Mostly behind the scenes and sometimes overseas, Executive Director Mitchell Dong is coordinating an intricate, collaborative effort to assemble the many components necessary for Mohave Sun Power LLC to develop the Hualapai Valley Solar (HVS) power plant project 27 miles north of Kingman. It's the latest major project for Dong who has spent 35 years developing various types of power plants.
Meanwhile, closer to home and the project site, HVS Managing Director Greg Bartlett and Environmental Director Mike LaRow have been more visible as they've worked to secure initial approvals from Mohave County and recommended Arizona Corporation Commission approval for a Certificate of Environmental Compatibility.
From Italy, where he was meeting with various industry vendors, Dong, during a recent telephone interview, spoke freely about other project complexities that fill his plate on a daily basis. And Dong is extremely confident that HVS will someday harness the sun to generate power at Red Lake.
``Every day, every week and month that goes by, we add a few more pieces to the puzzle. Developing a power project is a very, very complex game and you need a hundred pieces of the puzzle and you need them all to come in place simultaneously," Dong said. ``And once you have them in place, you've got to keep them in place and any one piece of the puzzle that's lacking kills the deal. It's the job of an effective hardworking development team to put all these pieces in place."
FINANCING:
Dong said there's a two stage approach to financing this $2-billion, 340-megawatt concentrating solar power plant. The first phase is well underway.
``There's an initial group of investors that I lead which is what you'd kind of call the venture capital, or the seed money, or the development money that goes into developing the project," Dong said. ``And that funds all of the lawyers, the consultants, the engineering, the permitting and the land options," Dong said. He explained the bulk of the project is financed in a mix of debt and equity in the second phase.
Private entities, frequently utility companies, can be involved in the equity part of the investment equation. Debt financing can come from the commercial banking and insurance sector and the government.
Dong said Mohave Sun Power will try to tap three federal government provisions or mechanisms as part of its finance puzzle piece. Dong said low interest loans are sought from the Department of Energy.
Dong said another effort involves pursuit of accelerated depreciation, wherein the project would benefit from an Internal Revenue Service tax write-off over five years rather than two decades or more. He said the tax shelter benefit is helpful in attracting equity investors.
Dong said the attempt to tap the third government provision is most critical for the project. Rather than providing tax credits over the life of the project, Dong said the government is now providing, for solar power development, a cash grant incentive of roughly 30% of the project construction cost.
In the case of HVS, this third provision represents about $600-million. Failure to tap this third provision would be a "deal breaker", according to Dong.
``The 30% cash grant is conditioned upon starting construction before the end of this year, 2010, so the clock is running. There's a great sense of urgency on our team to get all the permits and approvals and agreement with the City so that we can, in turn, have all the pieces in place to get our financing to close before the end of the year," Dong said. ``We're always behind. There are always obstacles that come up to try to slow you down and our job is to get up every day and try to think of what the obstacles are and try to expedite and accelerate and move things along. I'm cautiously optimistic that we'll meet that deadline."
Dong said other renewable energy projects will require the same funding components. Failure to apply them to HVS, he said, would likely mean the funds will be provided for other projects in other regions, eliminating economic benefits for Mohave County.
POWER PURCHASE AGREEMENT (PPA):
PPA's are essentially a contract specifying terms of sale of electricity from a power plant to a utility company that distributes the energy, normally to a mix of residential and commercial customers. Mohave Sun Power is working to secure a deal that will guarantee sufficient revenue to fund debt service and generate profit as well.
``We've made close to a dozen bids and we're fortunate that at least two utilities that we know of, and there could be more, have expressed interest to a point we're very close to being shortlisted, or have been shortlisted, to negotiate a long term PPA," Dong said. ``Going from a shortlist to signing a PPA is anywhere from a three to six month process and we're in the midst of that process now, and until we sign, we're not allowed to say the names of who those utilities are, but they're large utilities that are household names."
Dong said a signed PPA deal must subsequently be approved by a Public Utilities Commission (PUC).
``We're in a great hurry to execute our PPA and get it approved by the PUC because, obviously, we can't close our financing until that PPA is signed and approved, which can be a 12 month process from today. So that's a tight schedule," Dong emphasized. He said he's confident that Mohave Sun Power will cement a deal with one of the two undisclosed utiltities.
``In both cases we've had meetings, numerous discussions, emails," Dong said. ``The price that we we have submitted, or subsequently negotiated, is something which is attractive to them and the work now is negotiating the details."
WESTERN ARIZONA POWER ADMINISTRATION (WAPA):
Mohave Sun Power has made two applications to connect and transmit power to the WAPA grid system for delivery to its eventual PPA partner. One application is for transmission to the 500 kV Mead-Phoenix line and the other is for the 345 kV Mead-Liberty line.
Bartlett emphasized that connection to the Mead-Phoenix line is the primary focus, and is strongly preferred, because there's plenty of capacity due to a system upgrade. On the other hand, connection to the Mead-Liberty line would be workable, but would also be more cumbersome because a capacity upgrade would be necessary.
Despite considerations of economics and convenience, selection of a transmission line will actually be a product of the PPA determination.
``Once we get our PPA then we'll know whether we want to deliver to Mead or to Phoenix or to Mead or to Liberty," Dong explained. ``Once the PPA establishes the delivery point, then we can close the deal."
ENGINEERING, PROCUREMENT AND CONSTRUCTION (EPC):
Revenue generated through the PPA must exceed the cost of building and financing the project. Otherwise there's no incentive and the project is not financeable, Dong said.
Dong said Mohave Sun Power did solicit project construction bids from a dozen firms and that roughly half of them responded. He said the PPA and finance numbers must be determined before a construction contract can be awarded.
``We are close to shortlisting one EPC contractor as soon as we, in turn, are shortlisted by the PPA utility," Dong said.
Leading firms in the EPC solar industry field are based in the United States, Israel, Spain and China, according to Dong.
Dong said Mohave Sun Power is keenly aware of demands that every consideration and opportunity should be afforded locally and regionally in the procurement and labor arena. He said that's certainly the company preference given extra cost
associated with transporting equipment and materials and/or importing labor.
``Hiring labor locally is the most economical source of labor," Dong said. ``If you hire someone that lives there already, that's going to be less expensive that if you're shipping people in from California."
As many as 1,500 jobs could be provided during peak construction periods. Roughly 100 people will be hired to operate the facility.
The goal is to begin construction late this year and have HVS generating power by late 2013.
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