Analysis: Tessera Solar may score equity win, technology loss

LOS ANGELES Wed Dec 22, 2010 7:55pm EST

LOS ANGELES (Reuters) - NTR's Tessera Solar is scrambling to raise cash for a pair of multibillion-dollar plants in California -- or face the prospect of losing the chance to prove the value of its technology..

That would deal a significant blow to Tessera, which is trying to promote the "Sun Catcher" technology owned by sister company Stirling Energy Systems.

Two sources with knowledge of the twin projects, which together will cost more than $4 billion to build, say potential buyers are inquiring about buying the project land and accompanying approvals and licenses, but then replacing Tessera's technology with their own, preferred solar systems.

If Tessera concedes, it would throw into question the future of a company that has been working to prove the fledgling Sun Catcher technology works on a massive scale.

Without the California projects, "where are you going to build on a scale to make (the technology) worthwhile?" said John Cheney, chief executive of small-scale developer Silverado Power.

At Tessera, "We are aware that there is speculation in the market," said spokeswoman Janette Coates. "We have no comment on the speculation." She says the company is seeking equity and that the plants are construction-ready.

Conceivably, Tessera still could find a partner interested in supporting its technology. Or it could sell all or part of one plant, allowing it to devote more resources to the second.

Tessera's projects, a 664-megawatt plant east of Barstow and a 709-megawatt plant just north of the border with Mexico, have made it through the years-long permitting process, and have contracts with utilities to purchase the plants' output.

The company just doesn't have the cash to build the plants. This month, parent company and Irish infrastructure group NTR told investors it had written down the value of its solar development business by 96 million euros ($127 million).

In Tessera's system, dishes known as Sun Catchers concentrate sunlight onto a heat exchanger that produces pressured gas, powering an electricity-generating engine.

Other solar companies are looking at the sites as an opportunity to piggyback on the existing permits and change the technology to something they are familiar with, such as traditional photovoltaic solar panels, analysts and other people familiar with the situation say.

"The most likely buyers are photovoltaic companies or other solar-thermal developers," said Christine Hersey, an analyst at Wedbush. "And the reason to buy is to use your own technology."

JUMPING THROUGH HOOPS

Asian companies are actively looking for markets for their solar panels and could partner with a developer to build a photovoltaic plant on a Tessera site, analysts say.

That has been a tried-and-true tactic for U.S. solar-panel makers like First Solar Inc, which has bought developers ranging from OptiSolar to NextLight, and SunPower, which this year bought European plant builder SunRay.

First Solar is reported to be negotiating with Tessera over one of its two California plants. A First Solar spokesman declined comment, while Tessera's Coates said the company would not address or comment on all of the speculation.

Whatever buyer eventually turns up, it might have to jump through more regulatory and contractual hoops.

A buyer would likely have to re-permit the project for a significant change in technology. But the prevailing belief is the process would likely be easier since officials have already signed off on a solar plant for each site.

It is also unclear if a buyer would have to renegotiate the agreements Tessera struck with utilities to sell them electricity, which would likely result in lower prices for the power and slimmer margins.

At Sempra Energy unit San Diego Gas & Electric, changing a contracted solar technology generally requires an amendment to the contract and regulatory approval, spokesman Art Larson said. He did not know how such a change would affect pricing.

At Southern California Edison, "any requests for technology changes in SCE's unit-specific power contracts are carefully considered," said spokeswoman Vanessa McGrady.

In addition, any buyer for the Imperial Valley plant would have to resolve a conflict with the Quechan Indian tribe, on whose ancestral lands the plant would sit.

Last week, a federal judge in San Diego issued an injunction halting work on the Imperial Valley plant, ruling the government had not adequately consulted with the tribe.

It's hard to say what Tessera's two projects would be worth. Last year, First Solar paid $400 million for OptiSolar's pipeline, which included a 550-megawatt plant under a power purchase agreement, plus a group of plants without power purchase agreements totaling 1,300 megawatts, and land rights to 136,000 acres.

This year, Sharp Corp paid $305 million for Recurrent Energy, which had a contracted pipeline of 330 megawatts.

(Additional reporting by Matt Daily; Editing by Steve Orlofsky)