GE unit buys stake in Arizona solar project

NEW YORK Wed Feb 29, 2012 2:10pm EST

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NEW YORK (Reuters) - GE Energy Financial Services, part of General Electric (GE.N), said on Wednesday it bought a stake in a large U.S. solar power project for $100 million, bringing its investments in the sector to $1.4 billion in the last year.

The deal was the latest big solar purchase by companies eager to own utility-scale plants that have benefited from government targets for renewable energy and a now-expired federal grant program that pays a portion of a project's costs.

GE EFS has so far invested in a gigawatt of solar projects in the United States, Australia, Spain, Canada and Italy, and is likely to sign a deal in India in the next few months, Chief Executive Alex Urquhart said in an interview.

The new U.S. investment will give GE EFS a stake in the 127-megawatt Arlington Valley Solar Energy II plant being developed in Arizona by LS Power, and more than doubles GE EFS's investments in solar from the previous year.

"This year we made a conscious decision to try to grow our solar investment," Urquhart said. "We've been successful, in fact more successful than we thought."

The company declined to give details how large its ownership stake in the plant would be, or expected return on investment.

Investors have been attracted to large solar plants like Arlington Valley because they receive a steady, predictable income stream from electricity sales and have very low operational costs, unlike fossil-fuel plants, which must purchase coal or natural gas.

GE EFS joined with utility company Exelon Corp (EXC.N) in a deal announced last year to buy First Solar's (FSLR.O) 550-megawatt Desert Sunlight plant in California, which is expected to cost about $2 billion to build.

Several large-scale U.S. solar power plants have attracted big investors, including Warren Buffett's MidAmerican Energy Holdings (BRKa.N), NextEra Energy (NEE.N) and NRG Energy (NRG.N).

GE EFS targets investments in both renewable and conventional energy around the globe, and last October bought about $1 billion in energy project debt from the Bank of Ireland.

Its move to develop solar in India would make it one of the early investors in the country, which is expected to grow into one of the world's largest solar markets in the coming years.

"I think there's a lot of opportunity for solar in India. It's early days, and clearly there will be ups and downs, but we're very interested and we're making our first investment in the space," Urquhart said.

GE EFS also has a team looking at financing residential and commercial solar rooftop installations.

A glut of solar panels helped drive prices down by 50 percent for the equipment, which turns sunlight into electricity last year.

That decline, plus lower "balance of system" costs to build solar installations, is helping solar narrow the cost advantage that fossil plants and wind power currently have.

The LS project will be eligible for a U.S. cash grant program that will cover about 30 percent of its $550 million construction cost.

That grant program expired at the end of December, and reverted to a tax credit for projects that were not started by the end of the year.

Solar power plant developers typically sell those tax credits in the "tax equity" market to financial groups or other companies that use them to reduce their tax exposure.

In addition to GE EFS' energy stake, the LS Energy project received $466 million in short- and long-term debt financing from Prudential Capital Group, part of Prudential Financial, Banco Santander and other institutional finance groups.

The plant, which will be built in Maricopa County, Arizona by Fluor Corp (FLR.N), will sell its power output starting next year to Sempra Energy's (SRE.N) San Diego Gas and Electric, which is required by California to meet 33 percent of its demand with renewable power.

(Reporting By Matt Daily; Editing by Derek Caney and Steve Orlofsky)

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