Solar bonds: SolarCity launches first US public debt offering

Could publicly offered solar bonds play a significant role in financing solar photovoltaic projects?

Solar energy company SolarCity Corporation appears to think so, as this morning it filed a registration statement with the U.S. Securities and Exchange Commission to issue up to $200 million in solar bonds.  SolarCity describes the move as "the nation’s first registered public offering of solar bonds."  What does SolarCity's solar bond offering mean for solar energy?

Solar panels on a residential rooftop in Massachusetts.

By some metrics, SolarCity is the largest developer of residential solar photovoltaic projects in the U.S.  The company says it is currently providing more than one out of every three new solar power systems in the U.S., and notes that it "installed more residential solar in the second quarter of 2014 than its next 50 competitors combined."  While SolarCity develops projects under several financial models, its typically installs rooftop solar panels at its customers' sites with no upfront costs to the customer, who then pays the company every month for leasing the facilities or for the electricity it uses.  These long-term contracts create more stable ongoing revenues for SolarCity compared to those experienced by developers of turnkey projects who may end their relationship after the project is commissioned.

SolarCity's model has proved attractive to capital, as it has been involved with financing the installation of approximately $5 billion in renewable energy assets.  Much of the capital SolarCity needs to develop these projects has come from investments from major banks and corporations including US Bancorp and Google Inc., as well as individuals owning shares of the company's stock (traded as SCTY).

SolarCity has also turned to debt offerings, making three private placements of solar bonds in the last year.  Generally speaking, SolarCity will pay returns on the bonds using income generated from customers' monthly payments.  Because this income stream is both relatively stable and predictable, it should enable repayment of the bonds plus a steady yield.

But no company has previously publicly offered solar bonds of this type in the U.S.  SolarCity thus views its publicly offered solar bonding model as unique, in that it gives individual investors access to new investment opportunities -- and in turn, it may give SolarCity access to a whole lot more money -- up to $200 million in this round, with the prospect of more to come.

Under SolarCity's new offering, investors will be able to purchase solar bonds for as little as $1,000, with maturities ranging from one year to seven years and interest rates of up to 4 percent.  The relatively short maturity of these bonds, compared to those previously offered to institutional investors, helps reduce the risk that during the bonds' lives utility rates will change in a way that hurts their economics.

The company notes that solar bonds will be available to all U.S. investors who are at least 18 years old and meet SolarCity’s eligibility requirements, with no fees for purchase.  Indeed, the relatively low $1,000 minimum investment for this solar bond offering highlights SolarCity's strategy of targeting the millions of small or "retail" investors.  To facilitate these individual investors' access to the bonds, the company launched a new online investment site (solarbonds.solarcity.com).

How will the new solar bond offering affect SolarCity and the pace of solar development in the US?  With a market capitalization of $4.2 billion, SolarCity is relatively large compared to the $200 million that it may raise pursuant to the current public bond offering.  Nevertheless, individual investors' appetite for opportunities to participate in solar and other renewable energy projects may be significant enough that more bond offerings will follow on the heels of this one.  As the Brookings-Rockefeller Project on State and Metropolitan Innovation found in an April 2014 report, Clean Energy FinanceThrough the Bond Market:A New Option for Progress, "Bond finance holds tremendous potential for clean energy investment, at levels in the tens of billions of dollars in the next several years."  If SolarCity is indeed successful in attractive individual bond investors, other solar developers like First Solar, Inc. and Sunrun may soon follow suit with solar bond offerings of their own.

Google invests in solar energy projects

Google has announced an investment in six solar photovoltaic projects to its portfolio.  The projects, located in California and Arizona, have a combined electric generating capacity of 106 megawatts.  This deal illustrates the trend of renewable energy investments by data centers and other tech companies.

The projects are under development by Recurrent Energy.  Five are located in Southern California, while the sixth is in Arizona.  Google and investment firm KKR invested $400 million in the projects; Google's share is reportedly $80 million.  The partners will sell the power produced by the facilities to local utilities including Southern California Edison.

Google announced that this represents its fourteenth investment in renewable energy since 2011.  In 2010, the Federal Energy Regulatory Commission granted market-based rate authority to Google subsidiary Google Energy LLC, enabling it to sell power at wholesale.  Google has since entered into long-term agreements to purchase power from wind farms and other renewable generators.

