By George Lobsenz
In a deal solidifying plans for one of the nation’s largest solar power projects, Arizona Public Service Co. has agreed to buy all the power produced at 290 megawatt concentrating solar trough plant to be built by Lockheed Martin [LMT] under a contract with Starwood Energy Group Global LLC, a private investment firm focused on the energy sector.
The plant, to be located in Maricopa County about 75 miles west of Phoenix, will be owned by Greenwich, Conn.-based Starwood Solar. Lockheed Martin will be responsible for engineering, procurement and construction as well as operations and maintenance when the facility is complete.
The Starwood Solar I project marks Lockheed Martin’s entry into the red-hot solar market, a major diversification initiative by the defense contractor that began 18 months ago when it signed an agreement with Starwood to jointly develop solar plants.
And in signing a long-term power purchase agreement (PPA) underwriting the Starwood plant, Arizona Public Service (APS) climbs into the top ranks of U.S. utilities in terms of its commitment to large-scale solar power. APS signed a similar PPA with Abengoa Solar in February 2008 for the planned 280 MW Solana Solar Plant. Altogether, APS says it expects to have 800 megawatts of energy in its renewable energy portfolio in 2014, exceeding the requirements of Arizona’s renewable energy standard. The utility currently has 157 MW in renewable resources.
However, as with larger concentrating solar projects (CSP) projects planned in California by BrightSource Energy under PPAs with Southern California Edison [EIX] and Pacific Gas & Electric [PCG], there are still questions about the economics of the commercially unproven CSP technology and the ultimate cost of the power to be delivered to utility ratepayers.
APS noted that the Starwood project still must be approved by the Arizona Corporation Commission, and the BrightSource Energy projects also face review by California regulators when the plants are completed and their final cost figures come in, which is not expected for several years.
As for now, the PPAs represent the perfect solution for utilities in that they avoid any direct ownership–and thus financial risk–in CSP projects but can still use the agreements to show compliance with state renewable energy standards.
However, some utility executives are clearly nervous about whether the CSP plants can deliver power at costs acceptable to regulators, and there are some in the industry who feel photovoltaic panels are the safer bet in the near term because of their more predictable performance.
Still, CSP can provide much greater amounts of solar power, and offer the added advantage that heat generated at such facilities can be stored for use when needed; that means a CSP plant can be more easily scheduled for dispatch by grid operators than other renewable power facilities where output fluctuates with weather conditions.
Starwood said its Arizona plant would have such storage capability. The plant will use molten salt to store solar energy and will be able to continue producing electricity for up to six hours after the sun goes down–a peak demand period for APS due to Arizona’s hot summer evenings.
In general, CSP involves the use of reflecting mirrors that focus sunlight on special heat transfer fluids; the heat then is used to boil water, creating steam to drive conventional power-generating turbines.
A spokeswoman for Starwood said Lockheed Martin would design some components of the Arizona plant and it would buy other parts from other companies.
More broadly, Lockheed Martin brings extensive systems integration and design experience to the project, which may give Starwood an advantage over other solar developers, many of which are small startup companies without extensive engineering background.
Starwood and its newly acquired solar affiliate, Nautilus Solar Energy LLC, said they will spend the next 12 months seeking state and county permits and nailing down construction and permanent financing. They hope to complete the plant by 2013.
Starwood says it has made energy infrastructure acquisitions totaling $3.2 billion in value since 2005. Its current assets include the Neptune Regional Transmission System, a 660 MW undersea power cable connecting Long Island to New Jersey; CalPeak Power, a 260 MW portfolio of five natural gas-fired peaking power plants in California; and the 272 MW Thermo Ft. Lupton combined-cycle plant in Colorado.