Batting for Percentage: New Development Model May Lead to More RE Deployment

Michael Mendelsohn's picture

It seems like just a year ago that a lot of solar developers were swinging for the fences. Projects were announced weekly: 250 megawatts (MW), 350 MW, 500 MW! It was hard to keep up. But a lot of those projects are mired in the mud of environmental impact statements and DOE Loan Guarantee Program applications. For many of them, its not clear if or when development will take place.

But other companies are scoring by batting singles and doubles – smaller projects in the 5 – 20 MW range have much quicker development time and higher probability of success. One company with high on-base percentage lately is Recurrent Energy, based in California. The company recently announced a contract with South California Edison for 50 MW, representing several smaller projects. And construction is underway at a 5 MW facility overtop the Sunset Reservoir in San Francisco (pictured). According to Recurrent Energy’s Sheldon Kimber, senior vice president of development, hundreds of MWs are under contract and the company is ready to announce several contracts shortly.

A bird's eye view of the Sunset Reservoir solar project

The business model, of course, is replicable. SunEdison, Juwi Solar, and Fotowatio Renewable Ventures seem to like aspects of that business model as well.

I had a chance to speak with Recurrent Energy’s Kimber to learn about the company’s business model and the advantages of focusing on distributed projects smaller than 20 MW, which are developed on private land parcels. First, projects that size and smaller are subject to less burdensome interconnection processes. In California, generators up to 20 MW are subject to the Small Generator Interconnection Procedures (SGIP), which avoids the need to be grouped into a “cluster” for a time-consuming, grid-wide system impact study. However, this shortcut has attracted a lot of projects just under the threshold, requiring the California Independent System Operator (ISO) to reassess the SGIP. As a result, Kimber explained, the state's ISO may have to distinguish between projects above and below 5 MW to allow fast development of renewable energy projects without taxing the grid too heavily.

Second, the company avoids extended permitting requirements by focusing on private brownfield and dual-use sites such as the reservoir project in San Francisco. Although developing on a brownfield site usually requires an environmental impact statement, and in California, a county-controlled California Environmental Quality Assessment (CEQA), the process is relatively modest because no species habitat is being threatened. To avoid drilling foundations and disturbing the already-impacted land, the company’s photovoltaic projects use ballast and modest concrete pads.

Lastly, the company stays flexible with its project financing. Kimber explained each project may be structured uniquely – using sale-leaseback, tax-equity flips, or traditional debt financing structures – based on the circumstances. Recurrent Energy can use its healthy balance sheet, sponsored by Hudson Clean Energy Partners, to hold onto a project until it can find the right arrangement, possibly raising debt or equity with a portfolio of projects depending on total capitalization and transaction costs.

Of course, Recurrent Energy isn’t the only developer batting for percentage. And as actual project development tells the story, I’m guessing more solar developers will fashion themselves more like Ichiro Suzuki than Mark McGwire.