BrightSource Energy’s IPO Filing and the Ivanpah Solar Project Temporary Suspension

Revenge of the Desert To­­rtoise and the perils of Fast Track renewable energy projects.
Will the BrightSource IPO filing be another Solyndra moment?

BrightSourcelogo Nestled between the gimmicky BrightSource Energy IPO (Initial Public Offering) filing on Earth Day, April 22, 2011, and the hoopla over Google Inc. (NASDAQ:GOOG) investing $168 Million in BrightSource Energy’s Ivanpah Solar Electric Generating System (ISEGS) project, the US Department of the Interior (DOI), Bureau of Land Management (BLM), California Desert District issued a Temporary Suspension of Activities, 4/15/11, for the ISEGS (CACA-48668).

The BLM California Desert District’s immediate and temporary suspension Decision said:

As communicated to you, it is the position of the BLM that activity on the Ivanpah project site has reached, and in some categories, just exceeded the incidental take limit for further construction activities within Ivanpah 2, and Ivanpah 3, with certain exception. BLM has determined that work within the access road and power block areas of Ivanpah 2 may continue. Construction within the Ivanpah 2 access road area and power block area may continue since those areas were previously fenced and all desert tortoises have been removed. All other construction work associated with Ivanpah 2 and Ivanpah 3 is suspended.

As a threatened species, the US Fish and Wildlife Service (FWS) had set a limit of displacing 38 desert tortoises during the entire Ivanpah project. In “Parts of Ivanpah Solar Construction Temporarily Halted”, the Mojave Desert Blog said:

When BrightSource Energy bulldozed phase 1 and part of phase 2, however, the company displaced 49 tortoises, prompting the Department of Interior to revise its estimates.  As of late March, Interior announced that it now expected the project to displace or kill as many as 140 desert tortoises.

Per these numbers, the desert tortoise population at the Ivanpah site was underestimated by a factor of almost 3.7 times during the permitting process.

Of course, there was no BrightSource press release or BLM news release regarding the suspension development. Perhaps providing insight into their corporate culture, BrightSource did not disclose the Temporary Suspension on the Ivanpah Solar Electric Generating System project website (http://ivanpahsolar.com/blog) though the situation is disclosed in their IPO filing.

However, “Tortoises force partial delay of solar project” at the Barstow Desert Dispatch did elicit the response “BrightSource: Tortoise issue won’t delay project completion”. At the very least, this may signal the first of many cost overruns for the ISEGS Concentrating Solar Thermal (CSP) project.

BrightSource Energy IPO Filing
Reading the fine print of BrightSource’s $250 million IPO” by Todd Woody at Forbes was quick with an analysis of the BrightSource Energy, Inc. FORM S-1 filing with the Securities and Exchange Commission (SEC) and zeroed in on the ISEGS project:

“Our future success depends on our ability to construct Ivanpah, our first utility-scale solar thermal power project, in a cost-effective and timely manner. Our ability to complete Ivanpah and the planning, development and construction of all three phases are subject to significant risk and uncertainty.”

BrightSource also identifies the 29 MWth (MegaWatt thermal) Coalinga Solar-to-Steam for EOR (Enhanced Oil Recovery) project under construction for Chevron Corporation (NYSE:CVX) as critical. BrightSource “commenced construction of the Coalinga Solar-to-Steam for EOR project in 2009, and the project is scheduled to begin operations in the second half of 2011.

BrightSource “won” the loss contract through a competitive process with deep-pocketed Chevron setting a bad precedent although BrightSource does “not anticipate entering into another loss contract similar to the Chevron agreement, and therefore expect future gross margins to increase.” Further Coalinga EOR project risk factors are mentioned:

If the Coalinga Solar-to-Steam for EOR project does not meet expectations, our ability to sell additional thermal EOR systems may be negatively impacted.

If the estimated total costs to complete our scope of supply under a construction accounting contract are in excess of the contract value, the contract is considered a “loss contract”, as is the case for the Coalinga Solar-to-Steam for EOR project. As a loss contract, any changes in the underlying estimates which increase the expected loss are recognized in the period the changes occurred.

EOR projects using process steam to increase heavy oil production for Big Oil companies such as Chevron, Exxon, and Shell might be considered greenwashing even if the intent is to reduce emissions and fuel costs or bring EOR capability to remote locations.

