Contractors Find Answers to Utility

Contractors Find Answers to Utility's Renewable Woes

Jun 28 - Las Vegas Business Press

Renewable energy contractors are finally seeing green.

As in money that is. And nobody could be happier than the Nevada Power Co., as the struggling utility is currently out of compliance with the state's Renewable Portfolio Standard, which requires that 5 percent of its electricity be derived from renewable sources.

The utility's poor credit rating has prohibited it from getting financing for its own renewable energy projects. As a result, the utility found several contractors in the geothermal, solar and wind energy fields willing to find the capital to build renewable generation plants that would have Nevada Power as the primary purchaser.

But as the projects were lauded by state politicians and green power advocates in 2002 and 2003, financing for these companies became a huge hurdle as well, again, because of Nevada Power's poor credit rating.

The utility's inability to recover more than $400 million from the California energy crisis debacle and the looming $300 million payment to Enron still lying in limbo, have put renewable energy investors on the defensive.

At the end of this month, Nevada Power will seek an exemption from the Public Utilities Commission for its non-compliance in 2003- 04 to avoid fines, as its renewable projects have been delayed, mostly as a result of its credit issues.

But while the utility grapples with uncertainty, green power contractors, chances at financing have slowly taken a turn for the better.

Ormat, a Sparks, Nevada-based company that has built geothermal plants around the world for over 20 years, has captured about $50 million in financing for its Desert Peak geothermal projects, near Fallon, a combined 30 megawatts of power that Nevada Power is contracted to purchase.

With about $10 million in work already done, the company ran into funding hurdles, but resolved them by bundling the project with three existing geothermal projects, one in Nevada, and the other two in California. This approach made it easy to sell bonds, since construction had commenced on the other three projects and they were not tied to Nevada Power, says Ormat spokesman Daniel Schochet.

"Since the other projects were at very advanced stages of development, the bonds sold very quickly," he adds. The Desert Peak project currently has four wells dug, two of which are successful. Geothermal projects have about a 50 to 70 percent success rate when drilling, so the project appears to be moving along as planned, adds Schochet. The two-phase Desert Peak is only a few months behind its original February and August 2005 online dates. "We'll slip by a few months, but not by much more than that."

The bundling approach is common in the utility business, says Jake Mercer, a utilities debt and credit rating analyst for Piper Jaffray & Co. "I've seen a number of times where an entity that is building power for somebody will bundle it together ... People [investors] like the diversification and you get better [rate] pricing that way," he says.

Another project that is hoping to wrap up financing by August is the El Dorado Solar Generation Station in Clark County, to be built by Solargenix Energy, formerly Duke Solar. This project too will also see delays from its expected March 2005 online date, but Gary Bailey, Western area manager for Solargenix appeared optimistic about the financing. He could not give any details about the deal, but did say that Solargenix was working with an investment group and is not bundling El Dorado with another project. El Dorado is expected to cost between $100 and $120 million.

"We're really optimistic. I can't really talk about how it's structured right now. What I can say is that everybody has worked hard and everybody's trying to make this happen," he says.

Bailey also says the bundling approach is not possible for a solar project yet. "Solar's different from geothermal. It was easier for them because the other projects were basically done," he says. "That's not the case for this project." Carlson & Associates' Ely wind farm is the next major project to address funding issues. The group's president, Tim Carlson, admits to being a little further behind El Dorado and Desert Peak, but is working with Gov. Kenny Guinn's office and others in the renewable energy sector to lobby on behalf of all the projects to investors. He says he is currently working with a financing group and hopes to have something in place within a couple of months, but couldn't give specifics.

The Ely project is estimated at about $50 million and will generate about 50 megawatts of wind power.

"We're hoping within a matter of months," he says. "It's critical to get these things done so that we can move forward to preserve the portfolio to help the power company. I can't stress enough how much the power company has been behind this issue. They've bent over backwards."

Like Bailey, Carlson believes that with financing in place for these projects, future financing for renewable projects will come easier. "We're confident we won't have to go through this again," adds Bailey.

Schochet also speaks highly of Nevada Power's involvement in the issue, and says he was willing to testify at the utility's June 29 PUC hearing on its renewable power problems. He added that the company fell victim to the relatively new green energy market that is going through some growing pains of its own.

"Ten to fifteen years ago there was no market for renewable energy so nobody spent the money exploring the technology. Only when legislation was passed, did the market develop ... Instead of fining a company, we need to put some foregiveness into the system," he adds.