Mirrors in the Mojave

by Debra Fiakas CFA

Last week the Ivanpah solar thermal power plant in California went operational last week.  Ivanpah is a marvel.  Located in the Mojave Desert, the power plant generators are driven by steam like any other.  However, at Ivanpah the steam is created by acres of large mirrors that reflect and concentrate the desert sunlight onto water-filled boilers.  The boilers tower 150 feet above the mirrors that are spread across 3,500 acres. 

Ivanpah scale has required the cooperation of a number of players.  Brightsource Energy is running the show with the power plant owner NRG Energy (NRG:  NYSE).  Google (GOOG:  Nasdaq) is a ‘relatively’ silent third owner that sent a ‘relatively’ impressive check for $168 million.  It is has taken big players like NRG and Google to get Ivanpah up and running.  The project has run up a tab close to $2.2 billion.

Brightsource has backing from France’s Alstom S.A. and a gaggle of big name venture capital firms such as VantagePoint Capital Partners.  Interestingly, oil and gas players also have their hand in solar thermal project through their venture arms Chevron Technology Partners and BP Ventures.  Brightsource and its two partners have amped up their own investment in the Ivanpah project with a $1.6 billion loan guaranteed by the U.S. Department of Energy.

The verdict is still out on the economic viability of Ivanpah.  Much has changed over the five years the project has been in development and construction.  Power produced from cheap natural gas is casting a long shadow across alternative energy sources of all stripes.  Ivanpah’s three generating units have the capacity to produce 400 megawatts.  That means it is cost $5,500,000 per megawatt to build Ivanpah.  Thus the projects staggering cost puts the plant at a disadvantage compared to natural gas fired power plants or even nuclear projects.  A natural gas power plant costs around $1,000,000 per megawatt and a nuclear power plant costs a bit more at $1,100,000 per megawatt. Ed. note: the price of a nuclear plant seems low; the EIA puts a new nuclear plant cost at $5,530,000 per MW. The other prices are in-line]

Last week Brightsource Energy’s management put on a happy face for the Ivanpah debut.  They are certain once the project has proven out the phone will be ringing with parties interested in thermal solar power.  Just the same, we know NRG Energy is right in the thick of things at Ivanpah and yet has put a moratorium on additional solar thermal power investments.

In my view, there is no investment to be made here.  Shares of Google and NRG Energy reflect their principle businesses and not the Ivanpah project.  Brightsource Energy is a private company.  Even if it were to raise new capital, few of us would get a seat at the table with venture capital firms like VantagePoint.  However, it is worthwhile watching how this thermal solar plant plays out.  It will take a variety of power sources to replace fossil fuel.  Which ones have sustainability is yet to be proven.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.