled to go into effect next year. With the defeat, California has a strong mandate from its citizens to continue to lead the country in renewables and solar. Recurrent Energy contributed to the No campaign and I participated through the steering committee. We celebrated a very sweet victory last night in San Francisco with Governor Schwarzenegger and former Secretary of State George Schulz, both of whom provided critical leadership. (More detail on the importance of the victory on Huff Post by Donnie Fowler.)
• Governor Brown – Jerry Brown beat Meg Whitman 54% to 41% in another resounding defeat that had big implications for California’s renewable policies. Whitman had pledged to suspend portions of AB32 even if Prop 23 was defeated. Brown's campain promises included developing 20GW of new renewables, 12GW of which is targeted for in-state distributed generation.
• Friendly Faces in Sacramento – Both Gavin Newsom and Kamala Harris won their respective contests for Lt. Governor and Attorney General. Both are passionate supporters of the environment and renewables. The Lt. Governor sits on the State Lands Commission, chairs the Commission for Economic Development, and appoints numerous regulatory and agency positions. So, Newsom will have an important and influential role in areas that affect our industry in terms of permitting and regulation. Meanwhile at her party last night, Harris stated her intention to use the powers of the AG to litigate important environmental, clean air, and social justice issues for the state.

Going into the election many of us were worried that Californians might backslide on the state's climate and renewables commitments. That would have been bad not only in California, but elsewhere in the nation where California’s leadership on these issues is critical to bringing other states into the fold. We now have a very clear and strong mandate on these issues directly from the voters.

I’m not naïve enough to think it will be easy to get good policies through Sacramento, but with the successes we had last night we certainly stand a much better chance!

Sharp Buys Recurrent Energy: A Path to Continued Growth & Success

We had an exciting day on Tuesday this week. We announced an agreement with Sharp to acquire Recurrent Energy. The sale is the result of many months of hard work by everyone at Recurrent Energy. We're thrilled because the arrangement creates a tremendously strong platform for continuing the growth and success we've had.

First, the facts. Sharp Corporation has agreed to buy 100% of Recurrent Energy, including its 2GW pipeline and 330MW portfolio of contracted projects. The company will continue to operate under the Recurrent Energy name. And I'll be staying on in my current role, as will the rest of the management team and employees.

The agreement is fundamentally about creating a platform to build a leading global solar project development and generating company. This goal reflects Sharp's ambitions to extend its business into solar power plants--and it reflects the Recurrent Energy team's ambition to build a company we think represents future of the solar industry.

The agreement is not, as some analysts have supposed, about simple vertical integration or a pipeline sale. Recurrent Energy is not obligated to use Sharp modules in its projects; nor is Sharp providing preferential pricing on equipment.

The synergies in this transaction come from acclerating Recurrent Energy's business by combining it with Sharp's balance sheet--superior access to capital, strong credit, business reputation, engineering/technology/manufacturing excellence, etc.--to expand development, construction capacity, and the operating portfolio.

From my perspective, this is not an 'exit'--this is the beginning of the next phase of our growth. I transitioned from hi-tech to solar 9 years ago because I wanted to have an impact on our planet's health. I wanted to play a part in figuring out the business models and capital formation to make solar a meaningful part of our generating mix. I'm convinced this is the platform to extend that ambition. Considering we're still at less than 1% penetration, Recurrent Energy is just getting started.

CPUC Decision Rejects European Style FIT and Signals a New Era of California Solar

I was thrilled to see the CPUC finally issued a draft decision in the Feed-in Tariff proceeding on Tue this week. When confirmed by the Commission, it will initiate a significant new program called Renewable Auction Mechanism (RAM) focused on projects in the 1-20MW size range. We strongly believe RAM will be a effective stimulus for California utilities to procure power from 1-gigawatt's worth of these types of projects. 

