Powering the Dream_ The History and Promise of Green Technology - Alexis Madrigal [65]
While the utility knew it had to make nice with would-be independent power producers, they were not always sanguine about the intrusion on their business. In a 1987 annual report, Southern California Edison was none too happy about being “forced” to buy “power, which, in most cases, was not needed and at costs much higher than the electric power the Company can now produce.”49 Luz’s facilities produced power exactly when the utility needed it, albeit at a higher cost. On the other hand, they were also a hedge against what many assumed would be much higher energy prices.
While the government side of things was getting worked out, Goldman and Francois continued to get the projects financed with a combination of luck and skill. Their investors, who had become committed to the project, put up personal guarantees for construction of the first plant. They offered suppliers stakes in the project if it failed to be financed. Every cajole and incentive in the deal-making book was necessary to get the initial deals funded. The fact that Luz had Newton Becker, one of the wealthiest guys in Los Angeles, as chairman of the board, helped. It may have helped more that Luz became one of Israel’s largest exporters of technology. The reasons to invest in the company extended beyond the merely financial, although those incentives were there, too.
From 1982 to 1991 Luz raised more than $1 billion dollars to build its plants. And the investors on those plants made money. The key to the deal, though, was that Luz had to put the plant into service by December 31 of a given year so that its investors could use the tax credits their work generated.50
The first plant had to be online December 31, 1984. It came online on the 27th, with only four days to spare. Although there may have been roars of happiness emanating from the control room that day, the yearly sprint to finish would eventually take its toll on the world’s most prominent solar company.51
THE RIDICULOUS PROJECT
That first plant that Luz built produced fourteen megawatts. Its power was incredibly expensive, running close to 25 cents per kilowatt-hour, four times more than natural gas.52 But it was the first of its kind and everyone expected the costs to run high. Just getting to that point had been incredibly difficult. Goldman’s engineers referred to the plant as “The Ridiculous Project” because building a first-of-its-kind solar plant that would make electricity at 25 cents a kilowatt-hour was nearly impossible at the time.
Luz and its investors realized that SEGS I was going to be very expensive. The real questions would come in the second and third plants. Government reports predicted that costs would drop as more plants were made. Could Luz make its technology cheaper by using, learning, and developing it?
Ultimately, that’s the bet for all renewable technologies and the reason why they are supported with tax credits across the world. If there is a market, the thinking goes, companies will compete to make their technology as cheap as possible while trying to grow larger. With most renewable power still priced far above its fossil competitors, many renewable technologies have to cut their costs in half or more.
So in 1983, when the second plant came online, it was tremendously exciting: It made electricity from the sun at 16 cents per kilowatt-hour. That was the kind of leap the company had to make. By the time reporters descended en masse on the Luz facility in 1989 in the wake of the Exxon Valdez oil spill, their new plants would be making power at 8 cents per kilowatt-hour.53 The problems and bugs were being engineered out. Their scientists were finding more efficiencies. Technicians deployed new solar collectors. R&D developed new coatings for the solar collecting tubes along with a new, higher-temperature liquid for transporting solar heat through the plant’s tubes. Luz was riding the cost curve down