“With the sun going down at 6 or 7 o’clock at night, all the other forms of solar production are essentially going to zero,” said Brad Albert, general manager for resource management at Arizona Public Service, the state’s main utility, “while Solana is still producing at full power capability. It just adds a whole lot of value to us because our customer demand is so high even after the sun goes down.”
Indeed, Abengoa opened another mammoth plant on Friday in the Mojave Desert in California that uses the same approach. But despite the technology’s success, Abengoa and other developers say they do not have plans at the moment to build more such plants in the United States.
And that is largely because of uncertainty surrounding an important tax credit worth 30 percent of a project’s cost. Although the subsidy, known as the Investment Tax Credit, is to remain in place until the end of 2016, when it will drop to 10 percent, that does not give developers enough time to get through the long process of securing land, permits, financing and power-purchase agreements, executives and analysts say.
“It is difficult to start construction of new facilities until there is clarity,” said Santiago Seage, chief executive of Abengoa Yield, a publicly traded subsidiary created last year to own and manage power plants.
But the difficulty is not because of any shortcomings in the technology. The plant uses a network of parabolic mirrors that focus sunlight on pipes that carry the heat to tanks of salt. It can stay there for up to six hours until the plant pulls it out to make steam for electricity. A result is a source of power that can help a utility smooth variations in output from renewable power sources like solar and wind. The Mojave plant is expected to supply enough power for 91,000 homes throughout Northern and Central California, under a long-term contract with Pacific Gas and Electric.
Ken Johnson, chief spokesman for the Solar Energy Industries Association, the main solar trade group, said that his group planned to lobby Congress to extend the credit beyond 2016. “That’s our top priority for this session of Congress,” he said, adding that developers across the solar industry were “trying to do as much as possible before it drops to 10 percent in 2017.”
In addition to the tax credit, the existing solar thermal plants have benefited from heavy government support in the form of loan guarantees — $1.2 billion in the case of the Mojave plant — but that program is no longer active. As a result, utility-scale development, which accounted for almost two-thirds of the nation’s solar capacity installed last year, according to industry estimates, could drop off.
And Abengoa and BrightSource last year withdrew plans to develop another big project in California, called Palen, over investors’ concern that the tax credit would expire.
Still, analysts say, companies have been preparing for a decrease in the tax credit.
“Solar technology companies have been aware of this expected decrease well in advance, so a lot of them have responded by really implementing cost reductions into their technology development,” said Mark Barineau, an analyst at Lux Research.
Mr. Barineau added that demand for solar projects, especially conventional ones, would remain strong and that there was optimism that the credit could be extended, in part because the industry had been creating thousands of new jobs every year.
The industry is also looking to other financial mechanisms to spur interest from investors.
Congress, for example, is weighing allowing solar projects to use master limited partnerships, investment vehicles that are open to the oil and gas industries. Advocates and solar executives are also urging the Obama administration to expand its proposal to include solar projects in real estate investment trusts to cover large-scale solar farms as well. Both vehicles let companies take advantage of tax benefits unavailable to more traditional companies, passing along much of their income directly to investors.
Where those efforts will go is anybody’s guess, especially given the changing political dynamics in Washington.
“There is significant momentum in Congress now for eliminating many of the 42 existing energy tax subsidies,” with Republicans largely against subsidies for renewables and Democrats largely against those for fossil fuels, said Paul Bledsoe, a former Senate Finance Committee staff member who is now an energy fellow at the German Marshall Fund.
The broader question, he added, was whether the government could find a way to phase out incentives over the next few years and “replace them with a more technology-neutral approach, like extending master limited partnerships.”
Dan W. Reicher, executive director of the Steyer-Taylor Center for Energy Policy and Finance at Stanford University, who has been urging that approach, said that the Obama administration was also taking input on ways to phase out the credit that might give the industry “a smoother glide path” toward its elimination.
“Could you have a gradual, multiyear phaseout of this from 30 to zero, instead of a cliff next year from 30 down to 10, and then 10 continues indefinitely?” he said, adding that a long-term extension of the credit “has serious political challenges these days.”