Other tech companies are pursuing similar strategies.  Earlier this month Microsoft announced a deal to purchase energy produced by a Texas wind farm for its data center in San Antonio.  In September, eBay received market-based rate authorization from the Federal Energy Regulatory Commission, allowing it to sell surplus power from its generators to the grid.

For consumers like Google with significant demand for power, developing on-site electric generation or entering into a long-term power purchase agreement can be cost-effective, either by reducing the cost of energy or by reducing its exposure to price volatility.  Investments in renewable energy can also position companies for improved sustainability and "green" their public images.  For these reasons, the trend of tech company investment in renewable energy infrastructure will likely continue for the foreseeable future.

eBay OKed for wholesale electricity sales

As customer-sited electric generation becomes increasingly economic, major companies outside the energy sector are entering electricity markets.  Federal regulators this month granted eBay Inc.'s request for authorization to sell electricity at wholesale.  What does this mean?

U.S. wholesale electricity markets are generally regulated by the Federal Energy Regulatory Commission.  Most sellers in those markets are regulated as public utilities - but in recent years, the category of "utilities" has expanded beyond the traditional vertically-integrated utility serving retail customers with electricity.  The growth in this sector has come largely from end-users of electricity who have developed on-site generation to meet their needs - and to sell excess power into wholesale markets.  Recent big-name entries into the wholesale electricity market include Google Inc. and Wal-Mart Stores Inc. - and now eBay.

On September 5, 2013, the Commission granted eBay market-based rate authority.  This approval enables eBay to sell electric energy, capacity, and other products.  As described in the Commission's order, eBay plans to own and operate a 6 megawatt fuel cell generation facility located at its data center in South Jordan, Utah.  In a June 21 filing, eBay described plans to install five natural gas-fueled "Bloom Box" units at the data center to provide power to run the facility. 

eBay's plans bear some resemblance to the fuel cell system Apple developed at its data center in Maiden, North Carolina.  Data centers consume significant amounts of energy, both for processing and for cooling.  In many cases, on-site generation projects offer data centers a way to cut costs while improving their reliability and their environmental footprint.

Maximizing the cost-effectiveness of a distributed generation project requires it to be sized appropriately for the load to be served.  In some applications, there may be little to no excess power available for sale at wholesale to the grid, while other on-site generation projects may be capable of exporting significant amounts of energy to the grid.  With its market-based rate authorization in hand, eBay stands ready to enter the wholesale market with any excess power its Utah fuel cells produce.

Cooling data centers with recycled water

Data centers are cropping up around the country, providing centralized computer server and storage capacity for both internet superstars like Google and Facebook as well as a much longer list of brick-and-mortar businesses.  Data centers can consume significant amounts of electricity, so data center owners work hard to manage their energy costs and improve their energy efficiency.

Much of a data center's energy budget goes to keeping the servers and the building's airspace cool.  Traditionally, this might include mechanical chillers -- effectively, powerful air conditioning units.  To manage energy costs and environmental footprints, some data centers are turning to more passive cooling resources.  Google recently announced that it is using recycled gray water from a local public water treatment facility to cool its data center in Douglas County, Georgia. 

The Douglasville-Douglas County Water and Sewer Authority collects wastewater from local communities, treats it, and releases it into the Chattahoochee River.  Google worked with the water and sewer authority to divert up to 30% of the water that would otherwise flow into the river to a special side-stream treatment plant.  Once cleaned, this water is piped about 5 miles to Google's data center, where it is used for cooling.

Google's data center relies primarily on evaporative cooling.  It takes energy to evaporate liquid water; as a consequence, you can use evaporating water to remove heat from air or other materials.  (Think of the cooling effect of a dry breeze on wet skin.)  Much of the water evaporates through this cooling process; Google sends any remaining cooling water to an on-site effluent treatment plant, from which the water is returned to the Chattahoochee River.

Using recycled water to cool data centers can save energy compared to mechanical chillers.  Where clean water is scarce or expensive, the ability to use recycled water for cooling could also open up new capacity for data centers.  Will more data centers turn to recycled gray water for evaporative cooling and energy cost management?

