Axel Buchholz, FLABEG
Release Date: 2009-12-16
Which recent developments in the industry have directly impacted your development strategy?FLABEG is today engaged in concentrated solar power (CSP). We previously had PV activities but the company took a strategic decision to sell them off. The last one was sold in 2005. The issues FLABEG is facing at the moment are linked to the financial crisis. The major market for CSP today is Spain. Everything was going smoothly until the beginning of May when the Spanish government issued a new royal decree, revising an older decree that was issued in 2005 or 2006.
This initial decree supported every kWh of CSP technology with a ground price of 27 eurocent per kWh; although this was limited to 500 megawatts (MW). Due to certain loopholes it could have been increased above 500MW depending on the timing. It stated that 85% of the 500 MW had to be approved but there was still a two year window open for companies who had started activities to get final approval. In principal there were now put in place nine requirements for approval, the problem was that without meeting any one of those nine requirements, you would not get approval to install a plant. In the beginning of May set a deadline for anyone planning to build a concentrated solar power plant to meet the requirements for those nine issues by the beginning of June. As you can imagine that is a very short time. In reality, that means that everything related to solar power and CSP has stood still since the beginning of May. Nothing has happened because nobody has approval; if nobody has approval nobody can get financing; if nobody has financing nobody can order materials. It was originally announced by the Spanish authorities that they would announce the approved projects by the end of July.
Obviously, this timeline was destined to be delayed, because projects totaling 4300MW capacity had applied for approval instead of the planned 500 to 700 MW. If 4300MW would really have been installed and integrated into the grid at 27 cent per KWh, this would represent an additional cost to the Spanish government of more than €4 billion per year. As you know, Spain is one of the countries whose economy was most damaged by the financial crisis, which must have been one of the main reasons for the current standstill. Hopefully by the end of October, the Spanish authorities should be in position to announce whether or not projects have been approved. Then at least, we will know if our contracted volumes are on the winner or loser’s side of the coin; until then, it’s very hard to predict anything. The good news is that it seems that shortly after the approval announcement another regulation allowing for another 1000 to1500MW will be probably announced. It seems that this regulation might allow larger installations per plant, rumoured to be up to 125MW, where the existing regulation limits installations to 50 MW per plant. This is important because the optimal size of a CSP plant is somewhere between 80 and 130 MW. Allowing larger plants to generate cost benefits, in combination with reducing the feed-in tariff from 27 cents per KWh to only 19 -21 cent per kWh, would be good news and the basis of a economic working model.
Why is it that only Spain has decided to invest in this technology at such a large scale?
It’s not only Spain, but Spain was the first country offering the right environment for CSP, which is historically a European technology. There are other countries getting involved now. The US, where the world’s first CSP plant was installed in California in the late 1980s, is now FLABEG’s biggest focus for new projects, although everyone expected development there to be faster, now the first US installation will not begin operating before 2011. There’s one exception: a Florida based CSP plant that has been commissioned by Florida Power and Lighting. Although the Martin Next Generation Solar Energy Center is the largest solar thermal plant outside of California, it is not a very big park and is simply a changeover from an old coal plant to a solar plant, which hasn’t had to run through new approval processes or order new turbines. Moreover, this is purely a political project because everybody knows that Florida is not the best place for CSP.
Besides that there are lots of projects in the pipeline for parabolic trough, solar power tower and even Stirling dish technology based projects, but they are all still waiting for financing. This is because the US is looking for larger power plants of around 100-200 MW, which require an investment of sometimes more than one billion dollars. These sorts of funds are nearly impossible to get hold of at the moment. There are clear signals from the Obama administration that this is the way they want to generate energy in the future; so there is no doubt that the market will come to the US, but it will take some time.
With regards to other countries, we have done a small installation in Egypt, and Abu Dhabi is also keen about the technology but its projects are pretty heavily delayed. Today the number one market is still Spain, but with a certain question mark over it, the US will be the next market, and then there will be a tight race between India and China for third place.
If it were possible to put all politics aside, what would be the ideal locations in the world to apply CSP technology?
The ideal location geographically-speaking is clearly the sunbelt. In the US that consists of California, Arizona, Nevada, and New Mexico, across the ocean this includes the south of Europe – southern Spain, Greece, and Italy. The Sunbelt the other side of the Mediterranean is certainly even better, the North African countries would be perfect; this also includes Turkey, the United Arab Emirates, Saudi Arabia, Iran, many of the oil producing countries, then of course China and Mongolia.