The RAM's focus on resources in the 1-20MW size is very important. So-called 'wholesale distributed scale' projects are exactly the kind of resources that my company, Recurrent  Energy, has been advocating as a developer. Because they're less controversial environmentally and faster to interconnect, distributed projects can be delivered to market in much shorter time frames compared to central scale (100MW+) projects. That's good for utilities, regulators, ratepayers, and the solar industry.

 

Needless to say we were actively involved in the proceeding and advocated for a number of features included in the decision. In particular, we were very happy to see the Commission reject a European-style FIT with a fixed price for electricity based on system cost. Instead the program features a capacity auction mechanism that ensures utilities and ratepayers will get the best cost for solar power based on the market. We were also very happy to see the program impose strong viability requirements on developers to ensure those who participate have the ability to deliver quality projects.

 

We're looking forward to getting the program implemented. The RAM will be an important new feature of California's efforts to build on its successes so far like CSI and RPS. From our perspective, it represents a key transition to the next era of California's solar and renewable energy leadership.

Let Renewables Compete Fair & Square? You Bet!

I frequently find myself challenged by people who want to know, “When will solar and renewable energy be able to compete on their own?” The implication of course is that the renewable energy industry is artificially propped up by unusually large public subsidies.

My favorite response is to issue a challenge of my own: “Name one source of energy that doesn’t receive a subsidy.” Here’s a hint: it’s an impossible task. The reality is that every conventional source of energy—coal, oil, and natural gas—enjoys massive government subsidies that ‘artificially’ support their markets.

You don’t have to take my word for it. A recent article in the FT reports that conventional energy sources benefit every year from $550 billion annually in taxpayer and consumer funded benefits. And no, that total does not include the massive additional subsidies offered to nuclear power.

Add up all the subsidies offered to wind and solar and I’ll bet they don’t approach even 1% of those used by conventional fuels and nuclear combined. So the next time someone tells you renewables need to compete fair and square, tell them you agree. Let’s level the playing field and eliminate all energy subsidies!

The political reality is that we're never going to get rid of subsidies. Energy, GDP, and national security are so closely intertwined that governments will always have an interest in regulating and incentivizing the energy industry. The real debate is not whether we should have subsidies. Instead, we should examine where we apply subsidies and what market outcomes we hope to shape as a result.

Recurrent Energy Signs Up 60MW with SMUD, Bringing Total Contract Portfolio to 330MW

The Sacramento Municipal Utility District (SMUD) made an exciting announcement today, revealing that it has signed its first feed-in tariff contract for 60MW of solar PV projects with Recurrent Energy.

The nation's sixth largest publicly owned utility, SMUD is widely recognized as a leader in innovative approaches to energy efficiency and renewables. Their renewable feed-in tariff program was introduced earlier this year for qualifying renewable and combined heat and power facilities.

The contracts comprise twelve individual five-megawatt (MW) projects located in southern Sacramento County. With this announcement, Recurrent Energy's contract portfolio has now expanded to over 330MW of projects with signed power offtake agreements and viable interconnections.

I'm proud of the job our development team did responding to SMUD's solicitation for proposals. They came up with a clever siting strategy and worked long hours to get all twelve projects over the finish line to meet the program deadline for applications.

I'm also thrilled that we're playing a part in working with SMUD--long a leader in solar--to take an historic and important step forward as the first large utility on track to meet California's 20% renewable standards.

Don't Let Texas Oil Companies Kill California Clean Tech!

I guess it's too much to ask the business-as-usual dirty energy companies to play fair. They see the writing on the wall as states like California take meaningful steps towards clean alternatives to burning fossil fuels. Now it's clear their response will be to wage a cynical and deceptive battle that maintains the profits they earn from their dirty ways.

The latest is Proposition 23, a California ballot measure sponsored by two Texas oil companies (Valero and Tesoro) that aims to kill popular climate and clean air legislation known as AB32.

The proposition is a cynical effort to fool voters in the 2010 fall elections by appealing to concerns about difficult economic times. Proponents falsely claim that AB32 will cost the state jobs and money.