Facebook data center power demand

Facebook has revealed that its data center in Prineville, Oregon consumes 28 megawatts of electricity -- consistent with other comparably-sized data facilities, but a significant draw on the local electric grid.  As data center operations grow, they will need reliable access to affordable electricity.

Data centers, which are centralized locations where computer servers store and process information, are in increasing demand.  From managing the smart grid through real-time data collection and processing to managing information about online contacts, data centers support many of the activities consumers take for granted every day.

Fundamentally composed of electronic data storage and processing equipment, data centers can consume significant amounts of electricity.  Managing the cost and environmental impacts of that power consumption is important to many data center operators.  Some, like Google, have chosen to source renewable power for their data centers.  Others pursue improved energy efficiency for their data centers.

In Facebook's case, the initial 300,000 square foot facility reportedly consumes up to 28 megawatts of power.  By comparison, all of the other businesses and homes in Crook County reportedly consume just 30 megawatts of power, meaning Facebook's data center could already consume about half of the electricity in the region.  Future phases might roughly triple that electricity consumption, and other businesses and governmental entities are considering siting data centers near Prineville's location in central Oregon.

Google grows wind power supply

Google Energy LLC, a subsidiary of internet search company Google Inc., recently informed federal regulators of a long-term power purchase agreement with a 100.8-megawatt wind-powered electric generation project in Oklahoma.

Under the deal, Google agreed to buy all of the energy output from Minco Wind II, LLC's wind project for a term of 20 years.  Minco Wind II is operated by a subsidiary of NextEra Energy Resources.  As part of the deal, Google can claim that it is powering a data center in Pryor, OK, with power from the wind project.

The Oklahoma PPA nearly doubles the amount of wind capacity under contract by Google.  In 2010, Google Energy entered into a power purchase agreement to buy 114 MW of wind from Garden Wind, LLC.  Garden Wind, also a NextEra subsidiary, owns and operates a 150 MW wind project in Iowa.  Garden Wind sold Google Energy a 76% share of the project's output for a term of 20 years.  In addition, Google indirectly owns a 20.5% interest in Peace Garden Wind, LLC, which owns and operates about 169 MW of wind generation in the central region.

This comes two months after Google announced it was scaling back its program aimed at making renewable energy cost less than coal.  Google's RE

April 19, 2011 - 400 MW solar project proposed in California

Last week I noted Google's investment in the 392 megawatt Ivanpah solar project in California.  That project, which is currently under construction in the Mojave Desert, is on track to be the world's largest solar thermal project.  Ivanpah uses heliostat mirrors to focus sunlight on centrally located solar power towers.  The towers use the solar energy to generate steam.  The steam runs through steam turbines and a generator to produce electricity.

"Turn your grocery bags into green energy" - seen at a Vermont market

Now an even larger solar project has been proposed for California -- this time solar photovoltaic.   Developer Pegasus Energy has proposed a 400 MW solar PV power plant on about 2,000 acres in Alameda County California.  The Mountain House Solar Farm would sell power to local utility PG&E, and might break ground in early 2013.

As we often see, the twin challenges of financing and regulatory uncertainty team up to add a wrinkle to these plans.  The developer has built a financing model based on using an incentive authorized by the American Recovery and Reinvestment Act: a cash grant in lieu of the federal 30% business energy investment tax credit (ITC).  That incentive program, known as the 1603 grant program, is currently slated to end this year.  The developer is reportedly hopeful that grant funds will be extended until January 1, 2013, and would be available to help finance the project.  This may be a realistic hope, as the 1603 program has already been extended once (by Section 707 of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010), so renewal is possible.  On the other hand, recent struggles over the federal budget do call into question the continued survival of any given clean energy incentive programs.  Will Congress renew the 1603 energy grant program?

April 12, 2011 - Google invests in Ivanpah solar

Google has committed $168 million in funding for what might be the world's largest solar project, proposed for construction in California's Mojave Desert.

Water spills over a dam near a paper mill on a river in Maine.