All you need for CSP is a certain intensity of the sun, and availability of water for cooling the turbines and cleaning the mirrors. Of course, the closer you are to the grid into which you put the energy, the better; hence why countries like UAE are suitable – short distances and high energy needs. Arizona and New Mexico in the US traditionally have high energy needs, and of course California has the highest energy needs in the country. India and China are packed with big cities with high energy demand, and even Mongolia has millions of people which could be supported there, so CSP could be a suitable solution. CSP will always remain a huge niche because there is only a limited area where the installation of a CSP plant can be economically viable.
Who will be the main competitors for the CSP industry, and what is your outlook on the development potential of the different CSP technologies?
Every kind of new energy source has to be able to compete against all existing energy sources. If we exclude fossil fuels for the moment, then CSP has to compete against wind, PV, and biomass. We have to consider the major differences between CSP and PV. At the moment CSP does not fit the needs of local energy providers since you need 50-100 MW per installation to be really cost competitive. This is the advantage of PV, since it can generate PV for 1, 5, or 10 kW and can be locally installed, which is almost impossible for CSP. In comparison, CSP is almost as cost competitive as wind, with the added advantage that the sun is always present. Therefore, in the niche areas where CSP plants are installed the sun is the most reliable source for generating energy. Also, maintenance of CSP technology is very easy. With wind you always need local maintenance staff and spare components such as gearboxes, because if the gearbox doesn’t work you have to replace it immediately, whereas the biggest thing you might have to replace in a CSP field is a broken mirror or broken receiver which can be done in fifteen minutes. As far as day to day maintenance is concerned, you just need to keep the mirrors clean to maintain the highest reflectivity and output. It is therefore also a useful if there is plenty of water available, mainly for the cooling system of the turbine, but also about 20-30% of water requirements is for cleaning the mirrors.
There are three main CSP technologies competing against each other: (1) Trough – a proven product; (2) Tower – which now has one provider entering the market; (3) Dish – probably the technology with the most question marks surrounding it. The problem with dish technology is that you need to have a Sterling engine; if you need 200,000 Sterling engines, there is no evidence to date that they can survive 3,000-5,000 hours under hot conditions. Therefore, if you have to replace a sterling engine every three to five years the maintenance costs will kill any efficiencies. So, regardless of what proponents of Sterling technology say, there is still no proven advantage.
The main argument for the trough is pretty simple: it has a proven track record of twenty five years. It is meeting business needs everywhere it is installed, and is suitable for internal and external financing. Furthermore, there is still cost potential on the cost and efficiency side. I am fully convinced that the trough is a product which can generate between ten to fifteen eurocents per kWh in the right environment. With such numbers it is already close to cost level of fossil fuels. The political argument is very interesting; this is truly “green”. CSP is considerably greener than PV, which has hazardous chemicals in it. The coating of the mirrors is 100% lead free, so from the eco-balance side it is the greenest solution in the market. Another political argument for CSP is that the technology is easy to handle, even in developing countries, day-to-day operations need not take years to be put in place. That is why I believe there are many good arguments for CSP, not denying of course that there are also good arguments for other renewable energies. It is the best business model for us because a certain portion of the market will be CSP in the future. There are lots of different projections for the new megawatt installations, but none of these projections were correct because as no one expected politics to enter into the equation and bring everything to a standstill.
Given the fact that CSP a proven technology that is reasonably cost competitive and you can build your plants relatively fast, why has it not been adopted at a larger scale in countries such as India or China where there is a very fast-growing energy demand?
It is difficult to understand China. We signed three contracts with a huge energy provider in China, but there are difficulties with approval processes. To date they have only installed a prototype loop near Beijing, which will have to provide measurable results within a year before approval come from the Chinese government combined with a feed-in tariff. This is hard for me to get my head around, since this is not a new technology, it has proven itself, and has been approved elsewhere. If we are given five or ten criteria of the plant location, we would be able to estimate very quickly, with 85% accuracy, what cost efficiency of the plant would be. The approval process in China is not a big issue if the state wants it. All you need is approval from the authorities and available land available to put a field in place in about eighteen months.
It will not take long for before local companies will try to enter this market once it takes off. How big is your competitive edge and how far ahead are you in terms of technology and R&D?
