On February 11, 2009, in what is being termed the largest solar deal in the world, Southern California Edison and BrightSource Energy Inc. announced a deal that will bring 1,300 MW of solar-thermal power to California’s largest investor-owned utility.  The deal makes a bold statement against the current state of the credit markets and the panoply of considerations inherent in large-scale energy projects.  The optimism surrounding the ability to get the deal financed likely comes in significant part from the renewal of the federal investment tax credit for solar (ITC) in Q4 2008, as well as expectations over the new administration’s economic stimulus package.

The deal consists of a series of seven power purchase agreements (PPAs) broken into 100 or 200 MW chunks, which will first have to be approved by the California Public Utilities Commission (CPUC).  BrightSource, an Oakland, Calif. startup initially backed by investors like Google, Morgan Stanley, Chevron, BP, Statoil Hydro, VantagePoint Venture Partners and Black River, will own and operate the solar plants and, in turn, deliver power to SoCal Edison over the 20-year contract terms.

The first 100 MW is expected to be located in a solar-thermal complex already being developed by BrightSource on the California-Nevada border in the Mojave Desert, and may come online as early as 2013 depending on the regulatory approval process.  BrightSource is also looking to neighboring states for potential sites to power the deal, including the Devers-Palo Verde No.2 power corridor under review by the Arizona Corporation Commission, and the Mormon Mesa in Nevada.

These projects should benefit from the streamlined permitting process instituted by Executive Order S-14-08 (EO S-14-08), which was signed by Governor Schwarzenegger on November 17, 2008.  Among other things, EO S-14-08 propelled creation of the Renewable Energy Action Team (REAT) by the California Energy Commission (CEC) and Department of Fish & Game (DFG), and a Desert Renewable Energy Conservation Plan in the priority Mojave and Colorado deserts.  The projects should also experience the synergies resulting from an MOU entered into by and between the CEC, DFG, U.S. Fish and Wildlife Service and the U.S. Bureau of Land Management, which includes the federal partner agencies in the expedited permitting process for projects on federally-owned California land. As previously reported by ClimateIntel, California’s new streamlined process is expected to halve the application time for specific projects.

Transmission will be another key factor.  The companies will need to build extensive new power lines in order to get the power generated in the interior desert lands out to the densely-populated customer base in the Los Angeles region.

Once implemented, the seven projects anticipated under the deal will produce 3.7 billion kilowatt-hours of clean energy and avoid more than two million tons of CO2 emissions annually—the equivalent of removing more than 335,000 cars from the road.  The renewable energy produced will also help move California further towards meeting its current renewable portfolio standard of 20% by 2010, and its long-term goal of 33% by 2020.

Notably, the SoCal Edison-BrightSource deal also ushers in large-scale solar-thermal as a reliable source of renewable energy generation.  Solar-thermal technology produces electricity by using thousands of small mirrors called heliostats to direct sunlight on to a boiler atop a tower to produce high temperature steam.  That steam is then channeled to a conventional generator to produce power.

For further information about this topic, please contact Akin Gump.