This story ties together several threads that run through this blog.  In February 2010, I wrote about the 392 MW Ivanpah solar project, and how it benefited from $1.6 billion in Department of Energy loan guarantees (the same program now at risk of being cut from the federal budget).  If built as proposed by developer Bright Source Energy, the large solar thermal project would the world's largest solar complex, featuring up to three thermal generation units.  Coincidentally (or not), that same day I followed up on an earlier look at Google's nascent interest in energy markets after it obtained market-based rate authority from the Federal Energy Regulatory Commission.

In the ensuing months, Google has emerged as a sophisticated player in the energy world - investing in underwater transmission infrastructure to connect regions and support ocean energy projects, buying power directly from a wind project, investing in fuel cell research and development, and promoting real-time electricity pricing and programs.  Now, Google can add an investment in utility-scale solar thermal projects to its portfolio.

Meanwhile, the fate of DOE's loan program remains uncertain; reports suggest that the energy portion of the budget is still being finalized, with a vote possible as early as Thursday.

November 29, 2010 - Cape Wind follow-up

In the wake of the Massachusetts DPU's approval of the Cape Wind contract with National Grid, interest in offshore wind technologies is growing.  Under the deal, National Grid will buy half of Cape Wind’s output for a price that starts at 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

Today Motley Fool ran a piece noting potential winners from an increased belief that offshore wind is feasible and soon to be here.  These winners include turbine manufacturers Vestas and Broadwind, as well as General Electric and Siemens.  American Superconductor is pursuing technology to maximize the "power per tower" from offshore wind; its SeaTitan turbines are slated to produce more than 10 MW per turbine.

And don't forget my favorite search engine (though increasingly their business model relies on consumers seeing them as more than that): Google has already made the news for its involvement in energy markets. Now Google is investing in the underwater transmission lines needed to transmit power from offshore wind turbines to the mainland. Specifically, Google is eyeing a 350-mile line from Virginia to New Jersey, and may be interested in further projects to connect offshore generation to the onshore grid.

October 12, 2010 - New England sets record energy use; wind

What do you think sits at the end of this rainbow, seen Friday over the New Meadows River?

New England's regional electric grid operator ISO-NE has announced that the region has set several new records for energy consumption. In July 2010, consumers used 13,385 gigawatt-hours. That just barely beat the previous single-month energy usage of 13,365 GWh, which occurred in July 2006. To explain this high energy usage despite the economic downturn ISO-NE points to the weather: July 2010 was the second-hottest July in New England since 1960. New England also set new heights for peak demand (capacity measured in gigawatts, not energy measured in gigawatt-hours) in May and September 2010.

In wind news: this weekend, while Highland Wind LLC held an open house to promote its wind project in Highland Plantation in Somerset County, Maine, the Friends of the Highland Mountains and other protesters demonstrated their opposition. As originally conceived, the Highland project - backed by former independent Maine Governor Angus King - would entail 48 turbines along the ridgelines of Stewart, Witham and Bald Mountains, plus Briggs and Burnt Hills. The land in question is owned by Bayroot LLC, and has been managed by Wagner Forest Management. Among the protesters' complaints is the proximity of the project to the Bigelow Mountains and the Appalachian Trail.


Google has already made the news for its involvement in energy markets. Now Google is investing in the underwater transmission lines needed to transmit power from offshore wind turbines to the mainland. Specifically, Google is eyeing a 350-mile line from Virginia to New Jersey.

July 20, 2010 - China passes US as world's largest energy consumer; NextEra signs wind deal with Google

China has passed the United States as the world's largest consumer of energy. The International Energy Agency measures states' energy consumption in a unit called "oil equivalent". The most recent IEA report shows that China used 2.252 billion tons of oil equivalent, whereas the U.S. used only 2.170 billion tons of oil equivalent. This reverses the trend for more than the past 100 years, when the United States has been considered to consume more energy than any other country. While energy consumption has traditionally been viewed as directly correlated to GDP, this shift breaks that trend as well. Commentators point to China's increased industrial activity, particularly in light of the stagnant consumer-driven American economy.

Interestingly, American energy intensity remains high: the average U.S. citizen uses five times as much energy as does the average Chinese citizen. What will happen when China reaches the energy intensity of the U.S.?

