Friday, March 2, 2012

California Solar Deal Hits a Snag

A $1.36 billion government-backed deal for a Southern California solar farm has hit a snag and could be days from unraveling, all due to a local construction permit.

First Solar Inc., one of the world's largest solar-panel manufacturers, warned Thursday that it might have to buy back the 230-megawatt plant it sold to Exelon Corp. if the Department of Energy doesn't begin funding a loan made to finance the deal later this month.

The project has yet to receive any payments from a $646 million federal-government loan finalized in September because of an issue with a construction permit that First Solar obtained from Los Angeles County.

The offices of the Los Angeles County Regional Department of Planning, which issued the permit for the solar farm, were closed Friday and telephone calls were not returned.

Exelon, which bought the project for about $1.36 billion, can walk away from the deal and force First Solar to return $75 million that Exelon had already paid should the loan payments not flow by a Feb. 24 deadline.

"Exelon remains committed to Antelope Valley Solar Ranch One and expects to receive the initial loan advance upon resolution of the construction-permit issue," said Exelon spokesman Paul Elsberg.

First Solar spokesman Alan Bernheimer said the company is proceeding with the construction of the project, which has 185 workers on site, but declined to comment further.

Energy Department spokesman Damien LaVera said the agency "continues to support this project" but also that its loan guarantees "have strict conditions in place to protect taxpayers."

The department can only disburse such funds "after all applicable permitting issues are resolved," Mr. LaVera said.

Should the deal fall apart, First Solar would sustain a blow to its developing emphasis on designing, building and selling large solar projects to developers—a strategy that was supposed to keep the company on an even keel amid squeezed margins affecting its solar-manufacturing business, which has seen industry-wide head winds.

First Solar's stock fell 10% to $43.91 in Friday trading on the Nasdaq Stock Market.

Large power companies such as NRG Energy Inc. and Mid American Energy Holdings Co. have been buying solar projects because the low prices of panels are improving the return on investment of such projects.

First Solar used loan guarantees from the Department of Energy to construct another project in the Southern California desert, called Desert Sunlight, which it sold in September to NextEra Energy Resources LLC, a subsidiary of NextEra Energy Inc., and GE Energy Financial Services, a unit of General Electric Co.

In August, the company also sold its Agua Caliente project, located in Yuma County, Ariz., to NRG Energy. Agua Caliente has been getting disbursals from the federal government, having received $181.2 million out of a $967 million loan, as of Dec. 31, according to government data.

"It was hoped that the [First Solar] projects would be going smoothly," said Daniel Ries, managing director of alternative energy equity research at Collins Stewart LLC. "They are the key driver of earnings for the next two-and-a-half to three years and probably long term."

Should First Solar be forced to repay the $75 million in the Antelope Valley deal, it would eat into its free cash flow, said Mr. Ries. The company would also have to keep the project, continue funding its construction and start looking for buyers—a significant expense.

It would also probably have to sell the project at a lower price than under its deal with Exelon, because the loan-guarantee program may be abandoned and that would increase the financing costs, said Mr. Ries. He estimates that the sale price for the project without the loan guarantee would be about $130 million lower than with the loan guarantee.

Antelope Valley is one of several clean-technology projects that haven't yet received any payments from the federal government under a loan-guarantee program that closed all deals more than four months ago.

NRG Energy and its partner SunPower Corp. are still waiting for capital to be issued under their $1.19 billion loan for a solar power plant, according to government data.

SunPower referred questions to NRG, which wasn't available to comment.

Two solar manufacturers backed by venture capital investors, 1366 Technologies and Solopower Inc., also haven't seen money yet for their new factories. Representatives of these companies said that the conditions of the loans are such that they have to first build demonstration production lines, meet certain requirements, and only then tap the federal funds for additional construction.

At least two other companies, car maker Fisker Automotive and solar panel manufacturer Abound Solar, have seen the government stop issuing loans. Fisker didn't meet certain milestones. Abound representatives weren't available for comment.


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