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Released March 29, 2016 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--The Ivanpah Solar Electric Generating System (ISEGS), located in California's Mojave Desert, is one of the world's largest solar-powered plants and the world's biggest concentrated solar power (CSP) project. Despite its size, since coming online in 2014 the plant has failed to generate the expected amount of electricity it was designed to produce. Its three units were supposed to have a combined capacity of almost 400 megawatts (MW), or close to a thousand annual megawatt-hours (GWh). The actual generation numbers have failed to meet either the owner's expectations or the project's contractual agreements.
The $2.2 billion plant is jointly owned by NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), BrightSource Energy Incorporated (Oakland, California) and Google, now known as Alphabet Incorporated (NASDAQ:GOOG) (Mountain View, California). The plant was built using $1.5 billion in federal loan guarantees.
According to U.S. Energy Information Administration (EIA) data, the ISEGS plant produced 419 GWh in 2014 and 652 GWh in 2015. While this looks like a significant improvement, the numbers for 2014 were low in part because the plant was not at its full generating capacity for the year. Furthermore, the substantial increase in 2015 is still cause for concern because it shows that the plant fell almost 35% short of its planned 1,000 GWh net generation goal.
Contract Differences and More Time Given to Meet Goals
ISEGS's three units are not all governed by the same Power Purchase Agreement (PPA) contract. This is significant, even though the units are all missing generation expectations by similar margins. Units 1 and 3 generate electricity for a PPA with Pacific Gas & Electric Company (San Francisco, California), a unit of PG&E Corporation (NYSE:PCG) (San Francisco).
NRG, the majority owner of ISEGS, announced in November: "The Company's PPAs with PG&E with respect to the Ivanpah project contain provisions...which require that Ivanpah units 1 and 3 deliver to PG&E no less than the guaranteed energy production amount specified in the PPAs...If either of Ivanpah units 1 and 3 deliver less than the guaranteed energy production amount...PG&E may, at its option, declare an event of default. Based on the energy production amount since January 2014, the Company expects that the units will not meet their guaranteed energy production amount for the initial performance measurement period. The company is exploring options to mitigate this risk or its consequences."
In December, PG&E filed a forbearance agreement for Ivanpah Units 1 and 3 with the California Public Utilities Commission (CPUC), which the CPUC unanimously approved. The agreement allows an additional 6-12 months for units 1 and 3 to reach their current PPA targets of a combined 448 GWh. Units 1 and 3 are further expected to increase their generation numbers to a combined 640 GWh by 2018. Given the combined 2015 numbers of 433 GWh for units 1 and 3, this is likely to be a significant challenge.
The PPA for unit 2 is contracted with Southern California Edison (SCE) (Rosemead, California), a unit of Edison International (NYSE:EIX) (Rosemead). Contractual concerns of default over Unit 2, which generated 220 GWh in 2015, are not as consequential, however. The language used by BrightSource with regard to the PPA with SCE is important: "If these production levels are not met, the project company will have to pay SCE for replacement power."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
The $2.2 billion plant is jointly owned by NRG Energy Incorporated (NYSE:NRG) (Princeton, New Jersey), BrightSource Energy Incorporated (Oakland, California) and Google, now known as Alphabet Incorporated (NASDAQ:GOOG) (Mountain View, California). The plant was built using $1.5 billion in federal loan guarantees.
According to U.S. Energy Information Administration (EIA) data, the ISEGS plant produced 419 GWh in 2014 and 652 GWh in 2015. While this looks like a significant improvement, the numbers for 2014 were low in part because the plant was not at its full generating capacity for the year. Furthermore, the substantial increase in 2015 is still cause for concern because it shows that the plant fell almost 35% short of its planned 1,000 GWh net generation goal.
Contract Differences and More Time Given to Meet Goals
ISEGS's three units are not all governed by the same Power Purchase Agreement (PPA) contract. This is significant, even though the units are all missing generation expectations by similar margins. Units 1 and 3 generate electricity for a PPA with Pacific Gas & Electric Company (San Francisco, California), a unit of PG&E Corporation (NYSE:PCG) (San Francisco).
NRG, the majority owner of ISEGS, announced in November: "The Company's PPAs with PG&E with respect to the Ivanpah project contain provisions...which require that Ivanpah units 1 and 3 deliver to PG&E no less than the guaranteed energy production amount specified in the PPAs...If either of Ivanpah units 1 and 3 deliver less than the guaranteed energy production amount...PG&E may, at its option, declare an event of default. Based on the energy production amount since January 2014, the Company expects that the units will not meet their guaranteed energy production amount for the initial performance measurement period. The company is exploring options to mitigate this risk or its consequences."
In December, PG&E filed a forbearance agreement for Ivanpah Units 1 and 3 with the California Public Utilities Commission (CPUC), which the CPUC unanimously approved. The agreement allows an additional 6-12 months for units 1 and 3 to reach their current PPA targets of a combined 448 GWh. Units 1 and 3 are further expected to increase their generation numbers to a combined 640 GWh by 2018. Given the combined 2015 numbers of 433 GWh for units 1 and 3, this is likely to be a significant challenge.
The PPA for unit 2 is contracted with Southern California Edison (SCE) (Rosemead, California), a unit of Edison International (NYSE:EIX) (Rosemead). Contractual concerns of default over Unit 2, which generated 220 GWh in 2015, are not as consequential, however. The language used by BrightSource with regard to the PPA with SCE is important: "If these production levels are not met, the project company will have to pay SCE for replacement power."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