The reality is that California's groundbreaking climate and clean air laws have stimulated billions of dollars of investment in renewable energy projects and technology. And according to the Employment Development Department, since AB32 was put in place California's clean jobs have grown 10 times faster than other jobs across the state. Far from being a drag on the economy, AB32 is an economic stimulus that is helping to California lead the country's development of clean tech industry.

The proposition is also deceptively worded to fool voters into thinking it would only temporarily suspend AB32 until unemployment dips below 5.5% for four consecutive quarters. It almost sounds reasonable doesn't it? Until you realize that California unemployment has rarely gone to that level for that long in the past 30 years. Don't be fooled. There is nothing temporary about Proposition 23, it's a cleverly written spike meant to kill the legislation forever.

Here's a simple question: do you really believe two Texas oil companies care that much about saving California's jobs and economy? Or do you think maybe they'll do whatever it takes to protect an important market, perpetuating their profit from selling dirty fossil fuels to our state's residents. I think I know what the anwer is--so do you. Don't let them get away with killing California's clean technology industry.

VOTE NO ON PROP 23. VOTE NO ON THE DIRTY ENERGY PROPOSITION!

Show your support here: http://www.stopdirtyenergyprop.com/get-the-facts.php

Want to Help Banks? Don't Extend the Treasury Grant Program!

If you want to get a feeling for what the future holds for finding reasonably priced tax equity for US solar projects, I'd recommend reading "Update: Tax Equity Market" in latest issue of Project Finance Newswire (article starts on page 8). Bottom line, the article makes it painfully clear that banks will be the only winners if we fail renew the Treasury Grant Program.

The article provides a front row seat at a recent Infocast summit of a discussion among six of the largest tax equity investors about the state of the market. The participants include JP Morgan, Bank of America, Union Bank of California, Citigroup, and Credit Suisse.

What's eye opening about the discussion is that normally these banks are fairly careful when they're on the record about pricing and availability of tax equity. As I read the article, I began to wonder if the moderator had slipped some truth serum to the panelists. At numerous points the transcript reveals them laughing about the degree of pricing control they have and how they expect to extract outsized profits from the renewable industry.

The transcript makes three things clear: (1) demand for tax equity in renewable projects will far outstrip the supply, (2) the only thing currently keeping tax equity yields from skyrocketing is the Grant Program which absorbs demand and gives developers the option of financing projects with debt, and (3) the banks will be the obvious winners if the Grant Program expires because they'll be able to cherry-pick the market and extract returns far in excess of the historical risk-reward norms for tax equity investments.

Let's think about what that means--if we let the Treasury Grant Program expire at the end of this year, banks will be a position to extract high yields from desperate renewable energy developers. One private study I saw recently indicated that as much as 40% of the tax benefits of a project are siphoned off by the banks making the tax equity investment. In other words, a government stimulus intended to encourage developers to put renewable energy projects in the ground will effectively be diverted via high financing costs into bank coffers.

It doesn't sound right, does it? And yet that's exactly what's going to happen if we don't renew the Treasury Grant Program now. So Senator Reid et al, if you want to provide a government-backed incentive that will increase bank profits, don't do anything about the expiration of the Grant Program at the end of this year. If, on the the other hand you want to see develpers invest that incentive in projects that create green jobs, add the renewal to the Extenders Bill today!

Time to Act: Extend Treasury Grants for Solar Projects

I've been banging on this drum for a while now so forgive me if you've heard this before, but it's important. The single most effective thing we can do at the federal level to maintain the momentum we're seeing in US renewable markets is to extend the renewable energy Treasury Grant Program.

The time to act is now by urging your Senators to include it in the Extenders Bill currently moving through Congress.