NextEra's competitive energy subsidiary, NextEra Energy Resources, has entered into a power purchase agreement with Google Energy, LLC. Under the deal, Google will buy 114 megawatts of power from NextEra Energy Resources' Story II Wind Energy Center in Iowa.

4/6/10

With the tragic explosion and collapse of the Upper Big Branch Mine in West Virginia, operator Massey Energy's stock is tumbling. Coal mining has always been dangerous. Will the Big Branch disaster influence policymakers away from coal as a fuel source for electric generation? At least some financiers believe not, at least not enough to deviate from their "buy" rating. It will be interesting to see how the big coal lobby responds to the certain calls for greater government oversight of mine safety regulations.

Google and 46 other companies have asked the President for better real-time information on electricity usage. The group, including AT&T, Comcast, Hewlett-Packard, Verizon and Best Buy, wants better executive-branch support for technologies and devices that will help consumers measure their energy use in real time, and thereby to make better decisions -- the Prius effect. Beyond the social good that this would empower, no doubt Google wants to sell you the technology and interfaces to make this happen.

Premier Power Renewable Energy, Inc. has signed a Memorandum of Understanding with REgeneration Finance, LLC to fund solar PV projects ranging in size from 250kW to 2MW, in California, North Carolina, New Jersey, and Pennsylvania.

In offshore ocean energy news, a University of Delaware study concludes that it has figured out how to link offshore wind arrays to avoid the need for onshore backup power.

Maryland is pushing for a more rapid ramp-up of its solar RPS. Maryland law now requires utilities to source 2 percent of their power from solar sources by 2022, but there is a proposal afoot to accelerate deployment and increase penalties. 15-year projections suggest residential consumers might pay $2 more per month, beyond the current average monthly bill of $150 -- which some say will add to $1 billion over 15 years. Interestingly, there isn't enough solar PV in Maryland today: utility companies paid $1.2 million in penalties in 2008, and if penalties increase further, that number will rise. If the policy objective is to increase renewable deployment, you have to wonder if increasing penalties is the most effective way to get there.

Virginia Governor Bob McDonnell has signed several green energy bills passed by the General Assembly this session. Key features include: a $500 tax credit to employers per green job created; increased funding and organizational support for clean energy research; the creation of the Virginia Offshore Wind Development Authority; and bonuses for investor-owned electric utilities who use wind energy.

3/16/10

Maine news in brief:
Governor Baldacci names a new LURC commissioner and reappoints 6 current members. LURC is Maine's Land Use Regulatory Commission, which rules on development plans in Maine's unorganized territory -- including the proposed Plum Creek development, and wind-power projects.

University of Maine names a new distance-learning director: Curt Madison, who has served at the University of Alaska - Fairbanks. Curious to see how this fits with the University's broadband plan.

Meanwhile Portland has applied to Google to be a test site for full-penetration super-fast internet.

Maple season is here, with Governor Baldacci tapping the ceremonial first tree.

Elsewhere:
29 governors "demand" a national renewable energy standard (or renewable portfolio standard). 10% by 2012? Many states, such as Maine, are already doing more.

The Schork Report predicts gasoline will break $3 per gallon by summer.

US DOE has updated its website listing energy-efficient appliance rebate programs available through state implementations of the Energy Star label.

The Obama administration approved $1.37 billion in federal loan guarantees to help build the world's largest solar power complex in California. The Department of Energy has offered to backstop the loans of BrightSource Energy, the developer of three proposed solar-energy plants in the Mojave desert. If completed, the three BrightSource projects could power 140,000 homes, and nearly double the amount of solar power generated in the United States. Despite a recent scale-back to address environmental concerns, the Ivanpah Valley project is still budgeted at 392 MW. BrightSource estimates that construction will employ about 1,000 people, with operation creating 86 permanent jobs. Bechtel, the engineering and construction contractor for the project, signed a project labor agreement in December 2009 with the State Building and Construction Trades Council of California (SBCTC) and the Building & Construction Trades Council of San Bernardino and Riverside counties to secure benefits to the local workforce from the project. The project is estimated to provide $400 million in tax revenues to state and local government, and produce $650 million in wages, over the next 30 years. The project will come online in 2012 and 2013.