At a first glance it seems that what we are doing is “just delivering a mirror.” The mirror itself needs to be very stable; it will need to be kept in outside conditions for twenty to thirty years without the quality of the reflection changing. It is a question of the composition of mirrors; there have been lots of instances of mirrors corroding after only several months in the field. Besides that, for the trough there are two key elements to getting the highest mirror efficiency. The first is to have highest potential reflectivity, and the second is to have high potential efficiency created by concentration of the curve. The more precisely you can concentrate the solar energy in one place, the higher the output and the efficiency of the plant. It is a combination of curve precision, locating the centre is within a measurement of 7mm, and surface quality. We believe that we are the number one around the world in precise bending of different glass applications of all different sizes and thicknesses; this is our strength and core competence.
At the moment, the international market is not very large for the Chinese producers who love to produce what we produce abroad. Other markets – where requirements are easier to fulfill and which offer higher volumes – are more attractive to them. Nevertheless, we recognize that sooner or later there will be competition from Asia, even if at the moment it is non-existent. We have two main competitors from Europe and one from the US, predominantly big float glass producers – the producers who have shifted capacities from automotive bending to solar. We have a facility in China and our intention with this potential customer is to start producing in Europe and then do the final assembly of the mirrors locally. Phase two would be to decide how much production would be localised to China depending on market needs. The problem is that installing bending and coating facilities for solar mirrors requires an investment of around €10-15 million for the equipment without the plant itself. This only makes sense if you are sure that you have a pretty good load for three to four years, and we don’t see those projects in China yet. Nevertheless, such projects in China can take some time to get off the ground, but when they happen they should happen tomorrow and on an unprecedented scale.
Aside from politics what are the other developments in the world that you would like to see that really support the business of CSP?
In principle, the higher the cost of fossil energies are – especially oil – the better the political environment for further installations of CSP or any other renewable energy. One thing that could be a threat for trough technology in the future, or perhaps more for towers, is land speculation. To put things in perspective, a 150MW plant represents 1.5-1.8 million cubic meters of mirrors which requires 5 million square meters of land. There are two types of issues which occur. The first is that if it is state-owned land there are strict approval processes, especially in California. It is a little easier in Nevada and Arizona where most the land there is privately owned – land that went unnoticed and unused for 150 years, and only now people are realizing they can make a lot of money from selling it. Buying the land is a large portion of the cost structure of the plant, and if speculation starts and prices increase dramatically, it will end up being counter productive for cost efficiency improvements. The second issue, which is more linked to US politics, is the question of how to support the technology.
FLABEG identifies two models: the Spanish model which pays today 27 cents per kWh, and the US approach which leaves the price negotiation to the utility providers and the operators of the power fields. The US government does give a lot of tax relief through fast and lenient depreciation rates, but nowadays this is not the right way to introduce new technology. A tax relief is nice, but it doesn’t help you to manage risk because you don’t start benefitting from the tax relief during the first three or four years, after which you first break even or start generating profit. This is particularly tough in the current environment where external financing is so hard to get, so it would be better if the state granted money up front to finance a project instead of offering an indirect benefit like tax relief. If every 50 MW plant, which costs $250 million, could be supported by $50-70 million tax funded credit by the state at 0% or 1% interest, it would help considerably more than a tax relief in 2016. We are always bringing this idea back in every conversation we have with politicians in the US, and we are trying to push it now since the US does have the money to support this plan. The US government has more than $1 billion lying around but does not know how to allocate it. It would be so easy to grant $50 million of federal funds for a 50 MW plant, but then again that is politics. This is the question that China is asking too, “how do we support CSP technology?” Ultimately the Spanish model is better because it provides funds from the first day and demand peaks. India is choosing that direction, and I assume Turkey will too, so I imagine China will use pretty much the same approach, since the US is by no means as successful.
What would be your message to China’s political leadership to successfully develop CSP technology in the country, and what is the role that CSP would play in China’s energy future?
Do it and use it. We have read about 2,000 MW PV installations in the Mongolian desert. Put that same 2,000 MW in CSP, price-wise there will not be a big difference. The two technologies that can compete, but CSP is easy to install and in terms of being “green” it’s the best solution there is It is easy and manageable technology, so my message it to start using it and stop testing other models, China is not going to find any new information which is not already known by the experts the world over.
| Company: | FLABEG |
| Position: | CEO |
| Country: | Germany |