Ramping Up Distributed Solar

Drew Tobin

Drew Torbin, Prologis’ vice president of renewable energy, is working on a 733-mega-watt project that will be comprised of hundreds of industrial rooftop arrays in 28 states.

By MIKE KOSHMRL

At 733 megawatts (MW), Project Amp fundamentally departs from conventional commercial-scale distributed solar. For one, arrays under its umbrella will be found on some 750 warehouse rooftops in 28 different states. Looking back years from now, its organizers — Bank of America Merrill Lynch (financer), Prologis (system host and project owner) and NRG Energy (lead investor) — might be able to boast the industry’s first true example of distributed, utility-scale solar.

“We feel that Project Amp is transforming the solar industry,” said Jonathan Plowe, Bank of America’s managing director. “And not just a narrow corner of it, but really the whole industry. It’s revolutionizing how solar can be financed and rolled out.”

Indeed, Project Amp’s outliers go beyond the immense scale and multistate rollout. Plowe says it’s the first distributed solar project to sell all of its power back to the grid, altogether forgoing net metering. It’s also the first project to raise long-term, fixed-cost debt financing, a powerful tool for keeping costs competitive. Adding to the list, Project Amp marks the first solar project that will receive a credit rating from an outside credit agency — a salability booster for future transactions in the capital markets. Finally, there are some innovative aspects of the financing structure. It is, for example, the first distributed-generation project to receive backing — $1.4 billion — from the U.S. Department of Energy’s (DOE) Loan Guarantees Office.

Forging a Framework

In 2009, Bank of America developed a proof-of-concept business model for what would become Project Amp. The framework was aimed at building wholesale rooftop solar up to the utility scale, and it fit in nicely with a larger 10-year, $20 billion environmental business initiative that Bank of America launched in 2007. Plowe approached “literally dozens” of renewable energy businesses, before settling on Prologis in 2010. Looking back, it was an obvious partnership.

The San Francisco-based real estate giant had already made a good splash in solar, with 60 MW of PV online or under development. Drew Torbin, Prologis’ vice president of renewable energy, saw that as a starting point. Torbin, a graduate of National Renewable Energy Laboratory’s “energy executive” program, had some 400 million square feet (37 million square meters) of domestic rooftop in his pocket. Typically, Prologis holdings are large distribution centers or warehouses, clustered in business parks near population centers. “These buildings are phenomenal places [for solar],” Torbin said. “In fact, I can’t image a better place to host a solar array — they’ve got large, flat, unobstructed roofs.”

Jonathan Plowe Omer Farooq

Bank of America’s managing director, Jonathan Plowe, at left, helped to develop a proof-of-concept business model for Project Amp in 2009. Two years later, he can boast a central role in the world’s largest distributed solar project. At right is Omer Farooq, Bank of America’s vice president of New energy & Infrastructure Solutions. Photo: Bank of America Merrill Lynch

Before Project Amp, Torbin faced a number of finance-related challenges. For a 2008 multisite project in Southern California, Prologis leased space to Southern California Edison, which assumed system ownership.

For other Prologis solar developments, integrator businesses handled financing. “The one piece that we didn’t have in place was an efficient vehicle for financing,” Torbin said. “No matter what the source was, it was always specific to a location and a project and an incentive mechanism.” That approach would not suffice for a nationwide rollout: Prologis has holdings in 28 different states and Washington, D.C., and would potentially have to negotiate with an even higher number of utilities.

When Prologis and Bank of America began conversations, the larger vision was still distant. Under negotiation was a collection of PV arrays totaling 15.4 MW, all in Southern California Edison’s service territory. “Initially, we intended for it to be a stand-alone project,” Plowe said. “But we quickly realized that we had created an opportunity to do this on a much larger scale.” In the following months, Prologis struck a power purchasing agreement and Bank of America brought on NRG Solar as an investor. In a unique format, electricity from the arrays would bypass the host buildings, direct-feeding into the grid. That allowed Prologis to forgo net metering, which didn’t make sense for a number of reasons. Distribution centers are usually non-conditioned and have inherently low electrical draws. Also, Prologis tenants sign limited three-to-five year leases and often share buildings. “We looked at the experience we had in Europe with feed-in tariffs and saw that those were the types of [direct-grid-feeding] programs that allowed us to scale up,” Torbin said. “That’s what really makes a project like Amp possible.”

Rolling out the Program

For almost a year, the entire project was kept under wraps. Project Amp broke into the news just this June, alongside the DOE’s announcement of its $1.4 billion loan guarantee. The conditional commitment backed 54 percent of the investment — critical for Bank of America. “The DOE is providing important support,” Plowe said. “It’s acting like an incubator in what amounts to a public-private partnership at a crucial point in the development of the market.”

In early reports, the details of Project Amp were hazy. What became clear was that NRG was committing to fund Amp’s 85-MW first phase.

The Fortune 500 power-generation provider would also bank on its considerable experience in utility-scale solar, offering Prologis development resources and project expertise. The first phase will kick off by the end of September, with the 15-MW proof-of-concept installation in Southern California. The balance of the 70 MW will be developed into 2012, said Richard Grosdidier, NRG Solar’s vice president of finance. The remaining NRG projects will not be geographically limited to the Southwest. “We will be bidding into RFPs [request for proposals] across the United States to fill out the remainder,” Grosdidier said.

After 18 months, NRG will have the right of first offer for the remainder of Project Amp, up to the program total of 733 MW. That total, though, is tentative. The cumulative capacity of Project Amp is malleable, being partially contingent upon installed costs. “We will be building as much as we can during the four-year rollout,” Plowe said. “If pricing comes down and other variables are favorable, it could be more than the 733 MW.”

Prologis

With Project Amp, Prologis, the world’s leading provider of distribution warehouses, is making a strong move into solar. By 2015, 1 in every 3 square feet of Prologis’ 400 million square feet of u.S. property holdings should have photovoltaic solar up top. Photo: Prologis

Prologis has identified all of the sites that will receive solar, but which buildings will have panels installed and when will be determined as the program unrolls over its four-year lifespan. Timing of the announcements will be determined by geography and power purchase agreements. Prologis will make technology decisions, for module and balance-of-systems manufacturer and make, case by case. “[The technology] will absolutely vary,” Torbin said. “We’re going to be choosing the lowest-cost, best-fit technology for each project. That’s going to depend on location, the characteristics of the building and the incentive mechanism that’s driving it.”

Come late 2015, regardless of what happens where, and with whom, nearly 1 in every 3 square feet of Prologis holdings should have PV up top. That will be a boon not only to the projects’ partners, but the solar industry as a whole. In 2010, commercial installations accounted for 39 percent of new U.S. grid-connected PV capacity, equivalent to about 350 MW. Averaged over four years, Project Amp will contribute half that amount annually. In Plowe’s eyes, Amp will in effect act as a cost-reduction agent, by generating volume throughout the entire PV delivery chain. By executing all its “firsts” on such a tremendous scale, Amp also figures to pioneer a blueprint for future distributed, utility-scale developments.

Getting to where Prologis and Bank of America are today was not without its hardship. “I’ve dodged robots in the manufacturing plants and sweated climbs up 40-foot steel ladders into blinding sun on Prologis rooftops,” Plowe joked, as he assessed his role in the career-defining venture. “Helping to drive this project has been an intense challenge, but it’s been deeply rewarding.

“At the end of the day, we’re going to be creating thousands of jobs and a new source of clean renewable energy on 3,000 acres of otherwise idle rooftops,” he added. “It’s hard for me to see how something could be better than that.”

 

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