BrightSource Energy, NRG Energy and Google closed the $1.6 billion debt finan­c­ing for the $2.2 billion Ivanpah concentrating solar power project on 11 April. The loan came from the Federal Financing Bank, part of the US Treasury, with a guarantee from the US Department of Energy, under section 1703 of Title XVII of the 2005 Energy Policy Act. Less than two weeks after the Ivanpah loan closed, on 22 April, BrightSource filed for an initial public offering, looking to raise $250 million in an equity sale.

The financing is the second concentrating solar project to close with a DoE guarantee. Ivanpah, however, is the first to use solar tower technology, and the deal is not only the DoE’s largest solar loan, but also the largest solar tower financing anywhere to date. The technology involves the installation of a large number of helio­stats, or elevated mirrors guided by a track­ing system, focusing reflected solar energy on a central power, and in turn driving a conventional steam turbine.

BrightSource was founded in 2004, to build on the work of Luz, an earlier concentrating solar developer that developed the 353MW SEGS parabolic trough projects in the Mojave desert in the mid- to late-1980s. BrightSource has since attract­ed early stage equity and convertible investments from Draper Fisher Jur­vet­son (6.7% equity stake, pre-IPO), Morgan Stanley (10.5%), Alstom (17.5%), and VantagePoint (24.9%).

In March 2008, BrightSource signed a power purchase agreement with Pacific Gas & Electric for up to 900MW of solar capacity, and in December that year lined up Siemens as a steam turbine supplier for Ivanpah. By 2009 PG&E had signed a power purchase agreement to take two-thirds of the plant’s first three phases’ 392MW of capacity, or 275MW, and South­ern California Edison the rest, or 117MW. The PPAs have terms of bet­ween 20 and 25 years. The California Ener­gy Commission granted the project a license in September 2010.

BrightSource was quick to approach the DoE for a loan guarantee, and submitted an application to the department in 2007, long before the American Recovery and Reinvestment Act, which passed in early 2009, gave the programme additional re­sources and a broader mandate. The DoE awarded Ivanpah a $1.45 billion conditional commitment in February 2010, after it was selected as one of the 16 earliest candidates for a loan guarantee.

While it worked to turn the DoE conditional commitment into a closed financing BrightSource moved to bring in additional equity. First, in October 2010, it brought in NRG Energy to provide $300 million in equity – in effect making it lead sponsor – and at close it attracted an additional $168 million equity commitment from Google.

The plant is located roughly 80km from Needles, California, close to its border with Nevada, and on land owned by the US Bureau of Land Management (BLM). For the purposes of producing the project’s environmental impact statement, this made the BLM the project’s lead agency.

The BLM approved the plant in October 2010, at the same time as BrightSource sign­ed a contract with Siemens for two more steam generators. The approval process is the subject of two lawsuits, which challenge the project’s ad­herence to NEPA, among other federal laws. The sponsors point to the project’s use of dry-cooling technology, and their plans to clean dust from heliostats at night, though both are likely to affect the project’s operating costs.

The engineering, procurement and construction contractor for the project is Bechtel, which is also providing a $20 million loan to BrightSource so that it can fund the rest of the cash component of its $132 million equity contribution. The loan, from Bechtel subsidiary BDC Ivanpah, is due on 8 April 2016 and would accelerate if the loan’s coverage ratio falls below 2.25x. BrightSource also has a $25 million subordinated loan outstanding with Hercules Technology Growth Capital, which breaks down into an $11.8 million 11% term loan A and a $13.8 million B loan with a 12.8% rate.

The IPO filing lists a number of contingent obligations that BrightSource has towards the project, even though it re­tains only 14% of Ivanpah’s equity. Chief among them is a solar field guarantee, which covers the developer’s sale of equip­ment, technology and services to the project. BrightSource must keep $108.6 million of its proceeds from its sales to the company in escrow, with 30% to be re­leased at completion, and the rest over the term of the contracts and warranty period. According to BrightSource, it will know what its liability is by the end of the project’s three-year ramp-up period.

The project is also applying for a US Treasury grant in lieu of an investment tax credit, which would be equivalent to 30% of the project’s eligible costs and be received at project completion. Some of the grant proceeds will be used to fund a $57 million debt service reserve, and some to make a $10 million payment to Bechtel. BrightSource has promised to make good these payments if the grant does not come in. BrightSource has also indemnified the DoE against the grant being re­cap­tured, which can happen if the sponsors make non-permitted equity sales or try to apply for the ITC on top of the grant.

Finally, the sponsors are funding pro rata a 3% contingent construction overrun contribution on top of the contingency built into the budget. The breadth of this support indicates that the department, even with some deep-pocketed spon­sors and a well-known EPC contractor, insisted on as many protections as it could. The DoE-guaranteed debt will price at each drawing with reference to the Federal government’s cost of borrowing at that draw.

The close of the deal provided a much-needed boost to most of the participants, with the possible exception of Google, which is already surfing a wave of goodwill thanks to the pace of its investments in US renewables projects. NRG has since had to abandon its plans to develop new nuclear capacity, and is hoping to build a name in solar generation. The DoE’s loan programme office, struggling against threatened cuts to its funding, can now point to one technology where its presence is vital and where the US is making headway.

The BrightSource IPO will be a test of retail appetite for new solar technologies with DoE backing, and here the omens are less good. Two of the earliest recipients of loan guarantees – Solyndra and First Wind – have tried to complete equity offerings. Neither have succeeded.

Ivanpah Group
Status: Closed 11 April 2011
Size: $2.2 billion
Location: California
Description: 392MW concentrating solar tower project
Sponsors: NRG Energy (50%), Google (36%), BrightSource (14%)
Debt: $1.6 billion
Lender: Federal Financing Bank
Guarantor: US Department of Energy
Legal counsel: Chadbourne & Parke (developer), Morrison & Foerster (DoE)