NRG, eSolar™ Pair Up To Develop 500 MW Solar Power In Southwest  

NRG Energy and eSolar™ have formed a joint venture to create up to 500 MW in solar thermal plants in the U.S. Southwest. NRG will contribute $10 million in equity to the venture in exchange for the development rights to three projects as well as a portfolio of 11 power purchase agreements. eSolar will contribute its utility-scale concentrating solar power (CSP) technology, which uses mirrors to guide sunlight towards a boiler that heats water to create steam. The steam, in turn, drives a traditional turbine to generate electricity. The technology requires a smaller footprint than other solar methods, allowing it to be sited closer to existing transmission lines. A 5 MW commercial demonstration CSP plant, the first of its kind in the United States, is currently under development, and the first project should come online in 2011.  

The deal provides eSolar™ with additional capital to scale up its CSP technology. eSolar™ is backed by various well-known investors, including Google™, Idealab and Oak Investment Partners, and seeks to develop 1 GW of solar power in the Southwest and Texas.  

Consolidation Continues In European Renewables Space  

A string of recent acquisitions by cash-laden European renewables players continues a consolidation trend among large national electric utilities to spread and diversify commercial risk. In recent weeks, three notable transactions have been announced: Vattenfall will acquire Nuon, RWE will purchase Essent, and Enel is acquiring a controlling share in Endesa. These transactions come on the heels of an active period of acquisitions beginning early in 2007 with Iberdrola’s acquisition of ScottishPower and followed in 2008 by GDF’s merger with Suez and EDF’s acquisition of British Energy.  

The increased concentration in the sector stems from a series of EU Energy Directives that have forced deregulation and unbundling of sector participants to encourage the development of competition. As a result, large national industry players have divested certain of their business units and at the same time acquired smaller, regional operators, following a business strategy that focuses on diverse but mutually compatible businesses. There is a strong interest in safe, reliable Western European targets, preferably with significant renewable energy holdings that allow diversification both in terms of geography and generation source. There has also been a trend towards shedding noncore assets such as water divisions and waste management operations. This trend of consolidation has been impacted somewhat by the ongoing credit crisis and limitations on bank financing, although strong balance sheets and predictable earnings have continued to fuel transactions.  

Large utilities across Europe have focused on the renewable energy subsector as a new source of corporate growth. Renewable energy enjoys significant public support and has engendered enthusiasm among corporate shareholders. Government policies further this cause through favorable feed-in tariffs (in the case of Germany and Spain), RPS-style mechanisms (in the case of the U.K. and Italy) and other regulatory policies. In many cases, would-be purchasers believe it to be easier to acquire an existing renewables company, with established knowledge of renewable technologies, relationships and a pipeline of projects, rather than to grow internally. As credit markets thaw and GDP growth rates return, it is expected that the sector is likely to consolidate further. In addition, the European Union agreed to a new renewables directive late last year, which will require a significant increase in installed renewable generation within the member states; hence we can expect a continued heightened focus on renewable energy for some time to come.  

FERC to Promote Renewables Under Chairman Wellinghoff

Jon Wellinghoff joined FERC in 2006 and became its Chairman on January 23, 2009. Since his arrival he has consistently championed demand side resources (“DSRs”), energy efficiency and renewable energy. He has previously supported reforms to improve the treatment of intermittent renewable resources under FERC’s pro forma transmission tariff, to expedite the processing of generator interconnection requests, and to increase participation by DSRs and renewables in the “organized” electricity markets.  

With Chairman Wellinghoff at the helm, it seems clear that FERC will continue to revise existing policies, and establish new ones, to encourage greater renewable energy development. Indeed, FERC has already taken several actions that signal the direction in which Chairman Wellinghoff is heading.  

In February, FERC modified its long-standing “open season” requirements for allocating merchant transmission capacity. (See “FERC Allows ‘Anchor-Tenant’ Renewable Transmission Model” on this page.)  

In early March, FERC convened the first of a series of planned technical conferences to explore how to better integrate renewable energy into the wholesale electric grid. When he opened the conference, Chairman Wellinghoff stated that “developing the transmission infrastructure needed to deliver electricity from renewable energy resources is essential to meeting our national energy goals, such as reducing greenhouse gas emissions, strengthening our national security, and revitalizing our economy.” He also indicated that FERC would make full use of its existing authority to incentivize the development of transmission projects that move renewable energy. (Although Chairman Wellinghoff has been cautious in his consideration of transmission rate incentives, he appears to be prepared to support special rate treatments for transmission projects that incorporate advanced technologies or support renewables.)  

Looking ahead, it seems likely that FERC will promote, either at its own initiative or in response to federal legislation, new interconnection-wide transmission planning mechanisms to support renewable energy. Chairman Wellinghoff has also supported proposals that would give FERC greater siting and permitting authority over “green” transmission lines. Finally, Chairman Wellinghoff has indicated that he is eager for FERC to play a part in the creation of a “Smart Grid,” although the National Institute of Standards and Technology will have to complete its work before FERC can enter that arena.  

FERC Permits “Anchor-Tenant” Renewable Transmission Model

FERC recently issued an order (126 FERC ¶ 61,134) modifying its open-access transmission policies, thereby supporting integration of renewable energy into the grid, which is likely to have significant industry repercussions. FERC has for years evaluated merchant transmission projects using ten criteria designed to mitigate transmission market power and prevent undue discrimination. A key part of this regime has been a requirement that all merchant transmission developers make all their project’s transmission capacity available through an open-season process. In the recent order, however, FERC allowed two merchant transmission project companies to “pre-subscribe” up to half the capacity of their projects to “anchor tenants” in order to pass along up-front construction costs. The remaining capacity will be allocated through a traditional “open season.”  

A significant limitation regarding renewable energy projects is that they are “location-constrained”; that is, they are typically located in remote areas, far from urban load centers. Wind farms are particularly vulnerable. This requires that transmission lines be constructed at times specifically for a particular project, adding undue risk. “Chicken-and-egg” scenarios can arise in which renewable generation will not be constructed without some assurance that transmission is available, and similarly transmission projects will not move forward without confirmation of support from renewable generators. FERC’s decision goes a long way toward alleviating this problem.  

Several issues remain. In particular, FERC cautions that the fairness and justness of rates, the potential for undue discrimination or preference, and regional reliability and operational efficiency requirements need to be explored further. It is unclear whether FERC will allow more than 50% of transmission capacity to be presubscribed or whether FERC will excuse merchant lines that support renewables from other potentially burdensome requirements that apply to traditional transmission providers, e.g., the obligation to expand transmission facilities in response to third-party requests. FERC will likely see many more proposals for “anchor tenants” in the near future, allowing ample opportunity for it to further refine its policies. Meanwhile, the decision marks an important step towards bringing additional renewable sources of energy onto the grid.