No doubt you have read concerns that the Ivanpah Solar Electric Generating System down at the Nevada-California state line is an environmental disaster. You may even have heard some recent news that the plant is producing far less electricity than promoters promised. Today, I focus instead on whether it is a financial haircut for all Americans.
It’s not uncommon to find learned folks talking about the Ivanpah Solar Plant as though it was paid for with loans that the federal government “guaranteed”. Here’s the San Jose Mercury News… here’s Wikipedia… it’s was even reported that way by Associated Press reporter Michael R. Blood last week. But that’s the definition of politics – different people observing the same world coming to different conclusions.
It turns out that the Ivanpah project was so risky that nobody would make the loan. In fact, one of the three original partners, Google, quit making its investment payments partway through after calling “for a fundamental rethinking of the technology“.
By digging into the fine print within the financial statements and disclosures filed with the Securities and Exchange Commission by NRG Energy, we can see what happened.
On page 22 of NRG’s 2010 annual report form 10-K, here’s how NRG Energy described the project:
IvanpahÂ â€”Â On OctoberÂ 27, 2010, the Company executed a Letter of Intent to partner with BrightSource Energy,Â Inc., or BSE, to construct, finance and operate the largest solar thermal technology project in the world, the 392 MW Ivanpah Solar Electric Generating System in southeastern California’s Mohave Desert, or the Ivanpah Project. NRG plans to become the lead investor in Ivanpah, investing up to $300Â million in the Ivanpah Project over the next three years. The investment is subject to definitive documentation (including the satisfaction of several conditions precedent), which is anticipated to be executed by the end of first quarter 2011. The Ivanpah Project is composed of three separate facilitiesÂ â€”Â Ivanpah 1 (126 MW), Ivanpah 2 (133 MW), and Ivanpah 3 (133 MW), and all three facilities are expected to be fully operational by the end of 2013. The Ivanpah Project has received a $1.375Â billion conditional commitment from the U.S. DOE for a loan guarantee, and has obtained all necessary permits and approvals. Power generated from the Ivanpah Project will be sold to Southern California Edison and Pacific GasÂ & Electric, under multiple 20-25Â year PPAs, each of which have been approved by the California Public Utilities Commission. Ivanpah is located approximately 50 miles northwest of Needles, California, about five miles from the Nevada border on federal land managed by the U.S. Department of Interior’s Bureau of Land Management.
So in 2010’s annual report, NRG had lined up a loan guarantee. If it was unable to make the payments required to pay back the loan, then the federal government would step in and cover any shortfall, collecting the unfortunate surprise from US taxpayers. NRG sounded excited, and positive that with the guarantee it would find a willing lender.
One year later, On page 21 of the 2011 Annual Report form 10-K, here’s how NRG Energy described the project:
Ivanpah â€” On April 5, 2011, NRG acquired a 50.1% stake in the 392 MW Ivanpah Solar Electric Generation System, or Ivanpah, from BrightSource Energy, Inc., or BSE. BSE maintained a 21.8% interest in Ivanpah and the remaining 28.1% was acquired by a wholly-owned subsidiary of Google. Ivanpah is composed of three separate facilities – Ivanpah 1 (126 MW), Ivanpah 2 (133 MW), and Ivanpah 3 (133 MW). Operations for the first phase are scheduled to commence in the first quarter of 2013, with the second and third phases expected to reach commercial operations in the second and third quarters of 2013, respectively. Power generated from Ivanpah will be sold to Southern California Edison and Pacific Gas and Electric, under multiple 20 to 25 year PPAs. Ivanpah has entered into the Ivanpah Credit Agreement with the Federal Financing Bank, or FFB, which is guaranteed by the United States Department of Energy, or U.S. DOE, to borrow up to $1.6 billion to fund the construction of this solar facility. On June 10, 2011, the U.S. Fish and Wildlife Service, or FWS, issued a revised biological opinion allowing the Bureau of Land Management to lift its temporary suspension of activities order with respect to the Ivanpah Project, thus allowing those aspects of the project which were delayed to proceed.
Who is this Federal Financing Bank who had enough cash on hand and chutzpah to lend the money? Complete with an extra $225-million to cover shortfalls even before breaking ground?
Here is the FFB’s website, where heaps of bureaucratese confuse even the most diligent reader. Wikipedia, expressing its institutional tilt toward energy statism and global warming alarmism, regularly scrubs its FFB entry of everything not on the government website. But Fox has published some long analysis. And here’s what the Center for Public Integrity offers.
As you can see, the FFB is owned by taxpayers. It borrows freshly counterfeited dollars directly from the Federal Reserve Bank and “gets them into the economy” in a damaging and incomplete expression of ideas made famous by World War I British economist Maynard Keynes (incomplete because Keynes’ theories called for governments that stimulated a sluggish national economy by borrowing money to pay it back quickly after the economy was stimulated)..
On page 157 of the 2011 NRG Annual Report form 10-K, you’ll find this summary:
On April 5, 2011, NRG acquired a majority interest in Ivanpah, as discussed in Note 3, Business Acquisitions and Dispositions. On April 5, 2011, Ivanpah entered into the Ivanpah Credit Agreement with the FFB to borrow up to $1.6 billion to finance the costs of constructing the Ivanpah solar facilities. Each phase of the project is governed by a separate financing agreement and is non recourse to both the other projects and to NRG. Funding requests are submitted to the FFB on a monthly basis and the loans provided by the FFB are guaranteed by the U.S. DOE. Amounts borrowed under the Ivanpah Credit Agreement accrue interest at a fixed rate based on U.S. Treasury rates plus a spread of 0.375% and are secured by all the assets of Ivanpah. Ivanpah intends to submit an application to the U.S. Department of Treasury for a cash grant; any proceeds received will be utilized to repay the borrowings that mature in 2014.
That bit about “non-recourse” means if the company welshes on the loan, us taxpayers are out of luck. We won’t be able to foreclose on any of NRG’s bank accounts or conventional power generation plants.
That last sentence, by the way, is where this year, Americans are being asked to write off the first third of the FFB loan – that’s the “cash grant” NRG references in the last sentence.
My conclusion is that the Ivanpah plant was not built with money borrowed under a federal government loan guaranty – it was built with taxpayers’ money, loaned by a bunch of administrators who don’t have any heartburn about loans going bad.