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NRG Facing Default on Ivanpah Solar PPAs with PG&E

(photo Gilles Mingasson/Getty Images for Bechtel)

(photo Gilles Mingasson/Getty Images for Bechtel)

NOTE: This post has been updated and expanded for KQED News.

Ivanpah, the biggest power-tower solar plant in the world, is doing better after woeful energy production in its first year of operation in 2014. But not better enough.

In its quarterly report filed in November, majority owner NRG Energy says it faces a default on its contracts with Pacific Gas & Electric, which has power purchase agreements for production from two of the plant’s three units:

Ivanpah Energy Production Guarantee — The Company’s PPAs with PG&E with respect to the Ivanpah project contain provisions for contract quantity and guaranteed energy production, which require that Ivanpah units 1 and 3 deliver to PG&E no less than the guaranteed energy production amount specified in the PPAs in any period of twenty-four consecutive months, or performance measurement period, during the term of the PPAs. If either of Ivanpah units 1 and 3 deliver less than the guaranteed energy production amount in any performance measurement period, PG&E may, at its option, declare an event of default. Based on the energy production amount since January 2014, the Company expects that the units will not meet their guaranteed energy production amount for the initial performance measurement period. The Company is exploring options to mitigate this risk or its consequences.

Electricity production at Ivanpah was up 71 percent in the first nine months of 2015 compared to the same period in 2014. But 2014 was so dismal, the plant still won’t be able to meet the production guarantee outlined in SEC filings:

The “contract quantity” for each year is expected to be 304,000 MWH for Solar Partners II (Unit 1) and 335,600 MWH for Solar Partners VIII (Unit 3) throughout the delivery term, and the seller must deliver a guaranteed amount of energy in two-year measuring periods. The production guarantee generally is 140% of the contract quantity during the first measuring period after the commercial operation date and 160% in subsequent measuring periods, subject to reduction if the project company is unable to deliver power due to a force majeure or curtailment.

Unit 1 declared commercial operations on January 10, 2014, and Unit 3 on January 15, 2014. Through September 2015, Unit 1 had produced 319,994 megawatt-hours, according to the Energy Information Administration. Its production guarantee during the first measuring period works out to 425,600 MWh. Based on past performance and trend, the unit will probably fall at least 50,000 MWh short of that threshold. Unit 3 was at 311,057 MWh through September toward a goal of 469,840, so its shortfall will likely be even greater.

You have to wonder how PG&E might proceed here. Would it be interested in getting out of its Ivanpah contracts, if it could? The utility needs renewable energy, like that produced at Ivanpah, to meet California’s aggressive renewable portfolio standard. That said, the Ivanpah contracts date back several years (last amended in 2010, it appears), and renewable energy prices have plunged recently. Consider: In the third quarter of this year, PG&E paid $201.99/MWh for electricity from Ivanpah’s Unit 3. Meanwhile, PPAs for utility-scale PV in the Southwest in the past year have fallen to around—and in some cases below—$50/MWh.

Update: What about Unit 2, you ask? Electricity from Ivanpah Unit 2 (Solar Partners I) is sold under a power purchase agreement to Southern California Edison. The production standard for Unit 2 is essentially the same as for Units 1 and 3 and it, too, will fall well short two years after going into operation on January 31, 2014. So why did it escape mention in NRG’s filing? The apparent answer: The PPA with Edison doesn’t leave NRG (and minority owners BrightSource and Google) similarly vulnerable to a default declaration. According to a BrightSource filing, the contract stipulates only that “If these production levels are not met, the project company will have to pay SCE for replacement power.” (12/9/2015)

August Was an All-Renewables Month for New U.S. Energy Infrastructure

It still trails fossil fuels by a long shot, it’s an intermittent resource, it’s just one month, it’s even happened before – yeah, all the caveats apply. Still, this tells you something about the evolving U.S. energy picture: In August, 100 percent of the 487 megawatts of new utility-scale* electrical generation projects to come online use renewable sources.

Wind accounted for 249 MW and solar 238 MW, according to the August Energy Infrastructure Update from the Federal Energy Regulatory Commission. For the year so far, wind, solar and scattered other renewables have combined to provide 3,675 of the 6,211 MW of new generating capacity. Here’s the FERC chart (the PDF for the whole monthly report is here):


*FERC doesn’t count behind-the-meter (aka distributed) generation, which leaves out all the rooftop solar that’s going in. This is a lot of capacity, and a lot of generation, as I explored in this article.

Electric Power Monthly Highlights

Notable in the latest EIA Electric Power Monthly, which takes us halfway through the year….

California’s solar dominance grows: In the first six months of 2014, California accounted for 52.2% of the utility-scale solar electricity (PV and thermal) generated in the United States. The state grabbed an even bigger share in the first half of this year, 56.4% (7,343 gigawatt-hours out of the U.S. total of 13,026)…. A little after noon last Thursday, by the way, solar generation in the Golden State reached a record 6,444 megawatts. Remember, too, that this doesn’t include a whole lot of rooftop solar, a subject I explored in some detail earlier this year.

Other solar leaders: Arizona follows California as the No. 2 solar state in the nation, with 1,762 GWh generated so far this year, but 2015 has seen a new state move into the No. 3 slot – North Carolina. With generation up 104.5% this year and 867 GWh generated through June, North Carolina has nudged aside Nevada (826 GWh). New Jersey (443 GWh), Massachusetts (357 GWh) and New Mexico (337 GWh) follow. These top seven states accounted for 91.5 percent of utility-scale solar generated in the U.S. in the first half of the year. A lurking state that could disrupt this leaderboard in the next year or so: Texas.

solar ytd

Coal continues to lose ground to natural gas: Generation from coal was off 8.5 percent this June compared to last June, and for the first half of the year was down 14.4 percent. Natural gas was up 22.4 percent in June, and YTD was up 19.2 percent.

coal vs nat gas chart2Wind energy’s year blows, bad: Despite increased capacity, wind generation this June was down 14.6% compared to June 2014, and YTD generation was down 5.8%. As the EIA explained recently, this was due to poor wind conditions in the West, generally, but was felt most acutely in the Pacific Northwest, where YTD generation was off 22.7% in Idaho, 26.7% in Oregon and 21.2% in Washington.

Wind’s poor year left its contribution to U.S. generation YTD at 4.7 percent, where it was two years ago. By contrast, utility-scale solar, while still small, continued to grow quickly, from 0.2 percent of U.S. generation YTD in 2013 to 0.7 percent this year.solar vs wind chart