Ivanpah Solar Project Faces Risk of Default on PG&E Contracts

Energy production has picked up at the Ivanpah Solar Electric Generating System in the Mojave Desert, but not enough to allow the plant’s owners -- who include Google and Oakland-based BrightSource Energy -- to avoid the risk of defaulting on their contracts to deliver electricity to Pacific Gas & Electric.

Majority owner and plant manager NRG Energy said in its most recent quarterly report that it won't be able to deliver the electricity promised in its power purchase agreements with PG&E. The agreements cover output from two of Ivanpah’s three units.

The contracts are confidential, but in its Nov. 4 filing NRG said it “expects that the units will not meet their guaranteed energy production amount for the initial performance measurement period,” which ends in January, two years after commercial operations began. NRG said that if that happens “PG&E may, at its option, declare an event of default,” and that it was “exploring options to mitigate this risk or its consequences.”

Neither PG&E nor NRG would answer questions about what a default might mean. A PG&E spokesman said its agreements to buy Ivanpah power “remain active." An NRG representative said, “We have worked hard to help PG&E meet their renewable energy needs and look forward to continuing to support them.”

Ivanpah covers about 6 square miles of public land just off Interstate 15 -- 5 miles from the Nevada state line and 40 miles south of Las Vegas. While solar panels use photovoltaics to produce electricity directly, at Ivanpah, tens of thousands of giant mirrors reflect light onto boilers atop 459-foot-tall towers, producing steam that is then used to spin turbines. It’s basically what happens at a coal plant – thermal generation – except the fuel is sunlight.

To build the $2.2 billion plant, Ivanpah’s owners got a $1.6 billion loan guarantee through the Department of Energy, and last December they received $535 million from the U.S. Treasury in lieu of a 30 percent investment tax credit, a deal made available as part of the Obama administration's 2009 economic stimulus package. That taxpayer largesse has made the project a target of conservative critics.

Ironically for a renewable energy plant, Ivanpah’s environmental impact has also been a source of controversy. It was built in an area that's home to the threatened desert tortoise, and an estimated 3,504 birds were killed at the plant in its first year of operation (fewer than some had expected, it should be noted). The plant's use of natural gas for auxiliary heat means it had to comply with California’s cap-and-trade program just like your average big polluter.

Meanwhile, Ivanpah got off to a very slow start when it began pumping out power in January 2014. It was expected to produce nearly 1 million megawatt-hours annually -- enough to meet the needs of 140,000 households, it was said -- but first-year output was about 420,000 MWh.

NRG and BrightSource, which developed the technology used at Ivanpah, said this was as expected, as engineers worked out the kinks on the first massive deployment of power-tower technology.

Production was up 71 percent in the first nine months of 2015 compared with the same period in 2014, and NRG spokesman David Knox said Ivanpah “is continuing to progress on its four-year ramp-up and we are exceptionally pleased with the progress we have made in 2015.”

But even with that improvement, Units 1 and 3 won’t meet the 70 percent threshold required for the first two years in the PG&E contracts, according to NRG’s filing.

One question unanswered is whether Ivanpah’s failure to deliver might give PG&E an opportunity to terminate the contract with NRG, or at least rewrite it. While the utility needs renewable energy to meet California’s ambitious renewable portfolio standard, the electricity it gets from Ivanpah is far more expensive than renewable energy becoming available today.

According to data from the Federal Energy Regulatory Commission, PG&E paid an average of $197.33 per megawatt-hour for electricity from Ivanpah Unit 1 in the June-September period this year, and $201.99 for Unit 3 electricity. In contrast, the Lawrence Berkeley National Laboratory reported this year that falling project costs had driven down prices in new photovoltaic power purchase agreements to around $50 per MWh. (Photovoltaic plants have had no problem meeting their performance targets quickly. In 2014, its first full year of operation, a new 250-MW solar plant in San Luis Obispo County -- a 1,500-acre array of solar panels on the Carrizo Plain -- generated 688,000 MWh of electricity. That's above the expected 662,000 MWh.)

Ivanpah power is expensive in part because the contracts were made in 2009 and 2010. At the time, power from photovoltaics was nearly as costly, and many thought concentrating solar power systems, like Ivanpah, might be the best bet for large-scale energy generation from the sun.

One potential advantage the power-tower systems have is they can be built with energy storage, allowing for more flexible generation. Ivanpah wasn’t built with storage, but a single-tower project near Tonopah, Nevada, called Crescent Dunes, uses molten salts as a storage medium.

That project, also backed by the federal governement, was developed and is owned by Santa Monica-based SolarReserve. The company has a contract to sell the output to NV Energy for $135/MWh and is promising 10 hours of energy storage, giving it the ability to deliver electricity through the evening and well into the night.

But while SolarReserve recently said Crescent Dunes “has achieved full load electricity generation” and “is progressing into full commercial operations,” none of the other complex and costly power-tower projects proposed in the United States is on track to be built.