The Treasury Grant Program is a cost-neutral stimulus.It simply replaces the Investment Tax Credit (ITC) with an equivalent cash grant--this is not an additional ask by the industry. It's just an alternate way to disburse funds and stimulate development activity--which in turn creates green jobs in addition to demand for renewable energy equipment and services. The current Program expires on December 31, 2010. We need to extend it another 2 years.

The purpose of the grant is to address the fact that there is no reasonable way for developers to monetize the ITC. Developers have traditionally relied upon investors with big tax bills to invest in renewable energy projects to monetize the tax credits. Last year's financial crisis decimated the tax equity market and it has not recovered sufficiently to meet the demand today's growth in solar and wind.

Without a way to monetize the ITC, developers will have less incentive to invest in advancing projects to construction--the point where they provide significant economic stimulus. Letting the Grant Program expire at the end of the year (or even allowing uncertainty about the Program to fester) will cause developers and lenders to begin pulling back from the market. That will set US renewables back at a time when we're poised to become one of the strongest and fastest growing markets in the world.

Contact your Senators and urge them to include an extension of the renewable energy Treasury Grant Program in the current Extenders Bill. You can find and contact your Senators here:

• http://www.contactingthecongress.org

Recurrent Energy - 3rd Largest PV Portfolio in North America

Emerging Energy Research issued a report (subscription required) last week recognizing the recent progress we've made at Recurrent Energy. The report, titled Recurrent Distributed PV Strategy Comes to Fruition, notes the string of contracted PV project announcements we've made since late 2009.

EER notes that those announcements total over 220MW, meaning we now have the 3rd largest contract portfolio behind First Solar and SunPower. It's pretty exciting for us to be in the company of two of the largest and best known publicly-traded global solar power companies!

If you include our SFPUC and European projects, our contract portfolio now exceeds 250MW. And with a pipeline of 1300MW in development, we expect to grow that portfolio significantly over the coming months.

Recurrent Energy Teams with BlueWatt on French Solar

Yesterday, we announced a partnership with BlueWatt to develop 50MW of large rooftop solar power projects across France. 

The quality of BlueWatt's team and their approach to the business were key reasons for pairing up. Their development team knows the rooftop leasing market from their experience in cellular antenna site acquisition--and they're complemented by a team with experience in energy, project management, environmental, and regulatory agencies.

BlueWatt's strategy is to focus initially on large industrial warehouse rooftops as solar sites. In France as in the US, large rooftop projects will not face the same land use and environmental issues that large ground-mounted projects do. Plus they're located on the existing electrical grid so no new transmission is required for projects to reach operating status. That means these projects can be developed quickly and in large volume.

We're excited about the market opportunity in France and look forward to working jointly with our new partner as we expand our European portfolio.

Coal: Does Not Play Well with Renewables

A report from Bentek recently caught my eye because it provides yet another reason we should be getting away from coal-fired power as fast as possible. It turns out that adding more wind to Colorado's energy supply has actually increased the level of local air pollutants because coal plants don't play well with renewables.

The report, "How Less Became More: Wind, Power and Unintended Consequences in the Colorado Energy Market", explains why.  Because wind power is a 'must take' resource, other power plants have to ramp up and down as the amount of available wind varies. It turns out coal-fired plants don't behave well when 'cycled' like this to accomodate wind--they actually spew significantly more environmentally damaging emissions into the air.

The odd result is that as the amount of wind power added to the grid increases, the air quality actually has actually gone down. The report concludes that unless the additional wind capacity is coupled with significantly more gas capacity, a reduction in coal capacity, or a combination of the two, the higher RPS will drive SO2 and NOX and possibly CO2 emissions higher.

LINK: A nice summary of the report is also available on IWAG's site.

O Canada! Ontario Power Authority Awards 177MW to Recurrent Energy!

In an sweeping announcement today, the Ontario Power Authority (OPA) announced the award of over 2100MW of renewable projects as part of the implementation the Green Energy Act. The announced projects consist of 650MW of solar PV and 1520MW of wind projects and provide further evidence of the strong policy leadership that has established the province as a global center for renewable power.

