A Look at the Financing Structure of a Major Solar Project

The world's largest solar thermal power plant project, a 392 MW installation developed by BrightSource Energy of Oakland, CA, and built by Bechtel Power, is taking shape in the Mojave desert near Las Vegas.  When complete, the electricity generated will be purchased by Pacific Gas & Electric and Southern California Edison and will be sufficient to power 140,000 homes. 

BrightSource reports that its supply chain is spread over 17 states and that 70% of the $2.2 billion will be spent domestically.

BrightSource benefited from $1.6 billion in federal loan guarantees.  They first applied for a loan guarantee in 2006 and achieved financial close of the loan in April 2011.  Here is how BrightSource explains its financing structure: 

BrightSource was the project sponsor of Ivanpah, but is not the loan recipient. The borrower under the DOE-guaranteed loan is the special purpose project company..., which is owned by NRG, Google, and BrightSource. The project company holds the long-term, fixed price power purchase agreement. For a 20 or 25 year period, so long as the project continues to produce energy, it has purchasers for all of the energy it produces at a price that has already been agreed. The project company also owns the infrastructure that will be producing that energy. The underlying loan is fully secured by all of the project company’s physical assets and contracts, and the borrower pays interest that will earn a return for the lender. In the case of Ivanpah, the project companies own the three power sales contracts, each with a major credit-worthy utility and for a minimum of 20 years, and also own the assets that will produce clean power under those contracts.

Equity owners provide the portion of the project costs that is not served by the loan. An escrow account is established to hold all of the equity funds not used in construction to date, as well as detailed engineering and operational information required to successfully implement and operate the technology, so that the project can continue successfully even if one or more of the equity partners becomes financially insolvent. For Ivanpah, equity investors have committed $598 million to the project, consisting of $300 million from NRG, $168 million from a Google Inc. affiliate, and $130 million from BrightSource Energy. BrightSource maintains an equity share of the project, and as the technology provider, the company is also committed to supporting the project and technology. [Brightsource] will remain an integral partner in ensuring project success and performance.

In April 2011, the Federal Financing Bank extended the Ivanpah project companies a $1.6 billion loan, which was guaranteed by the DOE. Each month, NRG as managing member of the project companies submits a draw request to the DOE, which itemizes the payments to be made for that month. The draw requests are reviewed and approved by an independent engineering firm that was selected by DOE. The funds drawn under the loan are paid directly by the Federal Financing Bank to the intended recipients, which include Bechtel and other suppliers and subcontractors to the project, rather than going first to the project companies. This helps ensure that suppliers are paid in a timely manner, and protects the value of the assets that secure the loan.