Financing Dearth Holds Solar Back in U.S.

NEW YORK — The U.S. solar energy industry is having its best year ever, yet financing remains scarce for the billion-dollar projects needed for it to gain ground on global leaders like Germany.

For the U.S. solar sector to move up from rooftop add-on technology to the scale of fossil fuel power plants, the country needs to build large plants covering hundreds of acres. Each can cost as much as $1 billion, a huge sum for the nascent industry to finance, even with U.S. government incentives.

“Because the debt market is so thin right now, it is very difficult to find lenders who are able to lend long-term,” said Scott Frier, chief operating officer of Abengoa Solar, which has two big U.S. plants under development.

Just last week, doubts arose about the largest thermal solar plant under development, a one-gigawatt plant proposed in Blythe, California, by Solar Trust of America, a partnership of Solar Millennium and Ferrostaal. The company warned that its application for a U.S. government loan guarantee was taking longer than expected.

U.S. solar sales are on track to reach about one gigwatt this year, equivalent to one nuclear reactor. While solar panel makers and project developers are optimistic that the country could become the world leader by the middle of the next decade, the U.S. industry remains far behind some of its counterparts, especially that of Germany.

Globally, solar installations are expected to reach 14 gigawatts this year. At least half of that will come in Germany, where developers have rushed to build projects before financial incentives are cut.

The U.S. government has two programs to help the industry: a cash grant that pays 30 percent of project costs for plants under construction by Dec. 31, and a loan guarantee program that covers as much as 80 percent of project costs.

Applicants to the loan guarantee program have complained that the process is too lengthy and murky, leading to just a handful of projects’ winning approval.

“We and everyone else” need a loan guarantee, said Solar Trust’s chief executive, Uwe T. Schmidt. “We and everyone else need a cash grant.”

This summer, Abengoa won a $1.45 billion loan guarantee for its 280-megawatt solar plant in Gila Bend, Arizona. Regulators are paging through applications for other projects, including a cluster of plants in California that would provide more than 4,000 megawatts of power.

Experts say it is unlikely that all the proposed projects will be built, in part because of high financing costs.

Bankers generally prefer smaller, less risky projects and shorter-term loans than the 20-year terms solar plants typically need. Even if big banks are willing to get involved, their lending rates run about 8 percent, roughly double the government rate.

Still, some bankers say developers, looking to keep the favorable government programs alive, have been exaggerating the difficulties of lining up bank financing.

“There is commercial project financing available,” insisted Jonathan Yellen, managing director for infrastructure and project finance at Deutsche Bank. “Renewable energy is attracting a large and growing portion of the available capital.”

The erosion of another key financing tool, the tax equity market, during the banking crisis also dried up a significant pool of capital for projects.

In that market, companies developing solar projects sell future U.S. tax breaks for renewable energy to a financial partner who in turn applies those credits to its own tax bill. By paying up front for the tax benefit, the financial sector provides the developers with cash to build projects.

While major banks have recovered from the worst of the recent crisis, their appetite for tax equity remains a fraction of what it was in 2007. Two of the biggest players in the market at that time were Lehman Brothers, now defunct, and the insurer American International Group, which needed a bailout and has sharply cut back its operations.

Tax equity market interest is beginning to emerge again and should grow, especially as solar makers continue to cut costs for the systems, one executive said.

“We have a model that’s gone around the world of countries’ paying too much for solar,” said Eric Hafter, head of U.S. operations for Sharp Solar, a unit of Sharp Electronics.

He said that as the United States came out of recession “and the tax equity looks for a safe place to park,” money would “flood into solar.”

First Solar, a maker of thin-film photovoltaic solar modules, has more than two gigawatts of solar power plants on the drawing board, but the company, based in Tempe, Arizona, will not develop those plants until it has a buyer in place.

The company, the lowest-cost producer of photovoltaic modules that turn sunlight into electricity, did finance the construction of the nation’s largest photovoltaic plant, a 21-megawatt facility also in Blythe, California, before selling it to the power company NRG Energy.

But First Solar does not plan to finance construction of other plants, such as the 290-megawatt Agua Caliente plant planned in Arizona.

Matt Daily and Sarah McBride are Reuters correspondents.

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