Included in the announcement was an award of 177MW (154.5MWac) of distributed solar power projects to Recurrent Energy. The award is an exciting milestone for us and firmly establishes Recurrent Energy as the largest solar power project developer in Ontario under the Feed-in Tariff (FiT) program.

Recurrent Energy will finance, build, own and operate the photovoltaic (PV) solar power systems, using equipment and services meeting the 60 percent domestic content requirements of the Feed-in Tariff program.  The OPA will buy 100 percent of the power and renewable energy credits (RECs) from the projects.

The announcement is a validation of our decision to buy UPC Solar's pipeline of projects in Ontario a little over a year ago. Since then, we've poured resources into Ontario to advance the projects, working closely with the OPA and the provincial government along the way to ensure the projects were consistent with their goal of stimulating investment and jobs in the province.

The 19 project sites are located in the Counties of Simcoe, Lanark, Middlesex, Oxford, and the United Counties of Leeds and Grenville. The projects are expected to be completed in 2011 and early 2012. We expect the projects to create of over 2,500 jobs in the province including local manufacturing, engineering, construction, electrical, project development and related services.

The scale of the announcement is a reflection of how far our company and the industry have come in the last couple of years. It's 3x the size of our recently announced SCE award and 30 times the size of our Sunset Reservoir project now under construction. Overall, our pipeline of projects now exceeds 1-gigawatt across the US, Ontario, and Europe.

We're thrilled to play a part in the OPA's plans and look forward to bringing these projects to commercial operation in the coming years.

Big Misunderstandings about ARRA Stimulus for Clean Energy

A few weeks ago I flagged a story in the Christian Science Monitor titled "Stimulus Funds for Clean Energy Largely Unspent" because I thought it deserved a clarifying 'blog post. The story repeats several big misunderstandings about the status of renewable energy programs included in the American Recovery and Reinvestment Act of 2009 (ARRA). The general thrust of the story is that the lack of immediate and large uptake of stimulus funds is a sign that the program isn't working or having its intended result.

The reality is that despite the low outflows of ARRA funds to date, the stimulus program is playing an important role in maintaining business continuity for developers of solar and wind projects in the US. In fact, the expiration of the program at the end of this year poses a major disruptive threat to the progress that's been made in renewable energy in the US over the last few years. It's critical that we get the program extended for a couple more years to enable the industry to recover fully.

ARRA was passed in the early days of the Obama administration as the magnitude of the financial crisis began to unfold. Among its many provisions was a section intended to support continued development of renewable energy projects--particularly wind and solar projects. The provision allows wind and solar developers to receive a cash grant in lieu of the Investment Tax Credit (ITC).

The industry lobbied hard for these grants because the financial crisis made it almost impossible to close tax-oriented financings. Prior to ARRA, most renewable energy projects in the US relied on tax credits--either the ITC for solar or the related Production Tax Credit (PTC) for wind. Because most developers don't have large current tax liabilities, they cannot use the tax credits themselves. Instead projects were typically financed in partnership with a 'tax equity' investor (an entity with a large tax bill) who would make a cash investment in the project and receive the benefit of the tax credits in return.

With the financial crisis in full swing at the end of 2008, tax equity markets dried up and developers couldn't get projects financed. As a solution, ARRA directed the US Treasury to offer developers a cash grant for projects equal to the previously utilized ITC. Using the cash grant disqualifies a project from using the ITC, so this was not an new incentive per se, just an new way of delivering the same incentive to the developer. The policymakers' intent was to reassure developers that they could continue to advance projects with full confidence they could secure project financing.

Because ARRA passed into law in early 2009, there's a misperception that the industry has had full use of the grants since then. However, it actually took almost 9 months to get the grant program operational--there were procedures to define, rules to clarify, forms to create, websites to build, people to hire, etc. The ironic thing is that while everyone waited to see how the program was going to work, banks and developers put all project financings on hold. It just didn't make sense to burn legal expenses on financing until it was clear exactly how the stimulus grants would be made available.