Worth noting: US Secretary of Energy Chu's Facebook page, focused at the moment on "why we need nuclear".

Bloom boxes still buzzing.

More fallout and analysis of Google's approval for market-based rate authority (MBRA) from FERC. Donald Campbell of Pitt News suggests that Google secured MBRA so it could more effectively buy green power: "Combined with some offshoot ventures previously spawned by Google, energy trading can assist Google in increasing the amount of energy it consumes from renewable sources." Other sources note that Google doesn’t intend to resell energy, but to procure power only for its own use to help it manage energy costs as a whole. Interestingly this 2/22 interview with Google's "green energy czar" Bill Weihl doesn't mention MBRA as a strategy.

In Pennsylvania, Gov. Edward G. Rendell has released over $5 million in funding for 13 new solar energy projects (link to Governor's office DOC). Thes projects are receiving funds from the $650 million Alternative Energy Investment Fund that Rendell signed in 2008. They were approved for funding by the Commonwealth Financing Authority.

Entergy, operator of the leaking Vermont Yankee nuclear plant, has apparently admitted that there have been prior tritium leaks into groundwater its reactor, including one in 2005.

2/22/10

As expected, the federal Surface Transportation Board has received the Montreal, Maine & Atlantic Railway's notice of intent to abandon 233 miles of track in Maine, from Madawaska to Millinocket. Even though this line serves about 20 industrial freight customers, the Railway says it has been losing $4 million to $5 million a year through operating the lines because freight revenue has fallen. The typical freight shipped on the line includes lumber, plywood, logs and wood chips have fallen, all of which are in low demand given the slump in the housing market. If the rail is abandoned, it could cost 750 jobs as increased transportation costs would lead the region's manufacturers to scale back production.

Iran is choosing sites for uranium enrichment plants, claiming it wants civil nuclear power, not weapons.

Distributed generation gets a policy boost, with a finding that widely-adopted rooftop solar might be easier to develop than utility-scale solar arrays, due to the challenges of siting larger projects.

Much buzz today over Bloom boxes, distributed fuel cell arrays about to be announced. Bloom Energy, which raised $400 million in venture capital, holds a press conference on Wednesday at which it is expected to unveil its products. Interestingly, Google already has a 400 kW array in beta-testing operation.

Speaking of Google, FERC granted Google's market-based rate authorization. As someone who works with FERC's market-based rate structure, having filed a number of petitions myself, it is interesting to me to see how the media reports this: as enabling Google to purchase low-cost power. Surely we all want to purchase low-cost power -- what would it take to enable us all to purchase power at market-based rates? Most people would qualify -- no market power, etc.

Some question whether Energy Star really means much for appliance efficiency.

The administration's pro-nuclear news of last week continues to resonate, as Texas evaluates whether proposed new reactors there will receive similar government support.

Six Maine school and university oil-to-wood heating projects will receive more than $3.2 million in federal Recovery Act funds managed by the Maine Forest Service. The Presque Isle office of the University of Maine Cooperative Extension was awarded $16,575 for installation of a pellet boiler to replace the current oil boiler, displacing 1,850 gallons of fuel oil. (The existing boiler is around 10 years old -- are we incenting inefficient replacement of newer equipment while older, less efficient facilities remain?) Overall this project costs an estimated $40,169, with the remainder of the project funded by the Maine Economic Improvement Fund. Regional School Unit 29 in Houlton was awarded $750,000 for conversion of an oil boiler to a wood chip boiler at Houlton High School, displacing 65,000 gallons of the 85,000 gallons of fuel oil used annually by the district. The district uses about 85,000 gallons of oil a year, according to the superintendent. Here, the district will keep its oil boiler, but will rely on the new boiler for heating. Other winners are Oxford Hills High School, the Greenville School Department, Phillips Middle School and Poland Middle-High School. Maine Forest Service Director Alec Giffen said the six projects collectively “will annually avoid the burning of almost 263,000 gallons of oil, recirculate $600,000 in fuel dollars in the Maine economy, and avoid more than 5 million pounds of emissions from fossil fuels.”

More Maine stimulus: EECBG grants to central Maine communities.