Solar thermal seeks U.S. breakthrough

Solar thermal power could be close to a breakthrough in the U.S. market, but only if developers can shave costs to beat back competition from photovoltaic solar systems and attract the huge sums needed to finance the renewable energy plants.

While the new technology has been touted as a solution toward moving the United States away from its dependence on fossil fuels, it has so far stumbled because of the high price tag for the massive plants.

Solar thermal companies like BrightSource Energy and eSolar, both of which count search giant Google among their investors, and Spain's Abengoa Solar, have technology that concentrates the sun's rays to heat water into steam and drive a generator.

Traditional photovoltaic modules made by companies like First Solar and Suntech directly convert sunlight into electricity, and make up the largest chunk of the solar market.

Backers of solar thermal have said it would claim the lion's share of large-scale projects in the United States, but a sharp drop in photovoltaic panel prices has drawn much of the market's interest to that technology.

"With panel prices coming down so much for solar PV, solar thermal does not look as cost-competitive anymore," Wedbush analyst Christine Hersey said.

Solar thermal is economical only on a large scale, lifting total project costs into hundreds of millions of dollars, while PV systems can be built piecemeal in smaller steps that are easier to finance.

"It does not make sense to do a [thermal] plant that is less than 100 megawatt," Cowen & Co. analyst Rob Stone said. "That is because of the cost of the steam plant that goes with it."

PV, however, can be used for a wide range of applications, from very large to very small.

"In terms of ubiquity, PV is ultimately going to be the most widely deployed technology just because it's going to show up ranging in size from 500MW projects all the way down to solar cells on the roof of a hybrid vehicle," Stone said.

One megawatt (1 million watts) is enough to power about 800 U.S. homes.

Federal support
The International Energy Agency predicts that several hundred gigawatts of solar thermal power will be built by the middle of the century. (A gigawatt is 1 billion watts.)

Spain is currently the global leader in thermal solar development, with hundreds of megawatts slated for construction.

China is likely to move quickly into the field and is expected to launch a tender for project in the coming weeks, and a European consortium has announced plans to build a massive project in the Sahara Desert.

The U.S. utility market for solar is also expected to grow sharply over the next few years, but that will be possible only with government support, which solar thermal companies have been lobbying for.

BrightSource recently won $1.37 billion in federal loan guarantees, while Abengoa got $1.85 billion in conditional loan guarantees.

"The loan to Solana [a 280-megawatt plant in Arizona] is really an investment in America's environmental future because that loan will be repaid," Fred Morse, a senior adviser to Abengoa, said on a recent conference call.

Morse said those government guarantees were crucial to move the nearly 30 thermal solar projects sought by companies into operation.

"Billion-dollar projects cannot be financed today by commercial banks," he said.

With investment hard to come by, solar thermal technology has been losing ground.

"PV has been increasing and solar thermal has been dipping, as a percentage of the projects being bid, in the last couple of years," Cowen's Stone said.

Environmental concerns
Even as the technology grapples with high costs and financing worries, there are other concerns as well. To make steam, solar thermal technology uses a lot of water, which can cause problems in areas where the resource is scarce.

"A lot of times, you are putting these solar thermal units in the middle of deserts where water is already a rare commodity," Simmons & Co. analyst Burt Chao said.

BrightSource, for instance, is using its federal loan guarantee for three utility-scale solar thermal plants in the Mojave Desert in southeastern California.

"For technologies where they want to use water, trying to get a project like that approved in the Mojave Desert can be very, very difficult," Wedbush analyst Hersey said.