By October of 2009, the program rules were published and Treasury was technically open for business. However, banks and developers were still waiting in the starting blocks. They weren't ready to apply for grants, they were ready to start figuring out how to finance projects using the grants. At that point, they began pouring over the program documents and forms to figure out the best way to finance a project eligible for the grants.

As a result, it really wasn't until November/December 2009 that developers started to see financing term sheets begin to flow from banks into the market. Let's think through the timeline implications of this for a typical solar project. Term sheets can take several weeks or months to get to signature. And getting from term sheet to financial close typically takes several more months. We're just now closing the first of our ARRA-related financings--and I suspect many other players in the industry are on roughly similar timelines.

What's interesting is that even when a developer closes a financing, they don't apply for the grant money--that doesn't come until the end of construction. Apply that insight across the entire industry and you have a wave of  ARRA-stimulated projects that are likely to apply for funds mid- to end-of year.

This brings me to the most important point: just because the funds aren't flowing doesn't mean the ARRA renewable energy grants program has not been effective. The very existence of the program has given banks and developers confidence to proceed with projects that otherwise would have been abandoned or mothballed. The flow of funds will become apparent later as the projects become operational. The key indicator to watch right now is NOT the flow of funds, it will be the flow of financing and construction announcements that we should start seeing with some frequency in the coming months.

In closing, this is also why it is so important to extend the ARRA grants program for another two years. The industry has just gotten out of the starting blocks because of the delay in getting the grant program operational. Letting the program expire at the end of 2010 will seriously undermine market confidence and disrupt project finance markets just as they are emerging from the ruins of 2009. The US is poised to become the leading market for solar and renewable energy--we need to extend ARRA to ensure we make that dream come true.

Sunset Reservoir Groundbreaking Event with Mayor Newsom

 
Recurrent Energy and the City of San Francisco held a groundbreaking event at the site of our Sunset Reservoir project today. Mayor Newsom, Supervisor Carmen Chu, Supervisor Eric Mar, and a number of other public officials and community leaders celebrated the start of construction on the 5MW project. When completed the project will be the largest municipal solar power projet in the US, delivering clean energy to the SFPUC to power City loads. Over 6,000 of a total 24,000 solar modules have been installed already. The project is proceeding smoothly and we expect to complete construction later this year.

15MW Kaiser Permanente Announcement

On Tuesday, Recurrent Energy announced a 15MW project with Kaiser Permanente. It's an exciting announcement because it shows the unique role onsite generation can play in the renewable portfolio--when you put the right kind of buildings together with a customer who is committed to sustainability.

The 15MW will be made up of 16 projects over 15 sites on hospitals, parking lots, and administrative buildings owned or leased by Kaiser. Most of the projects will be operational by end of 2010. The rest are expected to be done by mid-2011.

Recurrent Energy will build, own, and operate the projects. Kaiser will purchase the electricity they generate at competitive rates.

What's remarkable is that we can get 15MW of projects up and running so quickly. It reflects the fact that this type of project is easier to permit and interconnect than large greenfield projects.

The announcement is also reflective of the 'state of play' in the US solar market. This kind of scale is essential at today's incentive levels to take advantage of efficiencies in equipment cost, installation cost, and financing. And having an electricity-buyer with strong credit like Kaiser is essential to making the financing work. By bundling a number of projects together, they can be executed at a cost that makes financial sense for Kaiser, the developer, and project investors.

In the end, it's important to note the leadership role Kaiser has demonstrated. Getting this project across the finish line required real commitment from them to making this kind of statement. As a company, they're truly dedicated to making their operations more sustainable. They expect to invest $20B over the next 7 years in hospital construction, all of which will feature sustainable design and construction practices. We're excited to play a part in the project and look forward to getting all 15MW online and running soon.