Other interesting risk factors and tidbits detailed by BrightSource Energy include:

If Ivanpah’s costs exceed the budgeted amount, we, along with the other equity owners of Ivanpah, have funded $66.5 million of overrun contingency reserves, known as the funded overrun equity. To the extent Ivanpah’s cost overruns exceed the funded overrun equity, we are responsible for all such cost overruns.

Ivanpah is being primarily financed by a U.S. Department of Energy, or DOE, guaranteed loan facility, which requires the project companies to remain in compliance with numerous financial, construction and operational covenants to draw funds under the loan facility, compliance with which are within the control of NRG Solar, the majority equity owner and operator of Ivanpah;

Our proprietary technology has a limited history and may perform below expectations when implemented on utility-scale projects.

Our largely unproven mirror cleaning equipment may perform below our expectations.

Our system can deliver clean, reliable power that naturally extends late in the day, and can be complemented with thermal energy storage and hybridization to address peak electricity demands at a competitive cost.

On the last point, I would argue CSP does not have a value proposition without thermal storage or hybridization with natural gas or even coal power plants to produce dispatchable electricity and share common turbines around the clock. For example, please see the recent Areva contract to install a solar thermal addition to CS Energy’s coal-fired Kogan Creek power station in Queensland, Australia. The ISEGS project only implements Hybridization for Supplemental Production to compensate for passing clouds. US Utilities do not value storage at the moment based on current renewable portfolio standards (RPS) according to “Are Solar Thermal Power Plants Doomed?” by Michael Kanellos and Brett Prior over at Greentech Media.

Also, good old PV (photovoltaic) solar leads CSP on a cost basis and continues to reduce installed costs based upon a well established learning curve. Per “Update: Ivanpah Gets Approval; Construction May Begin Soon”, the IGEGS project will cost $2.14 Billion or $5.46 per Wac (Watt-ac) based on 392 MW gross capacity or $5.78 per Wac using 370 MW net capacity. By comparison, the 21 MWac Blythe Solar Plant constructed by First Solar, Inc. (NASDAQ:FSLR) in 2009 at one-twentieth the scale had an extrapolated installed project cost of $60.3M or $2.87 per Watt-ac. In a bit of irony, the Blythe Solar Plant was acquired by the lead ISEGS project investor, NRG Solar LLC, a wholly owned subsidiary of NRG Energy, Inc. (NYSE:NRG). Compounding the irony, NRG Solar killed two CSP projects last year by switching them to PV per my eSolar and NRG Solar Project Update post.

Earlier this month, “Brightsource, Fisker and Solyndra – Soul Crushingly Bad Numbers Make up 17% of Near Record 1Q11 Venture Investment” by Neal Dikeman at the Cleantech Blog examined BrightSource’s venture capital funding valuation and business prospects concluding their second best hope was to:

#2 pray for an IPO (and think VeraSun, sell fast).

Google
In obsessive pursuit of the RE<C initiative and backing BrightSource’s CSP technology and the Ivanpah Solar project, has Google lost sight of the end goal? The Mojave Desert Blog said:

Interior’s suspension order comes a week after Google Inc. announced plans to invest $100 million in BrightSource’s project. The company was quoted as saying that it saw the project as a “potentially transformative project” that is “good for the environment and a good business opportunity.”  Google is ironically ill-informed, investing in one of the most poorly planned renewable energy projects since the Glen Canyon Dam, paying to push the tortoise closer to extinction. The company’s money would probably see a much quicker return if it were invested in distributed solar generation (rooftop solar), or projects on already-disturbed land.

Stephanie Taylor Christensen at Minyanville asked “Is Google’s Green Investment a PR Nightmare?” echoing sentiments the Ivanpah project location was a great economic choice but a poor environmental one. I wonder how Google will react to cartoons with Google branded boots or bulldozers flattening hapless desert tortoises?

I noticed the 2011 Priority Project webpage over at the California BLM site. The 250 MW Abengoa Mojave Solar project has attracted less attention by being sited on private, agricultural lands even though wet cooling is utilized requiring up to 2154 Acre-Feet per year (AFY) of “Harper Valley Ground Basin groundwater from onsite wells.” However, Abengoa “possesses groundwater rights in the amount of 10478 AFY.

Per “Destructive First Solar Projects Loom Over Ivanpah Valley”, the First Solar Silver State South project on public lands also threatens sensitive desert tortoise habitats in the Ivanpah Valley.

(Full disclosure: I own some shares of FSLR stock.)

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