Which begs a question: Why did the United States Department of Energy offer the loan guarantee for the project to be built by Spanish firm FRV (formally known as Fotowatio Renewable Ventures) when other developers have built similarly sized power plants using the same tried-and-true photovoltaic technology without such a subsidy?
(For instance, utility Southern California Edison recently signed contracts to buy electricity from 20 photovoltaic farms, most which will generate about 20 megawatts, and presumably was not counting on those developers obtaining loan guarantees.)
The short answer, it appears, is jobs.
“Job creation in Nevada was one of one of primary objectives,” Mark McLanahan, a senior vice president at FRV in San Francisco, told me.
Or as Nevada Senator Harry Reid, the Senate majority leader, put it in a statement:
“Thanks to public-private partnerships like the loan guarantee program, scores of clean energy companies such as Fotowatio are bringing projects to Nevada to put people back to work by turning our state's abundant clean energy resources into jobs and economic growth.”
A subsidiary of utility NV Energy will buy the power generated by the project.
Most loan guarantees for big renewable energy projects have been issued under a federal program to back innovative green technologies that would be hard-pressed to obtain financing from risk-adverse lenders, such a BrightSource Energy’s $2 billion, 370-megawatt Ivanpah solar “power tower” project in California. The Energy Department essentially guarantees against default a loan that is issued by another agency of the federal government.
The FRV loan guarantee falls under the Financial Institution Partnership Program, in which a private lender – in this case, John Hancock Life Insurance – puts up the cash but is indemnified by the government if a project goes south. The guarantee, which focuses on commercial technology, can cover up to 80 percent of a project’s cost and construction must begin by Sept. 30, when the loan program expires.
Jonathan Silver, the executive director of the Energy Department’s loan programs office, was not available for an interview Friday. But he issued a statement in response to questions about the FRV power plant.
“The Fotowatio … project is an important new project that will be the second largest photovoltaic generating facility in Nevada and bring about 250 construction jobs to the region,” Silver said. “While there is some improvement in the capital markets, many renewable energy projects - particularly those seeking long-term loans, are still finding it difficult to secure financing.
But Nathaniel Bullard, a solar analyst with Bloomberg New Energy Finance, said such projects are being financed without loan subsidies.
“All throughout the West projects of 50 megawatts or less are getting built without loan guarantees,” he said. “From a technological profile, there’s no reason this project is a loan guarantee target. It’s not technologically innovative.”
He did not that such small loan guarantees could be a way for the government to maximize its remaining capital as the program winds down.
“There will be monies left over that are too small for another mega project,” said Bullard.
McLanahan said flatly that the Nevada project would not be built absent the loan guarantee.
“This project has some relatively high infrastructure costs,” he said.
FRV will deploy solar panels mounted on trackers that follow the sun to maximize electricity production at a site about 25 miles northeast of Las Vegas.
Although photovoltaic module prices have plunged in recent years and are expected to continue to decline, the cost of other commodities have risen.
“Concrete, steel and labor are significant contributors to the total cost,” McLanahan said.
He declined to reveal the price tag for the project but indicated that the loan guarantee is only covering a portion of the equity needed.
FRV has a pipeline of other projects planned for Nevada, including a 37-megawatt photovoltaic power plant. I asked McLanahan if that solar farm can be built without a loan guarantee.
“Each project is a little different in terms of costs,” he said. “We hope and expect to bring it online without a loan guarantee.”
