The Ivanpah solar plant has produced about one-quarter the energy promised. Now the owners of the project have applied for a half-billion-dollar grant to pay off a large portion of its original federally guaranteed loan.
The Ivanpah Solar Electric Generating System in the California Mojave desert opened for business in February, about which I wrote in some detail here. Ivanpah is the classic product of crony energy capitalism engendered by government largesse, yielding, in a nutshell, huge economic costs and huge unadvertised environmental damage, justified on the basis of rationales hugely spurious.
And let us not forget the huge taxpayer subsidies lavished on the project. Really huge. There was the $1.6 billion loan guarantee without which the project would never have been built; more about this below. Because Ivanpah is a solar facility, the loan guarantee was provided under the Department of Energy “section 1705” program, meaning that the credit subsidy cost (the expected cost of a possible default, as calculated by the federal government), normally paid by the owners of a given facility receiving a loan guarantee, was paid instead by the taxpayers. That was roughly $160 million. There was the 30 percent investment tax credit (approximately $600 million); this was in lieu of the federal production tax credit, thus increasing the present value of the subsidy and making it independent of the actual amount of power produced. There is accelerated depreciation (an assumed five-year life) and a depreciation bonus of 50 percent in the first year.
And those are just the subventions provided by the federal government. The state of California is no slouch in this department, the major manifestation of which is a guaranteed market share (“renewable portfolio standard”) of 33 percent by 2020 for “renewable” electricity, meaning that the electric utilities — Pacific Gas and Electric and Southern California Edison in the case of Ivanpah — essentially are required to buy the power generated by the project. Correction: The utilities’ ratepayers are forced to buy it.
Renewable power is not ‘clean,’ requiring conventional backup units that must be operated inefficiently; and the destruction of wildlife and desert vistas caused by Ivanpah are a matter of record.
Back to the loan guarantee and the subsidies independent of the amount of power actually produced. Ivanpah was supposed to produce about 1 million megawatt-hours of power per year, according to the planning documents and legal submissions leading to regulatory approval. From last January through August, unfortunately, only about one-quarter of that was produced. A “spokesman blamed the weather, saying the sun didn’t shine as often as years of studies predicted,” a classic statement obtained directly from the archives of Soviet agriculture, with respect to which 70 years of “bad weather” was the official Gosplan explanation for 70 years of bad harvests. (And all this time, I thought that the science of sunshine was settled.) But fear not: The owners of the plant have “every confidence that the plant will function as anticipated for the life of the facility.”
Or do they? Providing a brand-new definition of chutzpah, the owners of the project — the recipients of all that government largesse — have applied for a $539 million grant from the Treasury Department “section 1603” program, to be used to pay off about 30 percent of the original loan already guaranteed by the feds. Note that the grant would not be a loan; it would be a gift. Wow. And with respect to that “every confidence” about the future power generation from the project: It appears to be a bit weaker than claimed, as last February the owners received an extension to February 27, 2015 on a $132 million loan payment. A second $159 million payment due June 27 of this year has been extended to December 27, 2014. A third payment of $117 million due October 27 has been extended to April 27, 2015.
Do the owners of the plant really believe — absolutely, 100 percent — in the longer-range sunshine projections when the immediate experience has come a cropper? Here we encounter an analytic problem familiar in a number of contexts: Was the weak immediate sunshine experience merely an unlucky period from a statistical distribution with a known mean and standard deviation? Or is there uncertainty about the statistical properties of future sunshine conditions — the amount of solar energy that can be expected on average over the long term — at the site?
Only with experience will we learn the answer to that question, but the Ivanpah operators gave us an important clue earlier this year. The project uses natural-gas backup generators to warm the turbines in the early morning, to maintain turbine temperatures at night, and to back up the solar generators when clouds interfere with sunlight. Those backup units were envisioned originally to operate one hour per day; but the operators asked last March for regulatory permission to increase that to about 4.5 hours per day, on the basis of the following justification:
[Ivanpah] is unique. For some aspects of operation, the only way to fully understand how the systems work has been through the experience of operating the powerplants. [The Ivanpah operators] first became aware of the need to increase annual [natural gas] use after the completion of construction and commencement of commercial operations, which began in December 2013. The experience gained during commercial operations indicates that more boiler steam would be needed than previously expected in order to operate the system efficiently and in a manner that protects plant equipment, and to maximize solar electricity generation.
This truly is fascinating. Put aside the increase in effluents attendant upon the greater gas consumption. Since Ivanpah “is unique,” what other uncertainties may come to afflict all of the promises made during the approval process for the project? The average amount of annual solar energy, perhaps? Or the actual output of power, driven by uncertainties about the reliability of the heliostat (mirror) system? Ad infinitum.
Self-deception is hardly new, but the owners of Ivanpah have transformed it into an art form with their rationalization of their application for the Treasury grant:
NRG [the major owner of the project] believes in a clean and sustainable energy future and therefore participates in available government programs to develop and expand the use of clean energy to accelerate America’s energy independence.
Wow again. Renewable power is not “clean,” requiring conventional backup units that must be operated inefficiently; and the destruction of wildlife and desert vistas caused by Ivanpah are a matter of record. “Sustainability” is a propaganda device devoid of analytic content, in that the resources needed to exploit the energy content of wind and solar flows, and the “renewable” energy content itself, are finite in exactly the same sense as that of fossil-fuel resources; and competitive markets are perfectly capable of allocating finite resources over time. “Energy independence” is a canard, however timeless as a political talking point: There can be only one price for all economies in a world oil market, regardless of respective import “dependence,” and virtually no oil is used to generate electricity in the US in any event. And the overall justification presented in the quote above — they are applying for the grant in an effort to further the interests of all — is laughable.
This is the kind of entertainment engendered by crony capitalism, leftist environmentalism as it actually unfolds in practice, and the willingness of some businessmen to do and say almost anything in an effort to protect their snout privileges at the taxpayer trough. Sadly, the joke is on all of us.
Benjamin Zycher is the John G. Searle scholar at the American Enterprise Institute.
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